CIMA and Tomorrow's Company toolkit

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Success through corporate sustainability: strategy, leadership and reporting Co-creating tomorrow’s agenda for business success

Vivanta by Taj President, Mumbai 2-3 November 2011

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Co-creating value First may we thank you all for contributing to the success of the conference made possible by your insights and ideas.

We are delighted that - in the spirit of our co-creation - we have been able to put together this document and toolkit during the event – we hope you will both make practical use of it and look forward to your comments on how we improve if further.

We hope that it will support you by providing a line of sight between purpose, strategy, business models, and how a robust business model creates value and opportunities. It also highlights what together we concluded critical for your business to achieve success, and report on that success and deliver that success through the lens of the ‘ness’ and the ‘way’: •

The ‘way’ which is about systems, practices, procedures, protocols and all forms of systemic footprint that are left behind by leaders.

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And ‘ness’, which is about a legacy of a leader’s personality footprint, institutional memories which is more about temperament than about skills and expertise. It is more about dealing with a situation rather than providing solutions.

The business dynamic has shifted in an entirely new direction. Population growth has put tremendous pressure on our natural resources and companies are now being compelled to produce more with less to and work out methods of tracking this commitment.

The way we perceive and create value also needs to change. The way we value and quantify th corporate entities has changed dramatically in recent times. In the 19 century, corporate value was defined by what was set out on the balance sheet. For want of a better phrase, what you saw is what you got. Today, it is a much more complex picture.

Value can now only be co-created – created by people working together, through human endeavour, creativity and co-operation. It is the leverage of ‘collective wisdom. ’For any business to be successful it has to cultivate a business practice which cares for all people, and not just for a specific set of people, a focus group or stakeholders.

• Tony Manwaring, Chief Executive, Tomorrow’s Company

Anant Nadkarni, Vice President, TCCI

Charles Tilley, Chief Executive, CIMA

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Contents of this pack ‘If we manage what we measure, do we measure what matters?’

This pack contains: Part 1: The ‘3ms of co-creating sustainable value’ – a toolkit which contains a framework that brings together the various components of co-creating value discussed at the conference along with some key questions to ask yourself when you are back at work.

This also includes examples from the session on understanding the ‘building blocks of value’ for individuals businesses, developed through group discussion Part 2: Puts the programme in the context of India Part 3: Provides summaries and quotes from each of the programmes: The key programme sessions were Section 1: Achieving success now and in the future Section 2: Leadership and governance to deliver business success Section 3: What does this mean for my business?

Section 4: The value of corporate reporting Section 5: Keynote speech by Tony Manwaring, Chief Executive, Tomorrow’s Company.

This pack is a product of co-creation by all those who participated in the very special programme we enjoyed together. It attempts not only to summarise our proceedings but also to provide you with a toolkit which we hope will enable you to apply some of the insights and outcomes into your work.

Together we explored how to achieve business success recognising the impact and importance of corporate sustainability. We recognised the power of the expression that we manage what we measure but asked whether we measure what matters; and if not, how we might better take into account the impact of what does matter.

The toolkit puts purpose and values at the core of our model of success; it recognises that leadership brings this purpose and these values to life to create value; it acknowledges the dynamic tension between generating cash and securing sustainable value; it recognises the importance of the ‘3ms’ management, materiality and measurement; and explores how these are each built-up and delivered in practice.

We are developing this toolkit as a contribution for other businesses seeking to pilot integrated reporting – we would welcome your comments and feedback to luisa@tomorrowscompany.com We are also having numerous discussions on how we can build on this programme. We very much welcome your immediate feedback to inform the direction we take going forward. Please get in touch with luisa@tomorrowscompany.com or Anant Nadkarni at tcci@tata.com with your thoughts.

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Part 1 The toolkit

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The ‘3ms’ of co-creating sustainable value Co-creating value starts with purpose and values – brought to life and embedded through leadership at all levels.

Leadership which is transpersonal in nature – REAL (Radical Ethically Authentic Leadership).

“Financial assets are only a means to an end – never the end itself... the end is found in the purpose and this is the value.”

“Leadership is a journey with no final destination – it is about continually learning.”

See Session 2: ‘Tomorrow’s Leadership’ by John Knights

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One of the key roles for leaders is to manage the twin priorities of “cash is king” versus sustainable value is king”…whilst the two are inherently linked the need for cash to sustain the business can create an emphasis on short-term priorities which needs to be managed against the long term sustainability of the business.

We identified the ‘3ms’ of co-creating sustainable value – managing, materiality and measuring.

See Session 1: Achieving success now and in the future and Session 3: What does this mean for my business

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Managing has three elements – strategy, co-creation and governance

“Sustainability is not a buzzword, it’s a competitive advantage.

It needs to be ingrained into every part of the organisation.”

“Unlike the generation of outcomes and results, the process to evolve sustainable value rests in the domains of co-creation. The instruments to understand value have to not just deal with opinions, perceptions and subjectivity, but more importantly resort to a democratic process of co-creation.”

See Session 2: Leadership and Governance

“Governance is not about boring processes...it is about guiding the company to achieve sustainable value in a way that reflects the ‘essence’ of a company .”

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Materiality is about what is vital to the success of the organisation – what is critical in terms of creating value. We discussed how different building blocks are relevant to different types of organisation.

See Session 3: What does this mean for my business

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Understanding the ‘building blocks of value’ – what is material to my business?

Case studies

Housing industry: Value equals what matters. All building blocks are important and you cannot run a business without financial assets. For a company that builds houses and sells them at a large range of prices - 200 dollars to 3 million dollars – a flexibility in technological demands is needed. Human connections are very important; housing means shelter and represents one of humankind’s most basic needs. So getting into this sector adds value to lives.

You also need the people and culture to be able to do it. For instance, 200 dollar houses are built in conjunction with those who live in these desolate and run down areas. Finally, governance and leadership are key – they foster the human connections and the people and culture that believe in this mission.

Science and technology materialise the mission.

Retail industry: The most important priority now is expansion and opening more stories. The retail industry in India is largely unorganized and there is a lot of opportunity to grow in the sector – that space for growth will remain for the next 10 to 15 years. The speed at which you can acquire property is key so financial assets are currently the strongest block.

Then it’s about managing the impact on the business environment (how the real estate business is structured and conducted in India). If this structure was streamlined it would aid the expansion. Once you open the stores it is very important to have operational efficiency through creativity and innovation and the use of science and technology. In the medium term, good human connections would be the success differentiator in achieving long-term value.

Mining industry: People and culture are a stumbling block but also an enabler. You cannot have a casual approach to this element. If you care for the people and the culture of your company you will be successful.

Marketing industry: The most material block is creativity and innovation. The industry needs to be creative and innovative in the solutions they provide in order to fulfill customer expectations and use the right technology at a minimum cost. In the marketing sales approach, products need to be taken to different regions – how do you that while keeping mega trends in mind? This is about fostering human connections and people and culture.

Power and energy industry: To achieve growth requires a lot of resources. Science and technology is material as is talent, so human connections become the most important element to enable and manage long-term value.

Financial sector: The industry is heavily regulated and you would expect the focus to be on people, but it is not as the products are so commoditized. Relationships are rare.

What is material are financial assets, regulation and technology.

Creativity and innovation however (embedded in people, technology and products) are key to any business.

Overall we found that human connections and creativity and innovation come across strongly across all industries and sectors as value blocks that are highly material to sustainable business success.

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Measuring is about having the right metrics to measure value, having the right information to inform decision making and ‘telling the story’ of your company through reporting.

“ Once we have redefined what we mean by value ...we need to find new metrics to in order to measure it .”

“CEOs are getting information they would like to receive, and managers are formulating information in the way CEOs want to hear it. But this hampers decision making ability at board level. It’s very important that leaders set up their team in the right way so that it can communicate transparently.”

See Session 4: The value of corporate reporting

“We need a corporate reporting system that is fit for purpose for the 21st century – that is responsive to a changing business environment and which adequately accounts for long-term value creation.”

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And all these elements need to brought together within a challenging and changing context – the ‘triple context ‘where business is not as usual’ (Please refer to page 21 for an explanation of the ‘triple context’).

