Succession Planning in Private Equity

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While the focus in private equity is on building immediate value for exit, leaders must consider the company’s development after it’s been sold. Investors will want a growth story and succession is integral to that. A solid talent management plan proves the business has the depth and breadth of skills to support it for the long term.

recent poll by Criticaleye found that while ninety per cent of respondents believed that succession planning built a company’s valuation on exit, none were satisfied with their existing framework for succession.

“It can be uncomfortable to have conversations regarding your successor at the best of times, not least in private equity when other business challenges can seem more immediate. Yet succession is a vital part of building value in the business,” says Matthew Blagg, CEO of Criticaleye.

We asked a range of business leaders within private equity to share their thoughts and experiences on succession planning. Here’s what they had to say:

Understand What Makes a Good Succession Plan in PE

Paul Brennan is Chairman of private equity backed cloud software provider, OnApp.

A succession plan is not only good for the business but for its potential buyer – it’s the insurance that underpins the value of the existing team. If an acquirer comes into a business without a succession plan, it’s really only buying the IP.

Some private equity-backed businesses neglect succession because they just don’t see the importance when they are looking to get out in three or four years. Other PE houses focus on it as a way of replacing the CEO, which isn’t succession planning, it’s replacement planning – there is a fine line at times. A good succession plan is one that the person who will leave buys into.

If you have a strong number two in place because they are a co-founder, that is not succession planning. Good planning brings the whole company upstream.

If it’s handled in a way that’s best for the business then succession shouldn’t be contentious. While the decisions should be made by the CEO and board, an experienced HR Director − which you may only get in a larger business − is critical in understanding the nuances and processes.

For example, people may question what will happen to them when they leave – will they lose their stock or options? Having a HRD who can explain remuneration avoids having conversations about packages on the fly, which is not what you want to do.

Decide Whether Succession is Right for Your Business 

Graham Maundrell is HR Director at The Vita Group, which is backed by private equity firm, TPG.

While I was an advocate of succession in my previous roles as HRD at De La Rue and Diageo, I think succession planning can be less relevant in PE, depending on the anticipated holding period.

I started off with a classic succession planning model at Vita but it wasn’t appropriate for us as it didn’t add anything. One of the things with PE is that if it’s not adding value, you shouldn’t waste your time. What was important was developing capabilities, and the way we did that was by getting the right calibre of people at the top of the business.

We’ve retained a lot of our managers so there hasn’t been a lot of churn but, where managers have left, we’ve been able to do a lot of internal promotion [because of] the development we’ve done [with] our people.

Potential buyers always want to go out to sites and hear managers talk about the business. If they get the sense that management knows what they’re talking about, I think that gives buyers much more confidence than if they’re given a colourful presentation on succession. After all, numbers are audited but who audits succession planning? No one really.

Use Succession to Build Value for the Exit

Debbie Hewitt is Chairman at Moss Bros Group and the private equity owned Evander Group.

When you come to exit a PE-backed business, the value of being able to show you have a very credible team but also that there is some succession within that team – is significant. If you have no demonstrable succession plan for critical roles, many potential buyers are likely to see that as a risk to the long-term sustainability of performance across the business. Having succession options is a critical part of building value.

What I’ve often found is that succession planning becomes part of the exit plan but if you wait until six months before the exit, you won’t have a plan. Assess the team early on in your ownership of the business, be clear about the critical roles, understand how you might build the cadre of talent and then implement that.

It’s really important to understand the vital roles in the exit story, and the strength and depth of your team in those roles. For example, is the digital expertise concentrated in just one person, or across a team?

I don’t see succession in private equity businesses as any different from succession in other ownership structures. Arguably, the value from good succession planning in private equity-owned businesses can be more tangible.

Prepare for Your Departure 

Stuart Coventry is Partner at Jamieson, an advisory firm that supports PE firms in succession.

In private equity you have a combination of new owners, liquidity and management time horizons to deal with. Those three things together mean you have to manage succession more vocally than if you had a business that was not changing hands.

If you think about a typical four-year PE hold, you’d need to have succession in place about mid-way through, which is when most people only just start to think about it.

