Delivering in Doah

SandyHopes were high but realistic when COP18 started in Doah. I for one did not anticipate much after the colossal failure in Copenhagen (COP15). But believing that we have to solve or differences, I did hope that at least something would come out of all the effort put in.

From the outset the ambition was to reduce CO2 emissions significantly in-order to keep the Earth from heating up. Especially the developing countries had hoped for a deal that ensured the possibility for sustainable growth. The impact of climate change have been felt in all the countries that “normally” were against any kind of real restriction on emissions so there is plenty incentive to take action.

The initial target was two degrees reduction in global warming, but now it is more likely that we will hit four degrees no matter what we do. So when the Danish climate minister Martin Lidegaard looks towards 2014 for a start of the negotiation for a solution I for one do not think it is even close to a success. Or as he puts it.

“It is crucial that we will soon have taken decisions to ensure we can keep our political promises. Therefore, I am delighted that we have established that the climate change conference in 2014 will be about how we limit greenhouse gas emissions within the next few years – for example through energy efficiency improvements and the removal of subsidies for fossil fuels”, says Martin Lidegaard.

I do belive that if we continue down this path we are creating the seeds to our own destruction. The current politicians are thinking mare about the next election (for those countries that are lucky) than about how to lead their people safely and wisely to a better tomorrow. For better or worse they are the only ones that can make real changes to global warming if we like it or not.

I have attached the official Danish press release from the COP its in Danish, but the message is clear if you read between the lines – we took a real big step in the wrong direction.

Pressemeddelelse

Tax evasion part of corporate culture

Image representing Steve Jobs as depicted in C...

Image via CrunchBase

Most people would think that countries like Spain, Greece and Portugal would rank among the very top of countries for tax evasion schemes. But even though the US has a relative low tax rate the country tops the list of places where tax evasion seems to be part of corporate culture.

So how big a problem is tax evasion? Take a look at the table below from Tax Justice Network, a London-based watchdog that fights against tax havens and for more transparency.

America’s “black” or “shadow economy,” represents 8.6% of GDP, while the percentage is by far the smallest of any of the countries on the list it does represent a significant monetary post and represent roughly the GDP of Denmark the 32 biggest economy in the world according to the IMF.

How does the companies in the US manage to avoid tax? Well, one suggestion is that companies like Google, Apple and Amazon manage to cut their tax bill by one third through a series of moves that involves countries in Europe and in the Carrabin, a system is also used by big European companies to transfer funds to tax havens. My friend Sarah Wenger has created the infograph titled “The master of Tax Evasion” that explains how the system works.

Masters of Tax Evasion
Created by: www.MastersDegreeOnline.org

Doing “good” also means taking hard decisions and being accountable for ones actions

Some people tend to think that if you are doing good you somehow do not have to be accountable for you actions. It would seem that it is like that ones you are “goodness industry” it is automatically a license to bypass the normal channels of communications and scientific standards. But with the growing number of stakeholders there is however an urgent need for more transparency also on the other side of the fence.
Very few of the stakeholder groups like NGOs or CSOs that I know of have a standardised method and understanding of how to report findings. Most often they god for a headline approach where what ever fits the main thesis is included in the reporting and all that contradicts will be left out. It is not that I think that they do this to be evil or that they are trying to twist the facts in a conscious way it is just that they are unaware that for anything to be true it needs to be transparent and capable of being reproduced. Unfortunately this is frequently not the case.
We often hold the most transparent companies accountable for their actions and dig into their annual and sustainability reports in order to find inconsistencies that we can explore but it rarely is the other way around. The possibility are explored that there is a discrepancy between what the company says and what they are actually doing. And when a flaw is found we make sure that everybody knows about it either through the press of using dedicated campaigns.
The Haitian earthquake disaster provides a good case for. NGOs and to some degree CSOs came under fire from locals who claimed that not enough had been done to transform temporary shelters into permanent homes, or to provide access to drinking water and sanitation services. In some camps run by NGOs, people were still dying from cholera a year after the disaster struck and by that actually doing more harm than good. Of cause it is not all NGOs that are active in Haiti that did wrong but it goes with the case that they cannot be left without some form of control and accountability for their actions.
Another example comes from Cambodia where international NGOs actively contributed to corruption, which was documented in the documentary “The Trap of Saving Cambodia”.