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Some questions to ask of yourself about your business: Managing How do we define success?

How do we convert ‘feel rich’ to ‘feel good’?

When do we need managers and when do we need leaders?

Do we need managers or leaders at all?

Is corporate sustainability central to our DNA and business model – or is it an add-on?

How do I put this on my colleagues’ business agenda?

Materiality How do we create value now/might impact on this?

What changes in the external environment?

Measuring Are we measuring all that matters to achieve the success of our business?

What metrics do we need for long-term business success?

How can we measure well-being?

Who are my stakeholders? Am I only focussing on one stakeholder?

How good am I at telling the story of my company to my stakeholders?

How do we compare ourselves with others?

What are the first three things you are going to do to put this into practice?

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Part 2 In the context of India

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The Indian Perspective Throughout our programme we sought to co-create.

India is dealing with powerful growth and the difficulties associated with it thus governance is high on the agenda. “India is keen to grow, but to grow remembering and understanding its heritage – and it is one that has sustainability at its core.”1 Indian businesses operate in the midst of a fast-paced and complex environment, where aspects of culture are intertwined with the wider economic environment and India’s determination to become a significant actor in the global economy. India is currently the second fastest growing economy in the world, but maintaining this position depends on the ability of Indian businesses to incite effective and sustainable leadership and governance in light of the changing global context.

Leadership development has become a critical tool for businesses to stay up to date with the fast changing trends of the global market place. The Bhagavad-Gita concept of leadership – much akin to Transpersonal Leadership - combines mind, intellect and spiritual base creating a likely resonance with both individuals and businesses alike. Peter Senge’s formulations on Systems Thinking, Personal Mastery and Team Learning – critical ideas – are also not new to those who have studies or have been exposed to the Upanishads. The right thoughts are at the core of Indian culture and heritage, however, with growth a certain distancing to these core beliefs has emerged.

Perhaps due to a Western influence suggestive of what success and business as usual must look like, it seems to not be considered politically correct to correlate spiritual and ontological concepts with temporal pursuits of the government and businesses, India is losing a valuable resource that could benefit the well-being of its people and the success of its businesses. Indeed, leadership development is needed at all levels of Indian society, and lessons can be learnt from a West that is now aware that in order to succeed it must do business not as usual.

The need for greater leadership emanates from a series of global, contemporary risks and hazards: in India effects of climate change, fear of exposure and punitive responses from markets, and corporate governance scandals echoed in the emergence of the Right to Information Act. On a local level, Indian businesses need to connect with issues of their surrounding communities to build sustainability from the ground level up. The development of new plants and mines are reported to have ignored the needs and concerns of the local communities, seeing it merely as a ‘legal clearance’ issue, and 2 relieving local people of their ‘social license to operate.’ These businesses could suffer a high price if they fail to demonstrate sensitivity to human rights issues. Forward-thinking businesses in India, and the rest of the world, need to join, and are joining, the global momentum that resists apathy towards ethics, responsibility and sustainability to reap both local and national gain.

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Preeta Singh, Director, TC-GGBS Sangeeta Mansur, Business ethics, a key to responsibility and sustainability: drivers and responses 2

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The Indian journey towards greater sustainable leadership in their businesses holds a number of unique aspects that differ greatly from the Western experience of development. For example, Western environmentalism and environmental ethics differs from environmentalism in India. st Environmentalism in the West grew out of the post-materialism of the 21 century where economic abundance satisfied materialist concerns of a basic standard of living, and allowed the development of non-essentialist issues, such as the environment and gender equality. Furthermore, the movements in India are largely anthro-centric and as such need to be treated as a socio-ecological movement, along with certain sensitivities that this requires, rather than as an environmental movement. Responsible leadership in India is therefore going to be about managing and engaging with the interactions between sociocultural and environmental dimensions of business impact. And indeed, “replicating or complying with western environmental frameworks or codes alone is going to fall short of what is required to bring about sustainability here in Indiaš.�

Indian businesses can benefit from the valuable body of knowledge concerning sustainable leadership, which it will need if it is to reap the demographic dividend of its vast population and abundant talent.

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Part 3

Summaries of the sessions

We hope you find these summaries of the sessions helpful. They are not intended to be a verbatim account but rather a summary of key points to jog your memory and to provide arguments and data that we hope you will find useful.

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R. Gopalakrishnan, Director, Tata Sons: “The whole universe is a series of accidents and you don’t even know the connection amongst these accidents. Did the big bang happen, how did the universe come into being? Discoveries were accidents, so were corporations.”

“We seem to be at the thin end of a funnel…you just happen to be a minor participant in the conversation between the past and the future by being a minor participant in the present.”

“What I understand the least is the thing closest to me – myself.

The ability to look within yourself enables you to deal with the profound human dilemma of not the difference between right and wrong, but the difference between right and right.”

Sunil Gupta, Director, TC-GGBS: “Sustainability is not a new concept, or something to be approached with anxiety – it is as old as time – it is the contours of, and thus the methods of, addressing sustainability that have changed.”

“How do we define success – whether an individual, team or at corporate level – what are the new measures required?”

“Between the long-term and the short-term everyone is dead. We all end in the middle of lots of little stories. So it’s important how, and what baton we pass on to the persons after us.”

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Tony Manwaring, Chief Executive, Tomorrow’s Company “We see leadership as everybody within a business, not just the senior people, because value is created and co-created through a million myriad moments of leadership that take place every day.”

Preeta Singh, Director, TC-GGBS “Brand is not something we can manufacture, it lies in our hearts and minds.”

Charles Tilley, Chief Executive, CIMA “Resilience is the cornerstone of businesses.”

“Lehman Brothers – if the board had the information it didn’t have a debate about it.”

“The management accountant is the navigator directing the ship forward.”

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Session 1: Achieving success now and in the future

Global Challenges •

Since 1990, 33 new countries have been created.

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In 2010, 140 US banks failed. In 2009, 148 failed.

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In 2009, 11 countries had public debt in excess of 100% of GDP, including Japan, Italy, Iceland, Greece, Singapore and Belgium.

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In 2007 humankind used the equivalent of 1.5 planets-worth of sustainable resources to support their activities. Unless patterns of behaviour change, we will be using resources and land at the 3 rate of two planets each year by 2030, and over 2.8 planets each year by 2050.

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The World Bank says that 1.4 billion people live in poverty, on less than $1.25 per day.

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The world’s population is now 7 billion.

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The proportion of the world’s population that is over the age of 65 is likely to double by the middle 5 of the 21st century.

The new business paradigm – We are living in an age with a very high ‘VUCA’ rating: Volatile Uncertain Chaotic Ambiguous

From Tomorrow’s Corporate Reporting: A critical system at risk http://www.pwc.nl/nl/assets/documents/tomorrows-corporate-reporting.pdf 4 http://go.worldbank.org/C9GR27WRJ0 5 http://transgenerational.org/aging/demographics.htm 3

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Understanding the value drivers: the Age of Sustainability has begun

The Tomorrow’s Company triple context model argues that in order to create long-term sustainable value a company has to leverage and integrate environmental, social and economic drivers to the fullest in their business models in order to be successful. We need to go beyond the triple bottom line in order to achieve enduring business success.

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Key Quotes from the session: “For Tata sustainability is part of the genes; it is ingrained in most of the leaders of Tata companies. It is up to corporates to make sure that the people who suffer the most are actually taken care of.”

Phillie D Karkaria, Executive Director, Tata Realty & Infrastructure “For HP CSR is not an activity, it is the way we do business - we need to exist and co-exist with the communities we live with and impact on. One of HP’s corporate values actually espouses this.”

Ravichandran Venkataraman, Managing Director, HP Global e-business Operations “People know what sustainability is but lack the how to, the frameworks and the processes to get there. This is why things like this conference help.”

Santosh Jaraiman, DNV “The issue we find is that though sustainability is subconsciously still linked to CSR at board level. It has to be made known that sustainability is not a buzzword, it’s actually a competitive advantage. If you ingrain it into every part of your organisation then you’ll actually have a competitive advantage.”