Leaders must prepare for their own departure and that means succession planning.  We sometimes get asked “Do I always have to roll?” I tell them that if they haven’t prepared anyone to replace them they’ll be too important to the deal to leave, which is why they end up rolling again.

Succession is not a dirty word, actually it’s part of ordinary business process and if you do it in an orderly way there is no issue with it. Investors will want that conversation to be had. While it can be a difficult conversation for management to raise, it’s healthy on both sides.

Don’t Stop at the C-Suite

Shaun Middleton is Managing Partner at Dunedin, a UK mid-market PE firm.

Many of the businesses we buy have been run on a shoestring so don’t have a broad enough base for succession. In those cases owners don’t invest in quality people because they are focused on the short term. Investment into building the right team, and one that can progress, will have an immediate hit on your bottom line but pays off in the longer term when you’re growing.

We continually look at succession and that’s not just regarding the leader, it’s about the entire business. If you look at it in that way, CEO succession happens naturally.

The biggest issues we face are when someone leaves a business and you don’t have the tiers below to step up. Having someone internally is far easier than recruiting from outside.

When it comes to exiting, if you have a strong management structure with good people below, it makes the sale easier. If you’re selling a business that relies on one or two leaders, people aren’t going to pay as much for it.

The better the management team, the more willing they will be to put succession plans in place. Some don’t want the threat they perceive a good succession plan may pose. There are myriad reasons why people might be nervous about it, but you need to deal with the human element and persuade people about the value of succession.

Do you have a view on succession in private equity that you would like to share? If so, please email maryanne@criticaleye.com

Read more on succession for the CEO and wider company.

Plus, join the discussion during our Global Conference Call on Succession Planning for the C-Suite

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The Purpose-Driven Organisation

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There’s no shortage of tech companies in Silicon Valley that state their goal is to change the world. Some want to bring people together by creating global communities, revolutionise healthcare or, in the case of Elon Musk, establish a colony on Mars.

Businesses need a big idea – something to galvanise people, get them excited and allow them to dream. But it can be difficult to identify those ideas and how they relate to the regular, daily reality of the workplace.

Yetunde Hofmann, Non-executive Director at the Chartered Institute of Personnel and Development (CIPD), says that leaders need a razor sharp focus when it comes to purpose. “The blueprint has to start from the top and then you need a thorough sense-check and enrolment programme,” she says.

“This can be done through one-to-one sessions, small groups, feedback, video interviews and conversations – there have to be multiple touchpoints. Instant feedback will be important so [staff] know it’s up-to-date. For it to last and be part of the fabric of the business, you must invest time and energy into it.”

There has to be a personal connection, something that goes beyond edicts issued by the board and channeled through marketing. Colin Hatfield, Founder of Visible Leaders, says: “The danger is that we end up in a land of what I would call ‘purpose-wash’, where we have a lot of good intentions and interesting ideas, but do they show up in the workplace? No.”

While direction and buy-in from the top team are vital, so too is the involvement of various stakeholders. “We’ve seen this in the past as a very top-down process. We’ve got the purpose and now we’re going to cascade it through the organisation. I think that is over and a sure-fire way to drive disengagement,” Colin continues. “Instead, find ways to give people a voice, harness the views and really involve them.”

It’s especially important to involve middle management, Colin notes. “This is where it starts to get really exciting,” he says. “They feel valued because they are part of the solution, and they start to have good and engaging conversations with their people.

“It is critical to get them on side; find a way to make their role meaningful and have [middle management] perform the engagement themselves, rather than it cascading from on high.”

Cause and effect 

Romana Abdin, CEO of diversified healthcare company Simplyhealth, explains that a lot of time and effort has been spent on ensuring its core focus is clear. “Health is one of the world’s greatest challenges,” she says. “We are the people with a purpose. We’re the company that for the last 144 years has been helping people fund and access everyday healthcare. Our ambition is to help people lead the lives that they want, without limit.”

Perhaps one of the best known examples of organisational purpose is Unilever. Stephen Pain, the company’s Vice President for Sustainable Business and Communications, says: “It’s essential that in this turbulent world there is a constant, which guides the behaviours in the organisation and what it is striving for.

