16 August 2004
As with many industries, the legal profession has been wrestling with the impact of increased legislation, increasing threats of catastrophic risk, ever more complex international operations and the desire to develop the surety of its supply chains at all times on its crisis management functions.
Many law firms have now started to try to gain strategic and commercial advantage by implementing risk and crisis management programmes that stand the glare of public, investor and commercial scrutiny. One of the key ways they are doing this is by seeking to gain accreditation to such bodies as the Dow Jones Sustainability Index (DJSI).
Since the advent of the DJSI in 1999, more than 300 organisations have successfully striven to achieve admittance to its listings and benefit from the investment cash cow that is increasingly drawn towards listed organisations.
Some of the world’s largest, most diverse and best-known organisations, including law firms, have targeted admittance to the index as a major corporate objective, to show investors, and the world at large, that they represent not only value for money, but that they are among the safest bets in a turbulent commercial world.
The tremors caused by the major corporate collapses of the past five years, the increasing demands of the environmental lobby and, significantly, the rise and focus of regulation and legislation around the world have made such strategic moves both inevitable and invaluable.
What does it take?
The DJSI is all about focusing attention on four main areas in relation to business continuity, corporate governance, investor relations, strategic planning and environmental and social policy: ownership, process, monitoring and transparency.
The lack of one or more of these elements has led many an organisation to suffer the embarrassment of having their listing from the DJSI refused or removed.
For this is no corporate junket. Fly-by-nights need not apply. Only organisations with a real commitment to corporate citizenship are welcomed. Your desire to create long-term value by embracing opportunities and managing risks deriving from economic, environmental and social developments must be absolute, measurable, visible and accountable.
Nice words? Of course they are. It explains why a vast number of investors perceive sustainability as a catalyst for enlightened and disciplined management and, thus, a crucial success factor. As a result, investors increasingly diversify their portfolios to invest in companies (or instruct law firms) that set industry-wide best practices with regard to sustainability.
One of the most intriguing areas of DJSI assessment is that of business continuity. Its very inclusion is a breakthrough in terms of taking business continuity out of the accountancy, IT or facilities management department and into the day-to-day operations of every business unit. The DJSI drives organisations to implement business continuity as an integral business discipline. No longer is it a dusty file to be taken off a shelf in exceptional circumstances.
The DJSI looks directly at who owns business continuity at a group level. In particular, it focuses on how far that ownership is from the boardroom. It also broadens the scope of traditional crisis management by looking at issue and reputation management.
As a result, the gauntlet is thrown down to organisations to address what can really hurt their survival prospects – namely, a damaged brand. Trusting to luck is no defence in the eyes of the DJSI. These matters must be managed, measured and owned.
On top of this, an organisation’s commitment to business continuity must be process-driven. The one-off, knee-jerk, ‘let’s write a plan to deal with the latest threat’ reaction is not only wasteful and ineffective, but is now being judged as poor management practice – and poor management practice is something not conducive to sustainability.
Commitment to business continuity planning, communication with the media, critical audiences and stakeholders, coordination across the organisation, plus the frequent testing and rehearsing of plans are the currency with which you can trade on the DJSI.
It all comes back to the same four issues: ownership, process, monitoring, transparency. If you cannot convince Dow Jones, then how are you going to convince your investors, clients and employees?
In extremis, how will you convince a court ruling on a class action on your failures in these areas?
One-off or lifetime?
To ensure its longevity as a meaningful corporate and investor measurement tool, the DJSI also incorporates a long-term monitoring mechanism. At the outset, both the chief executive officer and head of investor relations have to sign a ‘confirmation of truthful company statements and documentation’. However, this is not where the story ends.
The DJSI then monitors closely each organisation’s behaviour in economic, environmental, social and crisis situations and compares their business continuity against their stated principles and policies.
Failure in this area can, and has, led to organisations’ exclusion from the DJSI family, regardless of the outcome of the financial or annual assessment.
The following issues are identified and reviewed in the monitoring process: commercial practices (eg tax and balance sheet fraud, money laundering, antitrust, corruption cases); human rights abuses (eg discrimination, forced resettlements, child labour); layoffs and workforce conflicts (eg layoffs and strikes); and catastrophic events or accidents (eg fatalities, workplace safety, technical failures, ecological disasters, product recalls).
The above are considered ‘critical issues’, and when they occur the monitoring begins. Assessment is made of the extent of the crisis within the company, geographically and in terms of media coverage. If the impact of the crisis on the reputation of the company, or on its operations, is far-reaching, then the monitoring moves to the next phase.
In the second stage, the quality of a company’s business continuity is assessed. How well it informs the public, acknowledges responsibility, provides relief measures, involves relevant stakeholders and develops solutions are the areas where sustainable companies will excel. Failure to do so on any one or a series of incidents may lead the assessment committee to propose to the DJSI design committee that it excludes the organisation from the DJSI family.
It is clear that the DJSI is trying to grasp the main concepts of best practice and has identified the main themes of legislation and regulation being put into place around the world’s main trading centres.
The themes of ownership, process, monitoring and transparency will be familiar to all of you who have been impacted by corporate governance or risk management legislation and regulation.
The importance of the DJSI in this arena, though, is significant. Why? Put simply, because it hits your bottom line.
The investment significance of the DJSI is such that any major corporate increasingly needs to be aligning itself with issues around sustainability. For law firms not yet able to attract third-party investment, the DJSI is the perfect vehicle to show to the world the quality of your management and the aspirations of your organisation – something today’s global market demands to know.
Philip Alcock is a senior consultant at Control Risks Group