Fali Hodiwalla, Principal - Financial Services, Accenture

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Session 2: Leadership and governance to deliver business success Tomorrow’s Leadership John Knights, Co-founder and Chairman of LeaderShape Ltd.

There has been an unprecedented change in the demands of leadership over the last 10 – 15 years. This has been created by social and technological change, by globalisation and by the growing concern for the future of our planet.

If we look back further over the last 50 years the world has witnessed amazing economic growth in many areas with some notable exceptions such as most of Africa.

We are now at a turning point in this new 21st century and it’s time to grab the nettle. The context in which companies now operate is what Tomorrow’s Company refers to as the triple context – where future and enduring business success will rely on understanding and responding to the links between the economic, social and environmental sub-systems on which we all depend, and the opportunities this brings.

This report sets out a journey towards the type of leadership that is better fit for this future – ’transpersonal; leadership’ developed from 13 years of experience of working closely with senior leaders.

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Transpersonal leadership is the development of a leader beyond their personal ego to instead fully consider and act on the needs of all stakeholders. They must be transpersonal by thinking beyond their ego and be Radical, Ethical and Authentic Leaders.

The triple context This report outlines the steps in the journey towards becoming a transpersonal leader: • 7 essences of emotionally intelligent leadership • 9 steps to transpersonal learning.

Through the stages where REAL = • Level 1 (launch): Rational Ego-based As-usual Leadership • Level 2 (intermediate): Robust Emotionally Aware Leadership • Level 3 (advanced): Radical Ethically Authentic Leadership.

The key steps are summarised in the diagram below, which is also used as signpost throughout the report to help readers orientate themselves.

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Key points from the session one teaches you self-awareness – Learning it is key although it doesn’t happen naturally.”

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“No

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Journey of leadership – though no destination – continuous learning: Launch REAL (Rational Ego-based As-usual Leadership), Intermediate REAL (Robust Emotionally Aware Leadership), Advanced (Radical Ethically Authentic Leadership).

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Master this: emotional intelligence, know your brain, think beyond your ego.

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Trustworthiness, truth & honesty, integrity – most valued values. Humility and intense will most important competencies for leader in 21 st century.

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Power (self- development) & love (value). For any value’s mission you need things on both the personal conscience and personal development sides.

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Better decision making: our education system tells us only way we can think and explain things is rationally. Don’t think you know everything; you don’t need to have all the ideas.

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The 3i’s of judgement: intuition, instinct, insights + ethical philosophy should be used in decision making.

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Think beyond your ego.

About LeaderShape LeaderShape exists for leaders and organisations who are dissatisfied with the conversion of leadership training into effective behaviours and performance.

Since 2003 it has been providing bespoke programmes for individuals, groups and teams that embed accelerated leadership maturity into the daily life of organisations.

LeaderShape is an organization of experienced and successful former CEOs and other Organisational Leaders. This enables rapid understanding of the key issues faced at the most senior management and Board levels, including CEOs. LeaderShape delivers its services directly and through this limited number of carefully selected associates.

LeaderShape sharpens the focus on performance and results – and encourages relevant and regular evaluation against clear objectives. www.leadershape.biz jknights@leadership.biz

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Tomorrow’s Corporate Governance – agenda Tony Manwaring, Chief Executive, Tomorrow’s Company Corporate governance has come under the spotlight as we learn the lessons from the financial crisis.

The Good Governance Forum supports achieving business success through improving the quality of corporate governance by providing tools, resources and other instruments for chairs, company secretaries and other key people who drive the quality of board performance. It works with regulators and others to help create the best possible environment for good corporate governance.

We define governance as “the procedures and practice associated with decision-making, performance and control, which provide structures and satisfy expectations of accountability in large, mainly commercial, organisations.”

Businesses are engines of value creation and operate within what Tomorrow’s Company calls the ‘triple context’ – where value creation will increasingly depend on integrating social, environmental and economic value drivers. It is an environment where non-financial and intangible assets are significant drivers of corporate performance and where value is often created through collaborative global networks, reshaping traditional boundaries of power, control and influence. This context will increasingly shape board and investor strategies and will frame the governance agenda of the future which will determine future business success. Governance must therefore be increasingly judged by its impact on long-term and sustainable value creation.

The agenda for the forum is holistic – it recognises the key dependencies between the different elements that make for good governance. Each forum output will therefore provide another piece in the jigsaw helping to develop a full toolkit for boards.

The starting point for the agenda is for boards to establish their own ‘board mandate’ – a living statement about what the company stands for and how it wishes to be known to all of its stakeholders. This should capture the ‘essence’ of the ‘character’ and distinctiveness of the company, in terms of: its essential purpose; its aspirations; the values by which it intends to operate; its attitude to integrity, risk, safety and the environment; its culture; its value proposition to investors; and plans for development.

We believe that this ‘working charter’ is an important innovation that can help boards navigate their way through the increasingly choppy waters of the ever more complex and challenging business environment that companies are operating in.

Developing such a mandate requires deep and comprehensive discussion by the board. The quality of boardroom conversations is critical to the creation and ongoing effectiveness of a mandate. How can boards continually improve?

What issues must they tackle? How do boards best reflect on their capability to improve and then achieve this improvement in practice? What tools might help boards do this in practice?

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Tomorrow’s Corporate Governance – the case for the Board Mandate Charles Tilley “The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company.”

The UK Corporate Governance Code, Financial Reporting Council, June 2010 A board mandate can only be established when a board has collectively made common cause on the purpose of the business of the company. In short, it demonstrates that all board members are facing in the same direction which should lead to more rational business judgement calls in the best interests of the company and the maximisation of its total economic value.

A mandate is not a mission statement – it is a living statement for and by the board

(Click here for the mandate)

How does the mandate add value?

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Value derives from discussion by the board.

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Primary purpose is as a reference base for all strategic decision-making.

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Can also provide clear line of sight and alignment of expectations within the business and between the business and stakeholders.

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Helps to frame discussion and debate.

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Tomorrow’s Corporate Governance – creating effective boardroom conversations Boards matter, conversations count.

Company boards play the critical role in shaping business performance, strategy and culture. They are in charge! Great boards are never satisfied, they are always seeking to improve, all too aware that any complacency will soon be punished.

All members of boards should add value. Great boards get the best out of all members of the board.

They build a consensus which is tested, challenged, challenging and real – recognising that, particularly in times of uncertainty, the lone voice and the sceptic may often be making the most important contribution of all. They do this by being clear about their purpose, and driving to achieve it - their 'Board Mandate'. But HOW they make this work critically depends on the quality of their conversations.

It is all too easy for Chairmen to be confident about the quality of board meetings, failing to pick up the clues and warning signals – especially where they are new to the role. All too often we talk about board decision making as if it is a process which can be neatly set out, ignoring the reality that boards bring together disparate groups of people and this leaves the Chairman with the difficult task of ensuring that he or she gets the best out of all of them, individually and as a team.

Looking deeply at conversations can provide important clues as to how effective the board, and each member of the board, is and whether they are adding value – conversations can act as a diagnostic tool.

The best boards take the time to reflect on their performance on a regular basis, not just at the time of a board evaluation. This includes reflecting on the effectiveness of their conversations alongside the creation or continual refreshment of their ‘board mandate’.

Boards will make their own judgments about how effective their discussions are, often as part of the detailed board evaluation process. But our discussions with members of boards reflect that there is scope for review on a more regular basis.

The toolkit focusses on how to get the right level of engagement in board conversations to get the very best from the skills and abilities around the board table – getting maximum value from the board to create long-term sustainable value.

It is structured into: •

What are the symptoms or ‘red flags’ to look out for?

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What are the possible causes or dangers from these symptoms?

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How can conversations be made more effective??

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“symptoms”/“red flags”

possible causes/dangers

Are conversations becoming too routine or narrow?

Same agenda and information for every meeting Same information pack for every meeting Post rationalisation of poor decisions

Are conversations becoming too routine or narrow?

Lack of awareness of changing business environment Badly informed decisions

Is there sufficient discussion and challenge?