“We’ve got a very clear ambition to decouple growth from our environmental footprint while increasing our positive social impact.”

Unless the effects are monitored and measured, it’s easy for this to be a naval-gazing, box-ticking exercise. “Go out there and look at the impact of the purpose when it is executed well,” comments Andrew Minton, Managing Director at Criticaleye. “What good things are happening that you can be proud of as a result of the company doing a great job?”

Do you have a view on purpose? Why not share your thoughts with Dawn at dawn@criticaleye.com 

Read more on Creating Passion and Purpose

Or find out how to investigate corporate culture with Kevin Hills from EY here

Follow Criticaleye on LinkedIn 

Sustainability and the Walking Dead

Talk of embedding sustainability into business strategy is all well and good, but executing on that is an altogether harder proposition. The corporates that lead the way adopt a longer-term approach to doing business, discussing issues such as human rights, the environment, labour and anti-corruption when making decisions. As a result, sustainable thinking is ingrained in the plans, policies and procedures of the organisation.

The United Nations (UN) Global Compact, the world’s largest voluntary sustainability initiative for corporates, has made a difference. Part of the success is because it’s based on concepts that businesses are familiar with, such as due diligence and risk management, but they’re applied in the context of human rights. Despite its achievements, a large number of companies still have a long way to go.

At the last UN Global Compact Leaders Summit, the majority of the executives attending recognised that sustainability was important for the future of their businesses. However, according to Chip Pitts, Criticaleye Thought Leader, Lecturer in Law at Stanford Law School and Professorial Lecturer at Oxford University, they need to take their initiatives to the next level.

He says: “Some companies, mistakenly in my opinion, think they’re doing everything they can, but a lot of the time they haven’t really. What they’re doing is often not completely in accord with the current human rights norms, or environmental sustainability norms. The key to getting sustainability right is really getting the commitment from the top and at all levels of the company, then focusing on the tough work of truly integrating and embedding it at every level.”

A common problem is a failure to align different parts of a business. For instance, the CSR department won’t have contact with procurement, and different incentive structures can encourage conflicting behaviour. For Chip, it’s all about execution and unless the thinking around sustainability is joined-up, the impact a company can make will always be limited.

“There’s a difference between the formal policy, the stated commitment and the ability to implement effectively on the ground where it counts, where it affects people’s lives and the environment,” he says. “Often, there’s a real failure in the implementation, but the companies that are doing it well are starting to align these concepts.”

Peter Lacy, Managing Director of Strategy Practice & Sustainability Services for Asia Pac at Accenture, says: “Sustainability should be managed not as a standalone, isolated corporate responsibility, but as an integral part of business strategy. It is a chance to manage reputation and grow revenue, while understanding risk more effectively.”

It’s a case of companies beginning to integrate sustainability into their products and service mix, in terms of R&D, marketing and branding. “Businesses such as Vodafone and Unilever are also putting pressure on their supply chains to drive significant environmental gains and efficiencies in their operations,” he says.

Lean and green

The idea of a business being able to do more with less has gained real traction in the boardroom. Sandy Stash, Group VP for Safety, Sustainability and External Affairs at Tullow Oil, says: “At the heart of sustainability is efficiency. An efficient business is a sustainable business.”

When it comes to best practice, Sandy says that companies from different industries can benchmark ideas: “We’ve learned a lot from the airline industry. You’d think there’d be no similarities between running oil platforms and onshore oil facilities and airplanes, and yet in the psychology and practice of running a safe and sustainable operation, there’s a lot our industry can take on board.”

The main barriers to sustainable thinking within corporates often come from basic misconceptions and short-termism at board level. Kevin Craven, Chief Executive Officer of UK Central Government at Serco Group, an international outsourcing company, says: “Sustainability is not about tree hugging but rather good business sense where everyone can benefit. Both clients and employees are really looking hard at businesses which genuinely integrate sustainable practices into their working ways – you cannot fake this by greenwashing your polices…

“Your planning horizons cannot be about the one-year or even the three-year cycle – they need to be longer so that the impact of your business on a community or the environment can be considered. Planning, rather than reacting, is always more economical.”

