Methodology: A Discussion
Historically, company goals were only to increase shareholder value. This, of course, led to an imbalance of action, with pollution, mistreatment, unsustainable practices, and more. A design of a coherent conceptual architecture bridges the gap between goals and the people and strategies to achieve them. But how do we measure progress … in order to manage it?
Historically, the objectives of all companies were only “to increase shareholder value.” Overtime, the impacts of a company’s actions, and omissions has led to many forms for damage. Pollution of air, water, and even land was common. Mistreatment of employees was common. Different and subtle forms of discrimination happened. Population density in cities and towns, and the science of Medicine eventually combined to identify and quantify many harmful effects from companies’ actions and omissions. In many cases these were unknown effects and unintended consequences. The science of health, chemistry, evolved markedly since 1950. Most industries from manufacturing to healthcare have many more competing companies and many times more employees, customers and partners. So density continues to play a prominent role. ESG imperatives are being analyzed and adopted by forward thinking companies as way to map the impacts of decisions, strategy and investments that they make every year. A deep and careful execution by such companies contributes to the people, communities affected. This in turn reduces unintended consequences and improves the long term outcomes for all stakeholders.
Triple bottom line is a measurement approach for corporate strategy that is much more holistic than accounting and finance measures alone. This method predates recent interest in ESG (Environment, Social, and Governance) measures which more popular today. Separately, DEI (Diversity Equity and Inclusion) as Social aspect can be measured as they pertain to employees, partners and local communities. But Sustainability is a new aspect which comes from the notion of Climate impact, and widely accepted fears of Climate change. The importance is to understand some of the impacts that a company’s operations have on the environment, it’s employees and partners, and its local community. Companies have been known to be attacked by activist investors, competitors, government agencies, and even short sellers, for their lack of attention to ESG factors. Furthermore, several institutional investors of public and private equity have ESG metrics and reporting requirements, as way to appeal to their own investors and limited partners. This is extra measure of compliance, trust, integrity that reduces overall risk; both financially and longer term to communities that are served by the company.
Different forms of metrics and threshold values can inform the management of a company and highlight areas of risk and opportunities for change. Those metrics can be assigned to operating managers to monitor and fix overtime. Thoughtful companies work with HR to update compensation plans that have more requirements and variable payouts for operating managers who achieve changes or mitigate problems as part of their role descriptions. In this way, forward thinking companies can attract the right individuals who have personal interest and passion for helping societal and environmental goals. And employees can receive personal rewards along the way toward meeting big picture ESG goals for their employer. This tightens the bond of employees to such companies and increases the brand strength of such companies.
By structuring a larger set of goals and metrics (KPI) companies with COO, Compliance officers or other leaders, can enable dialogs which include other stakeholders inside and outside their company. Too many metrics can lead to sensory overload, so leaders need to scope the number to be manageable priorities for the operations and staffing that are in place today.
Some of the metrics and their measurement methods might be scientific and very technical. To help senior staff leaders, a simplification in reporting might be necessary to concentrate on the simplicity of the value and effects it causes. Metrics ideally should be understood across the company, and with certain outside stakeholders from government agencies, local government, and shareholders.
When comparing progress across a variety of metrics, which have different measurement methodologies, time frequencies and time horizons, care must be taken to normalize them in terms of rates of change (progress in improvement) as well as comparison across other measures and their respective priorities. Its very easy to make the comparison unintelligible or worse yet, misleading.
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