Dominant character (who may not necessarily be in the boardroom) A sense of pressure to ‘get through’ an agenda Quick decisions made on consensus basis Difficult issues are not sufficiently discussed Dissenting voices viewed as stupid or weak and/or marginalised Lack of external challenge and input

Is there sufficient discussion and challenge?

The size of the board may be too large The dissenting or disruptive voice may be right

Is everyone adding as much value as they can?

Constantly ‘shooting from the hip’ A focus on floating ideas rather than a focus on decisions leading to disruption.

Attendance in person but not “in spirit” e.g. using phones/computers Consistent lack of contribution by a board member

Is everyone adding as much value as they can?

Not reading the papers in advance Focusing on own world view which is not expansive enough for the company to perform properly May have important ideas that will be dismissed because of disruption Personal circumstances may have changed Feelings of isolation or not being in same wavelength New to a board Lack of confidence and assurance about own role and capabilities

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Effective conversations Are conversations becoming too routine or narrow?

Involve executive in setting agenda – not just Chair and Company Secretary Obtain stakeholder/expert/next generation input on key decisions

Is there sufficient discussion and challenge?

Chair uses a neutral and facilitative style Review the size and make-up of the board Accept that not every question has to be answered straight away and some agenda items may remain unfinished Encourage challenge and dissent - use the power of intelligent naivety to ask fundamental questions.

Pause for reflection Allocate time to each agenda item/ enough time for detailed discussion on key agenda items/differentiate agenda items by importance Discuss at end of meeting what worked and what didn’t Be prepared to ‘park’ items for further discussion Set aside time for pre-meeting/post meeting dinners Is everyone adding as much value as they can?

Chair to spend time with board members on a 1:1 basis outside of meetings Ask those who lack focus but have many ideas to work them through for a future meeting Allow time for urgent calls within the agenda Set aside time on a regular basis to ask “what can we do better?”

Identify coaching and development needs Give ‘air cover to new members for a period of time

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Key quotes from the session “CEOs are getting information they would like to receive, and managers are formulating information in the way CEOs want to hear it. But this hampers decision making ability at board level. It’s very important that leaders set up their team in the right way so that it can communicate transparently.”

Aravind Sharma, Head of Sustainability Practice, KPMG “Sustainability and governance needs to be embedded in an organisation and every individual needs to take responsibility and be accountable for it.”

Anant Nadkarni, Vice President, TCCI “Do we not have responsibility as members of a team to help our leaders lead? Boards are in charge, difficult, but true…and their tone and style has a tremendous effect across an organisation. People should have the courage to speak up. But leaders need to set that tone, a tone that allows everyone to lead in their organisation.”

Pat Cleverly, Director of Research, Strategy and Policy, Tomorrow’s Company “The system we use to choose directors is wrong - too often they come from a group of elite friends and often people chosen are not appropriate and we certainly don’t tend to rigorously check on their emotional intelligence and values. Plus, boards tend to be isolated. They may work as a team together but rarely connect with the rest of their organisation – if that happened that could really increase the quality of governance. Trying to be more radical and transpersonal: if we’re going to change what governance is all about should we have the same kind of boards we’ve had in the past?”

John Knights, Chairman, LeaderShape

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Session 3: What does this mean for my business?

Introduction to the workshop by Tony Manwaring, Chief Executive, Tomorrow’s Company We have arrived at the moment in the programme where conversations about sustainability and the new business agenda arrive at what is arguably the current frontier of thinking and of practice. We now need to make some breakthroughs and need to identify some ways in which we can work out what is material and what matters for you and your business. This is about taking high-level concepts – values and principles – and then actually applying them and working it out for the businesses you lead.

The one great thing that can be said about business as usual is that we had some kind of handle on what was material: we would value our assets, we would do some calculations around people and turnover, we would work out to price earning-ratios, etc. Now we have to work out what is material when we take into account the financial and the non-financial and how these are both shaped by other value drivers: the environmental, and social as well as the economic.

This workshop is about figuring out what materiality looks like in this new context – how new value drivers feed through to financial returns which generate cash and build value for the long-term.

For instance, how do you value human capital creation? Infosys, for instance, has started to do work out how to more fully value the human capital created through training etc: human capital is an extraordinary source of future value and is a great example of materiality.

We’ve been thinking about the triple context (diagram 1 below) and how business lies at the intersection of the environmental, economic and social sub-systems on which we all depend for live and prosperity..In this section we are going to build on the triple context by also taking into account:

governance and leadership context, because this lies at the core of how businesses create value, turning potential into real value delivered, and;

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The building blocks of value creation which are material to your business (diagram 2 below).

(This analysis of building blocks was created by Luisa in conversation with Anant, and should be seen as providing guidance – you may want to add new value drivers or clarify those provided)

What we are going to do is discuss these value drivers in the context of your businesses – identifying which building blocks of value have greatest material impact, how and in what sequence - . in the way that really shapes the future success of your business.

Looking at some of these blocks, we have financial assets for instance, but more than that we also have creativity and innovation and human relationships and connection: so what do these all up mean for your business?

The next page summarises some of the key results of the group discussions: what was striking was not only how different value building block accounted for what was material for different businesses, but also how the sequence or the way in which one block fed into another changed; and perhaps most striking our shared insight that financial data currently captures only a small portion of these various building blocks of value.

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Diagram 1: The Triple Context

Diagram 2: Building blocks of value

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Evening session Keynote address from Kishor Chaukar, Managing Director, Tata Industries “We talk a lot about what companies should be doing, about what business should be doing. I don’t intend to say anything about that but I’ve been reflecting, ever since I’ve been associated with corporate sustainability, about what sustainability actually is. Quite honestly I don’t have an answer. But, as Chairman of TCCI, I have had the good fortune of meeting several CEOs and senior people who are known as good responsible corporate people from around the world. There are a lot of organisations genuinely practicing corporate sustainability, since before the word was fashionable, for centuries.

Then I started asking myself a question, what is the secret of their sustainability? When talking to them I got an overdose of what ought to be done, and a lot is published on that. So then I asked, let’s find out what it is that they did not do that made them sustainable. There are five principles: 1. Moderation in profit-making. Not about humongous profit, but about fair profit.

2. Frugality in lifestyle: they did not fall prey to the concept and ambition of consistent quarterly growth. You do not want to be known as the largest company but as a quality business. They accepted the reality of business cycles and made the point that they want to run an honest business with an honest product. They didn’t want to be known as the largest company, just as a company that provides good high quality products and services.

3. They did not exploit resources beyond what they ought to be exploited simply because it gave them a profit or an immense possibility for growth. They remained within limits.

4. They did not manipulate the system in the sense that they said no, I will not go out of my way to make friends with the powers that be to in whichever quid pro quo that is possible.

5. Finally, they developed the ability to live these values for decades and centuries. They stuck to the four values above.

So they are sustainable businesses and will remain so.”

Address by Tony Manwaring, Chief Executive, Tomorrow’s Company “There’s something really special about an organisation that becomes a community that holds in trust a sense of what matters, vision and purpose across generations. There is something very special about Tata. To have this sense of philosophy rooted in practice which leads to right action and is housed and contained within TCCI. Sharing those thoughts and principles at the launchpad of Tomorrow’s Company in India is an honour indeed.

Taking one little detour to America: The great American business leader Ray Anderson, who

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sadly died a few weeks ago, of Interface, led one of the world’s biggest b2b carpet tile companies. It sounds like an ordinary kind of business and it’s a business whose core natural resource is petrochemicals. Ray had a moment a few years ago when he said I can’t keep working this way because I won’t be able to look my grandchildren and their grandchildren in the eye. If all businesses keep working like this we will destroy the planet and its natural resources. There gets to be a point that when business destroys what is around it then actually you cannot do business anymore. A business model that endures, that is successful, that creates value for the long-term is critical to society and our planet as a whole. Ray was an inspiration for people like Lee Scott at Walmart when Walmart embraced sustainability through its supply chain policy.

Ray shared that he was once asked to introduce a conversation for senior executives of a major business and he asked: “Imagine that you’re flying to the moon, imagine that you’re flying to the stars and you are the last vestiges of humanity and think about the goods, services, literature etc that you would take with you.” Then he asked those executives to say whether they provided or made any of those services or goods, and they had to say that no they didn’t.