Gareth Llewellyn, Executive Director of Safety and Sustainable Development at Network Rail, says: “Being part of a sustainable business is about making money. From a commercial perspective you have to be profitable, otherwise you’ll go out of business and that can have quite a big economic and social impact on those who work for you.

“You also need to make sure that whatever product you use or manufacture doesn’t have a major or persistent environmental impact, because if it does you’ll be regulated out of existence whether you like or not. The other piece to this is the social impact: if society believes that you’re delivering your business in an unethical manner, Enron perhaps being a good example here, you will be forced out of business.”

Ultimately, for sustainability to be taken seriously, senior executives have to demonstrate how it will help deliver overall business targets. Andrew McCallum, former Director of Corporate Affairs and Business Support for Dana Petroleum, comments: “From a risk perspective, companies need to identify the social, environmental and economic considerations that might impact the successful delivery of the business strategy.

“There’s definitely a role for businesses to be involved in the communities where they operate. Helping to tackle relevant social and environmental issues should benefit the company and the community.”

If a sustainable approach is going to be more than an adjunct of the organisation, it needs to be driven from the top. After all, there is little point in discussing long-term intentions for society and the environment when the culture of a business is very much about hitting short-term targets. “Businesses need to execute on integrated leadership,” says Chip. “That means sustainability is embedded horizontally and vertically throughout the extended enterprise.

“Everyone needs to understand that it’s the ways things are done… The companies that don’t get this are truly the walking dead, they just don’t realise it yet.”

You have been warned…

I hope to see you soon.

Matthew

www.twitter.com/criticaleyeuk

The Sustainable Business

Clarity and consensus in the boardroom are the defining factors for success when creating a sustainability agenda. Rather than broad brush initiatives around social and environmental responsibility, it’s about identifying exactly where your business can make a difference, then driving that change.

Richard Gillies, Director of Plan A, CSR & Sustainable Business at Marks & Spencer, says: “Sustainability is now a business imperative… With changes in world population, the numbers of consumers and availability of raw materials, businesses in the next decade have to change their models rapidly in order to continue to be viable and competitive.”

The debate has moved beyond the validity of sustainability to the important question of how to approach it in a way that is realistic and relevant for an individual business. Peggy Liu, a Criticaleye Thought Leader and Chairperson of JUCCCE (a US-Chinese non-profit aiming to ‘green’ China) says: “One of the big issues, whether you are talking about the business, the government or consumers as an audience, is that… most whitepapers about the state of the world… don’t take it down to handbook-style guidance – they’re not realistic or feasible things that people in business or government can rally around.”

For Vincent Neate, UK Head of Climate Change and Sustainability at KPMG, there are two major operational concerns for businesses: “The first is resource scarcity, whether that’s water or other natural resources or energy. The second is the issue of visibility and control over what happens in your supply chain, because you will be seen as responsible for it.”

If the right impact is to be made, it has to come from the top. “Leadership is critical – it takes long-term commitment to find solutions that drive corporate growth in an increasingly eco-conscious global marketplace,” comments Niall Trafford, Chief Operating Officer at BRE, a certification and testing consultancy for the built environment. “Businesses that have strong leadership on sustainability can experience increased brand recognition, enjoy greater customer confidence, and witness surging profits.”

Richard says: “The metrics for [Marks and Spencer] were about environmental and social footprints… climate, waste, raw materials, people and health… We declared a five-year plan with publicly stated commitments and have systematically gone through the processes, systems and reward structures to ensure it has become part of how we do business, rather than another job on the side.”

It appears to be working, as can be seen by Marks & Spencer recently announcing that it’s the first large retailer in the UK to go carbon neutral. Richard says: “For us, tackling efficiency and waste drives immediate financial return… [and has] delivered us over £100 million in benefits this year alone… This is probably the most effective change programme I’ve been involved in… Five years on, it is a genuine part of how we do business and not just a corporate initiative or project.”

Group effort

The buy-in for sustainability has to cut right across the organisation. Paul Budge, UK & Ireland Managing Director at consumables distributor Bunzl, says: “You get a better quality of approach when it is done in a hearts and minds, decentralised way, although you don’t get the same speed… We went down the conscience route.”