The film puts a spotlight on some of the troubling issues facing this country: government sponsored forced evictions; corruption on a massive scale; the underground trafficking of women and children. And maybe even as disturbing is that local NGOs with the finances of the World Bank, joined by huge donor countries are contributing to the continuation of these problems by providing access to billions of dollars in aid where most of the money is going to officials rather than to the people in need.
There are still NGOs that think the accountability is not for the “Goodness”-industry. Or as Mango a UK based NGO puts it “Research has shown that results-based management is not an effective way of managing and reporting most NGOs’ performance.” And Goes on to list why they should not held accountable for the results that hey produce. To a large extend reminding me of the discussions in the private sector in the 80 ties and 90 ties about quality management.
NGOs need to shape up if they are to continue to be the beacons of truth and uprightness that we have come to know them. They will need to shape up their processes and weed out the organisations that does not live up to the basic criteria of accountability, transparency and good governance or the whole sector will be dragged down into the mud from where it will be difficult of not impossible to escape.

From leader to follower – the impact of Danish CSR legislation

One would epact that countries that have a dedicated CSR law would also be the ones that would lead the pack on reporting. However according to the latest KPMG International survey of Corporate Responsibility Reporting is Denmark at best a slow follower behind countries like India, Spain, Hungary, China and South Korea just to name a few.

Traditionally the Danes have though of them selves as the “inventors” quality reporting on CSR with companies like NovoNordisk, Novozymes and Danisco at the very top. But it would seem that success have fostered complacency and now just about everybody have overtaken this ones a beacon of CSR reporting. According to KPMG we have moved from Quality to Quantity as we see more and more reporting being done but the quality of these reports does not seem to follow. One might think that having a dedicated CSR law would foster quality but it would seem that it is the other way around.

It should not be that difficult to follow the law as it is quite easy to come up with a policy, create a report and act on its findings. But it looks like that most companies have focused on the letter of the law rather than internalising CSR as part of the business. This leads to the dilemma if CSR should be voluntary or involuntary as s the case in Denmark at least for the 1100 biggest companies.

If the KPMG survey is true it could mean that a voluntary approach foster quality in reporting such as in the areas of IT, Assurance, Integration, use of standards and use of communication channels. While a law approach would mean that one gets more CSR reporting but at a lower quality.

One could argue that quality will come as time passes and it is only a matter of getting the right tools implemented. But if one looks at the CSR reporting discourse that Danish companies have taken it would seem that companies goes for the lowest common denominator.

In my mind Danish companies have taken a clear and present competitive advantage and turned it into a exercise in cost reduction. Shame on you….

15% of Danish companies are breaking the law

In a resent survey of annual reports it was found that around 15% of all the Danish companies that are required to report on their CSR activities did not deliver. In 2008 a new law was implemented that required the 1100 biggest companies in Denmark to report on their CSR activities. It is required that companies state in the annual report what their CSR policy is, how they report on this and what progress they have made.

This might seem relatively easy but for around 165 companies it was too much to handle. The main issue was that companies could not show consistency between policy, reporting and subsequent action. This meant that some might have a CSR policy but reported on indicators, which was inconsistent with this policy or they had identified issues in the reporting but to actions, which did not, related to the issues identified.

Well it is apparently very hard for Danish companies to understand the relationship between company policy, reporting and required action lets hope that this does not relate to other areas that they are active in.

Time for leadership change at Vestas

Windmill 02

Vestas Windmill

The board and management of Vestas Windsystems the biggest windmill producer in the world need to take a real hard look at themselves and how they conduct their business.

For to long the board have clinched to the hope that their CEO, Ditlev Engel, would have some sort of grip on the realities he and the company is facing. Year after year, quarter after quarter he has led the people who have put their trust in his statement down.