So let’s go back to what Kishor was saying - that business needs to be rooted in the idea of creating our common good and our common wealth for the future – which is very much what Tomorrow’s Company is about and is why we’re delighted to be exploring this here with you; you also creators of a new future. And especially pleased to be launching Tomorrow’s Company in India here with you tonight.”

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Session 4: The value of corporate reporting “The success of companies in the 21st century is bound up with three interdependent subsystems – the natural environment, the social and political system and the global economy.

Global companies play a role in all three and they need all three to flourish.

This is according to Tomorrow’s Company... In short, planet, people and profit are inextricably intertwined.”

King Report on Governance for South Africa 2009, led by Mervyn King, Chairman, BRAIT Société Anonyme

Tomorrow’s Corporate Reporting Corporate reporting matters.

It plays an essential role in the effective functioning of the market economy. It should make an important contribution to our understanding of, and respect for, business and the financial sector as creators of value by explaining what drives that value now and in the future.

Company reports are already more complex and heavily regulated than ever before. Yet despite all the attention reporting has received, the fundamental concepts underpinning corporate reports have actually changed very little over time.

Various parts of the system have changed, of course – but despite all this momentum, the corporate reporting system itself remains rooted in the past.

It’s not just short-term pressures that require us to review the relevance of the reporting model. The world also faces a series of longer-term challenges. These include a growing population – placing increasing demands on already scarce resources; increasing pressure on natural capital which has been seen as a free resource; the globalisation of business – and the consequent intensification of competition for investment and markets; and the impact of new technology on every aspect of corporate life – including stakeholder communications.

But there is an impetus for change. There are numerous initiatives and consultations underway around the world – all seeking to effect further change in the corporate reporting system. But these all focus on specific issues around the content of reports, rather than the

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dynamics of the system as whole and its structural weaknesses which are likely to become more problematic as the century unfolds.

That is why this research, undertaken by the Chartered Institute of Management Accountants (CIMA), PwC and Tomorrow’s Company, is different. We have not looked at the content of an ‘ideal’ report. Our focus is on the overall architecture, culture and behaviours of those engaged in the corporate reporting system – and how they might play a role in changing it to meet the demands of the modern market ecosystem and the changing needs of society. By corporate reporting – we mean all the mechanisms by which companies communicate their performance and activity to their stakeholders In the face of so many past and present calls for action – why has so little changed?

•

What aspects of the system are preventing or supporting the effective development of corporate reporting?

•

And what changes are needed to make the system fit for purpose in the future?

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Findings: •

•

•

A ‘jigsaw in pieces’. No single participant is fully active in, controls, or even sees the entire corporate reporting system. Participants in our research would often revert to a familiar focus on content of reports, for example; others do not believe that a ‘system’ exists at all.

Data, not people. The corporate reporting system is a system of people, institutions and professions with disparate mindsets, agendas, languages, cultures and behaviours. Yet it is often simply treated as an information system for processing data. Debate about changing it often defaults to a discussion about content or measurement.

Few on the same page. There are different views about the purpose of corporate reporting. Is it for shareholders and investors? Or for the “public interest” (however that is defined)? The views espoused by different institutions and professions tend to reflect their positions and agendas within the current system. An active minority sees a need for change

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•

•

•

•

Systems within a system. A number of parallel reporting systems are in operation – such as those supporting internal management information, regulated financial reporting, investor relations or voluntary sustainability reports. Sometimes they are aligned and coherent. But frequently they are not. Some of them – such as many investor relations activities – are effectively ‘workarounds’ to deal with perceived shortcomings in the scope and timeliness of information provided by the core reporting model.

Quantity, not quality. Numerous elements have been bolted on to the financial reporting model, creating a web of detailed rules and standards. Although helpful in some areas, increasingly this obscures rather than illuminates information that is material to the present and future success of a company. There are often vast disclosures on immaterial issues, yet the corporate reporting system fails to cater for many factors that are material to the survival of many businesses.

Competence and lack of concern. Complexity is stretching the capabilities of market participants. There is little incentive for many of them to support change or innovation that might diminish the value of their existing competencies or risk exposing them to new liabilities.

Looking back, not forward. Companies operate at the intersection of global economic, social and environmental systems – all of which are evolving and demand new ways of assessing appropriate corporate behaviour. These issues are often viewed as external to a company’s operations – but this is unlikely to be the case in the future. The corporate reporting system needs to be able to anticipate and adapt to this change.

A roadmap for change • • •

Not about revolution…

It is about structured evolution…

“Nudging the system in the right direction”

An agenda for debate • • • • • • • • • • •

Encourage innovation and change Balance judgement and compliance Support company decision-making Make reporting accessible, timely and relevant Support shareholder and investor decision-making Importance of oversight of the system Create a global consensus on a programme of change Ensure oversight is given to the whole system Create a clear blueprint for the future of the system Consider mechanisms and approaches that will encourage an evolution in reporting Consider action on key global issues and risks.

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Our goal, ultimately, is simple: agreement on the action required to ensure that the corporate reporting system is fit for purpose in the 21st century. ..From seeing the parts‌ to seeing the whole

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International Integrated Reporting Committee (IIRC)6 “To make our economy sustainable we have to relearn everything we have learnt from the past. That means making more from less and ensuring that governance, strategy and sustainability are inseparable” Professor Mervyn King –Chairman International Integrated Reporting Committee (IIRC), Chairman, King Committee on Corporate Governance, South Africa

Formed in 2010, the IIRC, is a powerful, international cross section of leaders from the corporate, investment, accounting, securities, regulatory, academic and standard-setting sectors as well as civil society Mission Statement: “To create a globally accepted integrated reporting framework which brings together financial, environmental, social and governance information in a clear, concise, consistent and comparable format. The aim is to help with the development of more comprehensive and comprehensible information about organisations, prospective as well as retrospective, to meet the needs of a more sustainable, global economy.”

Objectives of integrated reporting: •

To respond to the need for a concise, clear, consistent and comparable integrated reporting framework structured around the organisation’s strategic objectives, its governance and business model and integrating both material financial and non-financial information.

•

The objectives for an integrated reporting framework are to:

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•

Support the information needs of long-term investors, by showing the broader and longer-term consequences of decision-making;

•

Reflect the interconnections between environmental, social, governance and financial factors in decisions that affect long-term performance and condition, making clear the link between sustainability and economic value;

•

Provide the necessary framework for environmental and social factors to be taken into account systematically in reporting and decision-making;

•

Rebalance performance metrics away from an undue emphasis on short-term financial performance; and

•

Bring reporting closer to the information used by management to run the business on a day-to-day basis.

http://www.theiirc.org/

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Four critical elements

TOWARDS INTEGRATED REPORTING - Communicating Value in the 21st Century 

Discussion paper released September 2011. Comments required by 14 December 2011.

The paper sets out five Guiding Principles that should underpin the preparation of an Integrated Report.

• • • • •

Strategic focus Connectivity of information Future orientation Responsiveness and stakeholder inclusiveness Conciseness, reliability and materiality

We hope this toolkit encourages and supports you in becoming part of the pilot programme – for further details contact jessica.fries@royal.gsx.gov.uk

Integrated Reporting – what’s next? 

Discussion paper comment period ends – December 2011



Two year Pilot Programme for organisations testing the principles and practicalities of IR (2011 – 2013)



In 2012 publish an International Integrated Reporting Framework Exposure Draft, reflecting responses received to the Discussion Paper and the experience gained from the first year of the Pilot Programme



Develop institutional arrangements for the ongoing governance of Integrated Reporting vis-a-vis IASB and National Standard-Setters and Regulators

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Key quotes from the session

“Costs must not only be accurate and fact-based, but must also reflect the ‘truth’ and include long-term costs just as other costs like labour, materials and so on.”

“Business must find innovative to reinvent Ownership, Governance, Leadership and over-all Business Models that ensure that ‘what comes from the people goes back to them – perhaps many times over!’”