Changes in behaviour need to be embedded, which naturally takes time. Nick Fell, SVP Corporate Services and General Counsel for BW Shipping, says: “Change comes down to the specific superintendents who are in charge of the ships… unless they can see the benefits of adopting these technologies, it becomes much more challenging… [and] you have to run a lot of pilot projects to prove that the technology really does work.”

Naomi Wells, Head of Future Planning and Sustainable Development at Waitrose, says: “[Sustainability] is a change programme but it is an ongoing process… at a senior level, we use lots of metrics and KPIs, but once you’re disseminating them, you are trying to focus on action rather than metrics.”

In these volatile times, there is a risk that executives may put questions of sustainability in the ‘for later’ drawer as they concentrate on ‘the business’. The latest announcement that all FTSE 100 companies will need to publish records of their greenhouse gas emissions shows that the pressure from stakeholders will only intensify — businesses and leadership teams are going to be judged very publicly on their actions.

“It is key that in our age of austerity and challenging market conditions we don’t drop the ball on sustainability – it will drive the innovation that is vital to organisational survival in a time of unprecedented change,” says Niall. “New business models are emerging in the global marketplace where community development, sustainable sourcing, and ethical environmental practices are just as important as bottom-line profitability.”

The problem for leadership teams is to choose how to tackle it. “These days, you’re not trying to convince people that it’s necessary… [But,] ultimately, we’re all charged with running a business, so there is a balance between a noble cause and what’s worthwhile,” says Paul.

Naomi says: “Organisations that are choosing not to adopt a sustainable approach are the ones that are being left behind… Lots of organisations now see that they can be sustainable and have a better business and it doesn’t have to cost more. Now, everyone is just thinking: ‘We can accelerate the pace.’”

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

Unlocking the Potential of Clean Technologies

With the wheels of the Sustainability Revolution now in motion, the next decade will represent a disaggregation of carbon in the value chain. This drive for low carbon growth is reshaping the rules of supply, demand and regulation. While some businesses have been quick to innovate, mistrust, delusion and disengagement still exist. As sustainability becomes increasingly ingrained in the business agenda, leaders must consider who has the innovation and competitive advantage.

Criticaleye, in association with Accenture, produced three films exploring sustainability in terms of regulation, consumers and technology. The purpose of these films was to help business leaders to prepare their organisation for the impact of sustainability regulation, how they can achieve competitive advantage through sustainable practices and how they can unlock the potential of clean technologies.

Led by Accenture’s Peter Lacy, each film offers extensive commentary from a panel of experts. This Update draws specifically on the views of Peter Lacy, Patrick Thomas, Richard Gillies, Gareth Llewellyn, Christine Farnish and Bill Eyres. The films can be found on the Criticaleye TV page.

The following offers a selection of questions and answers from the films:

How should leaders approach sustainability issues in terms of regulation and reporting?

Gareth Llewellyn, Non Executive Director of the Renewable Fuels Agency (formerly Head of Safety and Sustainability and Anglo Amercan plc), says: “I think there’s a real danger of putting too much information in the public domain that will never help you manage your business or improve the way in which you run it. I don’t think more demands for compliance-driven sustainability reporting is the right way to go. Shareholders and wider stakeholders want to know that you are running your business properly, not just giving them information for the sake of it.”

Christine Farnish, Public Policy Director at Barclays, says: “Does making formal demands on companies to report, whereby you get reams and reams of impenetrable data and teams of lawyers pouring over disclaimers, make the world a better place? Surely a better approach is to have continual pressure on businesses to be accountable for and transparent about their practices, looking more carefully at how they operate, especially those difficult, crunch decisions, where they have to make judgements on whom not to do business with. It’s about saying no to certain things that are perfectly within the law, but where the company ethics, culture or desire to protect their reputation says, we don’t won’t to go there, these are the reasons why and we’re going to form a company policy on it. It’s about being more willing to disclose that type of approach. I think that’s the way we’re going and I think that might deliver better outcomes.”

Q&A from the Films

  • How do we ‘do the right thing’ rather than merely ‘do things right?’
  • Will we see a U-turn on how sustainability issues are audited and reported?
  • Is regulation seen as an opportunity for government/regulators to make money?
  • How does a company create a sustainable development strategy that works globally?
  • Is the definition of sustainability in danger of becoming too general?

