Managing to Measure

Question 1

Simple model of the Anglo-American firm

Answer 1

Single function = profit maximisation
Set of incentives link managers and owners - mutually beneficial
Efficient markets penalise bad behaviour

Question 2

Assumptions re. financial markets and the effectiveness of reporting environmental liabilities

Answer 2

Investors care about more than profit - long term; BUT US and UK 1 year = av. time a company’s held by a makor investor
Firms have the info and disclose it
Financial institutions have expertise to judge liabilities

Question 3

Problems with investors re. environmental reporting

Answer 3

See less risk as less reporting
And prefer companies just below average - have ability to improve their score and they might get a premium = incentive to be below average

Question 4

You manage what you measure (?;?)

Answer 4

Lowenstein 1996
Re. financial disclosure
= fair and efficient markets
= better corporate governance - manage what you measure
= removes need for substantial regulation

Question 5

Short-term performance obsession (?;?)

Answer 5

Rappaport 2005
Investors and CEOs focus on short-term financial earnings - quarterly
= not realistic indicator of potential earnings
= promotes bad corporate governance
–> need corporate reporting and incentives that more closely align interests of managers and owners

Question 6

The Sarbanes-Oxley Act (?)

Answer 6

2002
Est. the Public Company Accounting Oversight Board = independent oversight of auditors
standards for external auditor independence
enhanced financial disclosure
senior exec’s have individual responsibility for accuracy and completeness of corporate financial reports

Question 7

FTSE 4 Good Index - and study on it (?;?)

Answer 7

Est. 2001
Ethical investment stock market indices
CSR criteria for inclusion
Collison et al 2009:
= how it's perceived by company reps
- inclusion had significant effect on reputation and certain stakeholder relationships
- limited influence on corporate conduct

Question 8

The Balanced Scorecard (?;?)

Answer 8

Kaplan and Norton 1996
Management and measurement system - links strategy to measures
4 categories: financial, customer, internal/business process, learning and growth
= can take into account non-monetary strategic factors that impact financial success
High-level goals translated to department and individual goals

Question 9

The sustainability balanced scorecard (?;?)

Answer 9

Figge et al 2002

Incorporate enviro and social aspects into main management system of a firm

Question 10

UPS Case Study (?;?)

Answer 10

Rubin and Carmichael 2007
Enviro reporting - est. 2002 ‘Operating in Unison’ = triple bottom line reporting - financial, environmental and social
Integrated systems and efficiency - key
Gallons-per-package metric
Hybrid vehicles and mileage reductions
Proactive compliance culture
Information ubiquitous - Barcode and scanner; every parcel has unique number = enormous control over the system

Question 11

Are environmental disclosures taken into consideration (?;?)

Answer 11

Asset Owners Disclosure Project 2016
Nearly half of world’s 500 biggest investors are ignoring climate risk completely
Only 97 are taking tangible action

Question 12

FTSE Divest-Invest Developed 200 Index (?)

Answer 12

est. 2016
replaces fossil fuel companies with green alternatives
gives investors way to assess companies based on their green revenues