By being to optimistic he has again and again showed that he is unable to set realistic targets and even when nobody else has any doubt, which way the market is going. Vestas keep on insisting on unrealistic targets. Take for example the target of firm and unconditional orders for 7000-8000 MW and an EBIT margin of 7%. But until date the intake is only around 5200 MW very far from the and when the average announced intake is only around 80MW per order it is hard to imagine that the company will reach its targets in 2011. The investors have already taken the necessary steps and have punished the stock so that the change in stock price from last year is -58%. With the fall in the last 6 months of 53% it is clear that investors wants to see real change especially when it comes to realistic communication by management.

Investors like to know what they are buying and at the moment they do not trust the communication coming from Veatsa and when a company have lost the trust of their investors it is a true sign that change have to happen and happen fast. For the past three or four years there have been hopes that Ditlev Engel would start to deliver as he promised and time and time again he has been unable. I do not think that it is a loss of confidence in the product or the way that Vesats have put their business model together. Rather investors do not believe a word that Ditlev Engel is speaking and that is a real problem for the company as a whole.

As I see it is Vestas at the moment really undervalued and would be a good target for a takeover for a smaller windmill producer that could put in effective management.

The board need to step in and find a replacement that can build confidence with the market there is CEOs out there who have the necessary experience and competencies to bring Vestas back on track.

Too big to fail – at least half of the Danish banks should be liquidated by the state

A big story in Denmark or at least a big story to the ones that cares is that a big proportion of the Danish banking system has been receiving guarantees so that they will not fail. The state and there by the citizens of Denmark, have vowed that no matter what they do and what decision that take, that we in the end will come and rescue them from themselves.

But is this really in the best interest of the country? Or even a viable way to solve the crisis that we are in the mist of?

There are some 120 banks in Denmark at the moment, which is about one bank per 45,000 Danish citizens. In Germany there by comparison around 350 commercial banks, which calculate to around one bank per 231,000 citizens. While the number of banks per citizen is decreasing it is very far from any kind of sustainable structure.

At the same time a lot of banks are now trying to get into a very exclusive club of “too big to fail” institutions. The members are in reality guaranteed to be financially subsidized by the Danish state no matter how stupid or arrogant that they choose to be in the future. Many of these institutions only operate on a local or regional level and have a great deal of vulnerability especially towards the construction sector. It is estimated that just of these 20 banks will need around 20 billion Euros within the next few years just to be kept afloat. Even for a well-off country like Denmark this is a significant chunk of the GDP.

So the question is if we should take these vulnerary banks and liquidate them and thereby minimize the loss to society or should we wait and see what happens? These is of cause the dilemma that these are in essence private businesses but if they think of them selves as too big to fail should we not at least have some control over the process and governance within these companies. These is not doubt that selling the good assets now will bring in a significant bigger return compared to the price we can get when the bank is no longer sustainable and the subsequent loss on the bad assets is something we would have had to endure anyway.

Another benefit of liquidation of smaller regional and local banks has to do with governance. We have now seen numerous times that members of bank boards and executive management have been privately engaged with the people that they have been lending money. This close relationship have meat that common financial sense have been overridden by personal favouritism and to many second chances which in the end have meant that the banks commitment have been too deep and focused on a few companies in high risk areas. This have en essence meant that the risk exposure have been way to high and management have been willing to hide the exposure to other clients because of their personal commitment. And effort to liquidate will at least in theory bring a arms length approach back into the lending practices or at least enable institutions to spread their risk on a much wider field of different industries and individual companies just because of their size.

One final note is that the banks should not be owned or operated by the state but merely be sold off in pieces so that clients and “good” lenders continues to be provided with a banking service that they can rely on. A actually think that the state would properly be the worst place to have a operating government involved as it would easily be soon as a cheap place for getting funds for political projects. But on the other hand I think it is unwise to have so many banks in one country when it is so clear that it is not something which the country can even hope to be able to sustain.