What are the challenges in trying to engender trust on a business’s sustainability practices?

Tabitha Aldrich-Smith, Communications Director at Whitbread Group, says: “There’s a tremendous engagement and communication challenge in getting ‘going green’ to be seen as a value proposition – particularly in a budget sector such as ours. But we managed to get a commitment from the business, despite being at the height of the recession, because Alan Parker, then our CEO, believed in it, and saw it as a real competitive advantage – to take the lead in the industry. The results of our employee survey helped to galvanise our internal strategy, which included getting the buy-in of senior management, customers and shareholders to define seven pillars for sustainable business practice. We’re still only on the start of that journey, but we recognise at least the need to ingrain sustainability in our business strategy.”

Richard Gillies, Director of Plan A at M&S, says: “When you look at what our society is faced with, more than nine billion people by 2050 and, more immediately, peak oil by 2013, something will need to change fundamentally in society. Today’s ‘frustrated consumer’ is offered only the labels of sustainability from the last century. All the current products are sold at a premium, which is unsustainable as soon as you hit a downturn. The challenge is to create sustainable products in the marketplace. The opportunities here are boundless because everything we currently buy will need to change. There’s the opportunity to offer new products to the market and demand products of the market without that premium.”

Bill Eyres, Head of Corporate Responsibility, Environment and Sustainability, O2 UK, says: “Marketing has a critical role to play in effectively communicating sustainability to the consumer. Yes, there is a degree of complexity to translate, but campaigns such as Ariel’s ‘Turn to 30 degrees’ and M&S’s ‘Plan A’ have overcome some of the obstacles. Going forward, I think NGOs such as Forum for the Future could play a powerful role, to take a step back and consider, as a business sector, if there’s a more effective way to address consumer communications; is there a way in which we can bring a unified approach with more simplicity? If consumers understand what we are trying to do, that’s a very powerful message.”

Q&A from the Films

  • Is a fundamental shift in paradigm needed to achieve truly sustainable business?
  • Can sustainability be simplified to increase understanding and reduce consumer mistrust?
  • Which companies do you feel are leading the field in sustainable business practice?
  • Which organisations need to collaborate to address the sustainable challenge?
  • How can businesses capitalise on the new opportunities created by low carbon technologies?

Phil Smith, Vice President & Chief Executive, UK & Ireland, at Cisco Systems, says: “Collaboration technologies are already reducing the need for business travel, saving organisations millions of pounds a year and significantly lowering carbon footprints. However, the investment that these technologies require can often be a barrier to adoption. Our recent survey revealed that only a third of business people thought that their organisation would be likely to invest some of its technology budget in innovative carbon-reducing technologies. And you can’t rely on technology alone. It’s also vital to change employee behaviour. At Cisco, we have established an eco-board devoted exclusively to environmental issues and we work hard to champion sustainable working practices. By encouraging employees to meet over our TelePresence and web-based collaboration technologies, for example, rather than travelling, we managed to halve our travel budget and, globally, we have saved 409, 987 metric tonnes of carbon to date [2010].”

Patrick Thomas, Chairman & CEO, Bayer MaterialScience AG, says: “We still need incentives to change. Indeed, many industries have the means to develop efficiencies, but are simply not encouraged to make use of it. Take the chlorine industry. Bayer’s ‘ODC technology’ would mean 30 per cent less electricity is used in the production of chlorine which, for example, accounts for 4 per cent of total German electricity consumption. We know we can produce chlorine more efficiently, but there are no incentives to do this in the West. By contrast, the Chinese are the fastest growing in this area. Bluestar, a Chinese/US private equity-backed joint venture, is building a pilot unit using the new technology. It fits with their values. They always ask ‘What’s that in terms of coal consumption?’ From Bayer’s perspective, our operation in Caojing, China, is now our largest manufacturing site in the world and the most energy efficient. It is a benchmark for all our facilities globally.”