“Accountancy has perfected the need to understand annual business cycles and accumulations of assets and liabilities. Now comes a need to understand the co-creation and ‘account for’ business value.”

“The present emphasis is on inputs or outcomes or result. Future needs would require the understanding of impact – and that impact in human terms of well-being.”

“While all measurements are quantitative, value is qualitative and is comprised of perceptions and opinions of direct and associated stakeholders. So value can be created (by push) to a limited extent. Sustainable value needs to be co-created (by a pull from the community).”

Anant G. Nadkarni, Vice President – Group Corporate Sustainability, TCCI

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Session 5: Success through corporate sustainability Keynote address and closing remarks from Tony Manwaring, Chief Executive, Tomorrow’s Company Good afternoon.

It is true delight and a great honour to be giving this speech to you bringing to an end an extraordinary and very special two days together – I am truly humbled I want to begin with a story: A few weeks ago I left our office in central London around 6.30pm which means going down into the bowels of the earth to travel on our underground. About half an hour later I emerged into the night and got on the bus and picked up my phone messages What I heard was something like ‘Dad, come quickly, Sam, his head is bleeding, come quick, where are you?’

Then there was another message from my 10 year old, Antony, talking about his 6 year old brother.

‘We are at the hospital, at accident and emergency, where are you, get here quick!’

So as you can imagine I rushed to the hospital, gripped by a cold state of dread, fearful of the worst.

To put you out of suspense, all was well, it was a cut in his head that gushed blood but thanks to a bag of frozen peas it did not swell up and stopped by itself – by the time I got there, all was calm, they were playing and hours later the doctor gave him a clean bill of health Why do I share this story?

It is to demonstrate that we all have a deep sense of value. What it is, what it looks like and what it feels like. What matters and why. Now and in the future.

It is to underline that across cultures, borders and miles there is so much more that brings us together than keeps us apart. We sometimes talk about globalisation as if we are being forced to live together: how crazy is that, we should celebrate the joy of being with one another.

And it is to reinforce the power of insight rooted in emotion, empathy and humour – if we are able to bring our whole selves to a conversation or opportunity, as I hope you can tonight, there is so much more we can do, that we can co-create, individually and together.

But is not value in your personal life and with loved ones very different from value in business.

To which I say yes, it is very different – but does it need to be? Is this a good thing? And does this more limited sense of value actually help achieve success in business?

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To which I would answer: no, no, and no again!

We need to recognise that we live in a world where there are systems and processes (a ‘way’) and there are behaviours and cultures (a ‘ness’), which together make up how we live our lives at work and at home. Those need to be balanced and integrated. For just as man cannot live by bread alone, so people cannot create value by systems and skills alone: temperament and character are just as important, perhaps more so.

This speech marks the launch of Tomorrow’s Company in India. It is a great milestone for Tomorrow’s Company. We were formed as a result of a lecture given at the Royal Society of Arts by th the very wise Charles Handy on Wednesday 5 December 1990 – very nearly 21 years ago. Charles asked - what is a company for and what is the purpose of profit?

This lecture inspired a generation of business leaders to come together and together work out the answer to those questions: for that is the ness and the way of Tomorrow’s Company; the alchemic magic that makes us distinctive and produces insights that are owned by and from business leaders.

In giving this speech I stand on the shoulders of giants: Mark Goyder our Founder Director, and his father George, Philip Sadler our senior fellow and Charles; and above all the many business leaders, yes initially in the UK but increasingly worldwide, and others, as well as wonderful staff and volunteers, who make up the extraordinary collaborative community that is Tomorrow’s Company.

‘Truly global companies will need to develop a compelling vision which enables sustainable, profitable development of their business whilst benefiting the society at large. Those of us involved in creating [the] Tomorrow’s Global Company [report] are determined to create a business community that will be a source of economic, social and environmental progress.’

That is what Nandan Nilekani, then Co-Chairman of Infosys Technologies, said as co-chair of the inquiry team which produced the report Tomorrow’s Global Company: challenges and choices.

Over 15 years after the first report it asked those questions for companies which are now global in an ever shrinking, more complex and interconnected world.

I was lucky enough to launch the report in India in the ‘stealth pyramid’ on the Infosys campus in Bangalore, where we filmed an interview with CNBC TV. Standing again, on the shoulders of giants.

Of course there is another lesson from this – that even in India being involved in Tomorrow’s Company is career enhancing, just look at what Nandan is doing now!

Those business leaders, from the so called east and west, industries old and new, together with NGO and other leaders, argued that business needs to redefine success, live strong values and create the frameworks which enable business to create the level playing fields upon which success can be built.

Critically, they said that business leaders need to ‘expand the space’ – Nandan’s phrase – to reach out and step up beyond achieving excellence in running the business to work with civil society, communities and government to create the enabling conditions for future business success.

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We are here today because of the consistent message of those Indian business leaders that Tomorrow’s Company has a message, a community, a way of working and a purpose which are relevant and timely, in, with and for India and beyond.

Charles Handy’s words from that excellent first lecture echo down the years: ‘Above all I want to say that in a time of change we must always question whether the things that used to work will work so well in the future. We must not be slaves to our history but trustees of our destinies. Our businesses are too precious to be lost because we have not dared to question the past or to dream the future. Let us start now, before it is too late.’

Charles argued with great force that ‘the principal purpose of a company is not to make a profit – full stop. It is to make a profit in order to continue to do things or to make things, and to do so even better and more abundantly.’

In his speech, Charles reflected on his experience as a ‘lowly regional manager in a distant outpost of a great oil company’ working with village people 200 miles up the Rejang River in Borneo. He confesses to selling much needed petrol required for trading nuts used to make chocolate at a discount locally rather than forcing up prices and exploiting a monopoly position. He says that this was ‘a form of social contract but it needed profits to make it work and to go on working.’ The social contract is therefore revealed as the end, and profits as the means, a point we all too easily forget in the more complex arrangements of business today.

A word about profit: I think profits are great: there is nothing I will say that does not celebrate making a profit. But it is surely legitimate to ask today, as Charles did decades ago, profit for what and profit how – perhaps above all, profit for why.

The latest insights of the Catholic Church, Caritas et Veritate, are interesting in this context: ‘Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty.’

(Caritas et Veritate, which means ‘Charity’ or ‘Love in Truth’, the Encyclical Letter of the Supreme Pontiff, Benedict XVI) Ravichandran of HP said it beautifully when he wrote to me as we were getting to know one another:‘There is a trust deficit and that needs bridging. Companies are more worried about quarterly performance than long term sustainability…because short term investors and their greed seem to be of more importance than true shareholder value.’

So, indeed, what is true shareholder value – and more fundamentally still, what is value?

This is an important question, which has long been a subject of debate for economics. We would do well to remember the words of John Maynard Keynes who once famously said:‘Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.’

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I want to argue: Firstly, that we are unconsciously trapped in ways of thinking and seeing value that condition how we act and behave that are no longer fit for purpose, with systemically dysfunctional consequences.

Secondly, that understanding and securing the most effective relationship between values and value creation is now the most important challenge facing not only business but also humanity – achieving this will define the future of people and planet alike; Thirdly, that businesses are engines of value creation unlike any other – it is now common place to argue that the future of profit, people and planet are inseparably intertwined, but what now matters is that we consider what kind of value, and how we co-create value in the future.

When Albert Einstein said ‘We cannot solve our problems with the same thinking we used when we created them’ he might well have had value in mind!

We have reached the point where recent past and still prevalent concepts of value have become stunted – I want, very respectfully, to borrow R. Gopalakrishnan’s (who is a Director at Tata Sons) brilliant description of the ‘bonsai manager’.

For the challenge of our times is ‘bonsai value’ – value which draws on economic drivers to generate returns for the short-term alone. Such bonsai value was once necessary and sufficient to drive growth and development but is now no longer sufficient to drive long-term wealth creation.

So why does value matter so much? Value provides the ‘magnetic north’ of and rationale for commercial decisions in business and finance. Profit builds wealth but both spring from value. But when we look at the way in which we think about value we find that we are building on shaky foundations and shifting sands.

As Philip Sadler our senior fellow has concluded: ‘Economists have taken a one dimensional view of value, looking at it in the context of transactions taking place between buyers and sellers at a point in time. They have ignored the time dimension and externalities; they have not taken account of the longer term consequences of such transactions and their related economic and social benefits and costs; nor have they taken into account the economic and social impact of transactions on third parties and the natural environment.’

So I say today’s value is unfit for purpose, and let me emphasise why this matters so much.

If you need convincing read Why Markets Fail, an excellent deconstruction of neo-classical economics, drawing on game theory, by John Cassidy. Through the lens of behavioural economics he highlights the dangers of the ‘rational irrationality’ which creates systemic risk and uncertainty.

‘Nowhere in the lengthy mortgage chain did anybody play the role of an old fashioned bank-loan officer, screening borrowers to ensure they could afford the loans they had applied for, and then monitoring their behaviour.’

As Keynes said, it may sound academic but the results are all too real.

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This is what the financial crisis is all about: speculative investment and greed played a big part for sure, but what it did for us was how trailer parks became financial bricks and mortar, parcelled up and traded in complex products to assume the value of mansions and palatial estates. Hence the sovereign debt crisis in Europe, rippling uncertainty through world markets.

At its heart, a crisis of values and value – the triumph of at best hope, at worst lies and deceit, but lies and deceits in which we all colluded, over unsustainable expectations. Like the cartoon character Road Runner in the cartoons, we have run out of mountain top, and we are falling, falling, falling big time. ‘Meep, Meep’ indeed.

A few years ago I asked the great American business leader, Ray Anderson, who is sadly no longer with us, what had most influenced his thinking. He has powerfully shown that a petrochemicals based business – carpets and floor tiles – can produce things with a far reduced material input and environmental impact, and can strip out waste through radical product and process reengineering learning from and respecting nature: in scaling Mount Sustainability costs are reduced and profits enhanced.

Ray cited The Ecology of Commerce by Paul Hawken – and also a short monograph by Donella Meadows on systems theory. Meadows, part of the Club of Rome, argued that the very last thing you should do if you want to change a system is throw money at the problem; she argued for understanding the impact of feedback loops, negative and positive. But above all, if you want to change a system, she concluded, you need to challenge the paradigm which frames the mindset which shapes how we think, behave and act. That’s the true significance of what Interface have shown is possible – it is paradigm busting, opening our eyes to tomorrow’s mindset today.

So how do we create a new paradigm for value?

It is often argued that we need to take social and environmental factors in to account and I agree – but I am also concerned that we have created a false divide by separating out economic value from social and environmental considerations through the lens of ‘ESG’ or ethical investment.

But this still does not go far enough. We need to do more than rethink the relationship between business and society; we also need to rethink our own relationship with both. For otherwise we perpetuate a division between subject and object that modern science illuminated by Einstein has called into question for the best part of a century.

We need instead to explore the relationship between value and values because, in so doing, we can understand how to rethink and co-create Tomorrow’s Value.

We have reached the limit of what we can work out by relying on left-brain analysis alone: things are becoming too complex, too interconnected, and change too rapidly. We can’t make ourselves think harder and harder to force ourselves to cope and to catch up.

In the Bonsai Manager R. Gopalakrishnan states ‘when knowledge (what you know you know) is integrated with intuition (what you do not know you know) it becomes wisdom’.

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Or to put is more simply and to quote from Spock the elder, talking to Spock the younger, in the most recent incarnation of Star Trek: ‘Do yourself a favour, put aside logic. Do what feels right.’

Tomorrow’s Value will I believe be forged through the dynamic interplay between values and value on the one hand, and between knowledge and intuition on the other. This is what we have done through our leadership programme over these past two days.

‘When your actions are motivated by values, your energy multiplies and accumulates’, Gopalakrishnan argues. ‘Values are … the calm eye of the centre … of the vortex of the spiral’ he concludes.

This surely offers the best and indeed only way to live in the now and the future, to be broad and deep, to achieve synthesis whilst retaining still absolutely essential technical specialisms and granularity. Or as William Blake so wonderfully put it ‘To See a World in a Grain of Sand And a Heaven in a Wild Flower, Hold Infinity in the palm of your hand And Eternity in an hour. ― Auguries of Innocence So in overcoming the limits of bonsai management within the business, we also develop the capacity to create Tomorrow’s Value through business.

Through intuition and empathy we recognise that value cannot be created in isolation: it is a social construct and, as Anant Nadkarni of TCCI has commented, can only be co-created.

John Knights in his wonderful insights on transpersonal leadership draws on neuroscience – recognising that as we gain new insights we make new connections in our brains, and that certain physical and behavioural states are required to release the chemicals and hormones which enable this to take place.

This is what it means then to talk of tomorrow’s companies as engines of sustainable value creation.

Yes companies produce goods and services, create jobs and generate tax and other revenues: and all of that is hugely important.

But more than all of this, companies are extraordinary engines of innovation and insight, transforming not just how we work but also how we live our lives.

So these then are the conclusions that I reach: 1. that the purpose of a company is to create sustainable value;

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2. that sustainable value can only be co-created: at the most fundamental level of how we think and act, we cannot instruct or compel, we have to engage and work with.

Economic and social development must go hand in hand – as Mr Kishor Chaukar (who is the Chairman of the Tata Council for Community Initiatives and Managing Director of Tata Industries) has long argued; 3. that the co-creation of sustainable value requires ‘ness’ and the ‘way’. Skills and experience, systems and processes can only take us so far; temperament, character, intuition, judgement matter just as much. This is not a matter of either/or. It is a creative and dynamic balance between the two, as we scale the mountain of value creation, we need to build ever firmer footings, ever higher, creating greater bandwidth as we ascend; 4. that value is co-created across complex and myriad chains of value which span cultures and borders: for businesses to continue to create higher levels of value they must collaborate to compete, bringing ‘ness and way into ever higher levels of dynamic reciprocation, within and across business boundaries. There is no place for silo thinking or practice!

5. that business must operate at the intersection of the three great and interdependent subsystems on which we depend for lives and prosperity: the economy, social and political sphere, and natural environment (which Tomorrow’s Company calls the Triple Context); 6. that businesses are a force for good when they generate cash that secures profit that builds wealth that co-creates sustainable value – establishing economic, social and environmental capital for present and future generations; 7. that the form this value takes will and must be extraordinarily aspirational and diverse: rooted in technology, culture and imagination, meeting but also creating need, always striving to make tomorrow what is unimaginable today; 8. that this therefore reinforces the critical role to be played by companies in ‘the Age of Sustainability’: the new long wave of economic development we have now entered in which we must harness abundant talent to overcome growing resource scarcity. A world view based on abundant resources and scarce talent is surely no longer fit for purpose; 9. that governance and leadership of tomorrow’s companies must be guided by principles of stewardship: driven by a clear sense of purpose, embedding both ness and way through every level of the business. If profit is the means and not the purpose, so governance and leadership must strive to establish those higher aspirations and felt meaning;

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10. that these principles of stewardship must equally apply to finance and capital markets: so that finance is re-connected with and serves the needs of citizens and the real economy 11. that if we manage what we measure we must measure what matters: that we need systems which capture Tomorrow’s Value, so I welcome the work of CIMA and others in developing Integrated Reporting which we discussed today; and that we need this higher level understanding to ensure that this opportunity adds value rather than adding a burden; 12. that companies and capital markets alike have a shared interest to create sustainable value because this delivers superior risk adjusted returns: failing to take this wider view of what drives value not only increases your risk profile but also creates the trap of ‘bonsai value’, blocking the enormous opportunities that arise from creating new forms of value which will deliver wellbeing and prosperity for 15 billion people living on our one and wonderful planet.

These conclusions need to be seen within the cultural and societal context in which they are made.

In the UK and Europe the dominant mind-set requires that companies justify what they do and why.

Schumacher captured this brilliantly: ‘There is a universal agreement that a fundamental source of wealth is human labour. Now, the modern economist has been brought up to consider ‘labour’ or work as little more than a necessary evil. Hence the ideal from the point of view of the employer is to have output without employees, and the ideal from the point of view of the employee is to have income without employment.’