Peter Lacy, Managing Director, Sustainability Services, Europe, Africa and Latin America at Accenture, says: “If you look at emerging markets in 10 years – particularly in China, Korea and Brazil – I see real innovation being created at scale. They are not locked in to the same heritage infrastructure as in the West, but sustainability is also perceived as a step shift to create competitive advantage. China is positioning itself for global leadership in the transition to a sustainable, low-carbon global economy. The pace and scale of investment are staggering as it becomes the ‘clean tech laboratory’ of the world. In effect, China is taking a big handful of clean technology spaghetti and throwing it against the wall to see what sticks.”

Q&A from the Films

  • Is there a danger that efficiency simply drives higher consumption?
  • Are bio-fuels part of a sustainable energy solution?
  • How do companies engage with a public that is sceptical on issues of sustainability?
  • How can we present information on sustainability that consumers deem reliable?

To succeed along the sustainable path, businesses must understand how sustainability forces will impact their markets and view it not as a functional challenge, but as a way of thinking about business operations and strategy. The biggest challenge for CEOs is to translate the strategy to execution across their business.

Please get in touch if you have any comments about the issues raised here.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk

 

Sustainability vs. Economic Growth

Late last month US President Barack Obama announced a plan to begin offshore drilling, putting natural gas and oil platforms in the waters along the southern Atlantic, the eastern Gulf of Mexico and Alaska. He cites the need for short-term economic growth for agreeing to the plans.

The plan has outraged environmentalists and baffled many due to Obama’s previous commitment to sustainability.

Are organisations taking their lead from Obama, has the need for short-term economic growth overshadowed the need for a comprehensive sustainability agenda?

A couple of years ago sustainability was the corporate buzzword, leaders were examining their strategies to see how they implement more sustainable operations as ‘green’ products were in high demand, even at a premium price.

As the recession raged on consumers began to feel it in their purses and sustainable products were a luxury in which many were not indulging. The same can be said for organisations. The spend on sustainability agendas became disposable, as some companies were just attempting to survive. Many, like Peter Bonfield, CEO, Building Research Establishment (BRE), believe that those that would so easily let their sustainability agendas flounder just did not understand the benefit provided.

He says: “A significant new understanding is starting to develop amongst those businesses who ‘get’ sustainability.  It is not about good PR, glossy brochures or greenwash.  Being a company that is demonstrably more sustainable than competitors means more business, better brand credibility and more motivated employees.  The basic principles of sustainability of minimising the use of resources, minimising waste, optimising efficiency all reduce environmental impacts.  They also reduce costs and improve competitiveness, leading inextricably to better business success.  For those enlightened few, the realisation that environmental sustainability and business success go hand in hand is a delightful discovery.  A win-win. “

Creating shareholder value is the mandate for any public organisation, sometimes this value is formed by practices that can be unsustainable. But for those that have fully integrated ‘green’ strategies the value is in being sustainable.

“There is no conflict between a sustainability agenda and producing shareholder value, they work in tandem to produce more with less. This is true of simple items such as reduced energy consumption simultaneously saving the planet and business cost, more subtle issues such as customer perception as well as the generation of new technology or other business opportunities. To fully understand this it is often necessary to re-evaluate the timeframes and sources of value generation under consideration,” says Ian Stewart, Veolia Water Solutions & Technologies.

Although some consumers have forgone green products for cheaper versions, many organisations, such as Marks & Spencer, believe that their large push towards sustainability keeps consumers coming back.

Richard Gillies, Director of Plan A at Marks & Spencer says: “We believe sustainability is a key ingredient of business success. Plan A, our eco and ethical programme, has helped M&S become more efficient, develop new markets and build customer loyalty. It is therefore not just the right thing to do environmentally and socially but it is also the right thing to do for the business.”

It would be unwise to let go of one’s sustainability agenda, according to Claudine Blamey, Head of Sustainability, Segro, “In the current economic environment, sustainability provides another means to add value and reduce costs, so that organisations continue to be attractive to existing and prospective customers, employees and investors.”

If you are interested in the topic of this week’s newsletter please see the Insights pages for more articles and Write-ups. In Can we imagine an economic model where sustainability is the goal of business participants discussed the future of sustainability strategies.

Please get in touch if you have any comments about the issues in today’s update.

I hope to see you soon

Matthew

www.twitter.com/criticaleyeuk