Small is Beautiful, 1973 Business and wealth creation start on the defensive, having to justify their very right to exist let alone to be seen as contributing to the common good. (Why? Utopianism, Romanticism, Marxism, Methodism were, I would argue, amongst the dominant forces which won the battle of ideas and shaped the new paradigm that made sense of the industrial revolution. Blake’s ‘Dark Satanic mills’ continue to cast a long shadow). This view is being challenged but is still dominant.

‘The Church’s social doctrine holds that authentically human social relationships of friendship, solidarity, and reciprocity can also be conducted within economic activity, and not only outside or ‘after’ it’ – to quote again from Caritas et Veritate. This should be a statement of the obvious, not a much needed challenge to an unconscious but prevalent view of the relationship between business and society.

India, it seems to me does not have such hang ups. It is a great place for Tomorrow’s Company and for tomorrow’s companies. This is no accident. In part it is because you are a nation and a people building anew. But I would argue there is a more profound reason.

Business is not seen apart from society. Rather, business is a dynamic, respected and valued part of society – valued for the contribution it makes to lifting millions out of poverty, overturning exclusion, creating new possibilities for a new India.

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When Jamsetji Tata stated that: ‘In a free enterprise, the community is not just another stakeholder in business, but is in fact the very purpose of its existence’ he left an enduring legacy – one in which ness and way are mutually reinforced through a practical philosophy contained within a trust structure which is unique in form and scale.

I think there is something distinctive about the Tata ownership structure which deserves deeper understanding but I celebrate the wonderful qualities of so many Indian businesses leaders and leading businesses we have been fortunate to get to know.

In this context, if I had a wish it would be to establish a web-based on-line learning platform to provide the foundations for a learning community, the Institute for Tomorrow’s Company, in which India plays a leading role.

This would study the configuration of purpose, ownership, governance, leadership, talent, engagement and reporting which will be most fit for purpose to co-create sustainable value – of business leaders and others together, drawing on the magic alchemy that is Tomorrow’s Company to build a community of understanding and practice on which business leaders, current and future, could draw upon.

I want to close by quoting from the Yoga Sutras of Patanjali – to my mind the most profound insight on human nature, existence and fulfilment: ‘When the mind has settled, we are established in our essential nature, which is unbounded Consciousness.’

In its concluding section we find this – which might perhaps have been written about the nature of value and the value of nature ‘Any change into a new state of being is the result of the fullness of Nature unfolding inherent potential.

But the apparent causes of a change do not bring it about. They merely remove the obstacles to natural growth, as a farmer clears the ground for his crops.’

This is what truly and profoundly excites me about Tomorrow’s Company in India – the fullest understanding and realisation of co-creating sustainable value must come from deepest level of our being, developing the wisdom to discriminate what has value.

Just like we all did when I started talking about my boys rush to hospital.

David Wasdell, a leading climate scientist and systems thinker, shared this wonderful insight: that the basic meaning of the word company is rooted in the French, ‘to break bread together’.

The very essence of a company is therefore one of co-creation.

So let us indeed break bread together over lunch.

Thank you for listening – and thank you for sharing these last two and very special days.

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“The history of technological progress over the past 200 years is essentially the story of the human species working its way slowly back into Paradise.”

Wassily Leontief, Nobel Prize for Economics (1982), quoted Gorz, Paths to Paradise, 1983

“Labour certainly produces marvels for the rich, but it produces privation for the worker. It produces palaces, but hovels for the worker. It produces beauty, but deformity for the worker.”

Karl Marx, Economic and Philosophical Manuscripts, quoted by Fisher, 1968, my emphasis

“The worker therefore feels himself at home only during his leisure time, whereas at work he feels homeless.”

Karl Marx, Economic and Philosophical Manuscripts, quoted by Fisher, 1968

“To strive for leisure as an alternative to work would be considered a complete misunderstanding of one of the basic truths of human existence, namely that work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.”

E.F. Schumacher, on ‘Buddhist Economics’ in Small is Beautiful, 1973

“Without work, all life goes rotten But when work is soulless, life stifles and dies” Albert Camus, quoted in Schumacher, Good Work, 1979 “Is it all a dream then – the desire of the eyes and the pride of life – or, if it be, might we not live in a nobler dream than this?”

Sesame and Lilies, John Ruskin, English critic, essayist, & reformer (1819 - 1900)

“The highest reward for man's toil is not what he gets for it, but what he becomes by it.”

John Ruskin, English critic, essayist, & reformer (1819 - 1900)

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Tomorrow’s Company Tomorrow's Company is the agenda setting ‘think and do’ tank which looks at the role of business and how to achieve enduring business success. We focus on strong relationships, clear purpose and values as the foundation of effective leadership and governance.

In our programmes we challenge business leaders around the world to work in dialogue with others to tackle the toughest issues. We promote systemic solutions, working across boundaries between business, investors, government and society.

We believe that business can and must be a 'force for good’. This in turn requires a strengthening of stewardship by shareholders in partnership with boards of companies.

We argue that the Age of Sustainability has begun, and that in the future success and value creation will come from recognising the ‘triple context’ – the links between the economic, social and environmental sub-systems on which we all depend, and the opportunities this brings. Tomorrow's Company has a strong track record of reframing thinking and informing policy: •

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Tomorrow’s Company: as a result of this original 1995 inquiry report, the UK’s 2006 Companies Act redefined the duties of directors and introduced new requirements for narrative reporting which built on our 1998 reports Sooner, Sharper Simpler, and Prototype plc Restoring Trust: in which leaders from investment and business described the changes needed to align investment and financial services with the needs of clients, companies and society and helped lay the foundations for the UN’s Principles for Responsible Investment Tomorrow's Global Company: challenges and choices: brought together business leaders from around the world who concluded that the markets are leading to unsustainable outcomes; that for global business there are increasingly no externalities; and that business can and must be a 'force for good' Tomorrow's Global Talent: challenged the mindset that talent is scarce, an argument taken forward in 'A new talent agenda for the UK' written withand for the UK Government's 'Talent & Enterprise Taskforce' Tomorrow's Innovation, Risk and Governance: focuses on the importance of leadership, behaviours and culture, with many of our recommendations and insights reflected in the recent work of the UK’s Financial Reporting Council Stewardship: our project on Tomorrow’s Owners - stewardship of tomorrow’s company, started in 2008 and set an agenda that was taken up by Sir David Walker in his report on the financial crisis and subsequently by the UK’s Institutional Shareholders Committee and the government. By 2010 the UK had introduced a Stewardship Code to be followed by investors.

www.tomorrowscompany.com and www.forceforgood.com ‘Tomorrow’s Company India’ was launched at the event through Tomorrow’s Company GGBS – for further details contact sunil@tcggbs.in and preeta@tcggbs.in

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CIMA - Helping people and business succeed The Chartered Institute of Management Accountants (CIMA) is the world’s largest and leading professional body of management accountants. We have 183,000 members and students in 168 countries. They work at the heart of business.

Our members and students work in industry, commerce and not for profit organisations. We have strong relationships with employers, and sponsor leading research.

We constantly update our qualification, professional experience requirements and CPD programme. This ensures that our members and students are first choice for employers who are recruiting financially trained business leaders.

We are committed to upholding the highest ethical and professional standards, and to maintaining public confidence in management accounting.

The Chartered Global Management Accountant (CGMA) is the global designation that will elevate the profession of management accounting.

CGMAs will continuously sharpen their business acumen and have the determination and commitment to achieve sustainable business success.

Employers around the world will trust CGMAs to guide critical business decisions and drive strong business performance.

Powered by the resources and reputation of the AICPA and CIMA - two of the world’s most prestigious accounting bodies with a total membership of over half a million - the CGMA embodies the talent of today and the potential of tomorrow.

The new designation will be launched in January 2012

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We hope you find this toolkit useful.

We encourage you to share feedback and examples created through practical use of the toolkit.

We will be developing a further version of the toolkit as a resource for companies who want to take forward integrated reporting in practice to support the work of the IIRC (International Integrated Reporting Committee).

Please send your comments to: luisa@tomorrowscompany.com