It should have been the major news story of the decade, but it was buried.
This is partially because there was a lot of embarrassed coughing by all sides involved (meaning no one really wanted to publicise the event); but it’s also because your everyday business journalist hasn’t got a clue about sustainability and doesn’t understand the impact the event has upon the business world.
Which event is this, you ask?
Why, Royal Dutch Shell (Shell) being removed from the Dow Jones Sustainability Index (DJSI).
This was a seismic event in the world of corporate sustainability practices and reporting, and was followed up by Oracle being removed from the FTSE4Good.
Shell have been attacked on all sides because of their environmental and human rights record in Nigeria. They’ve refuted many of the allegations and have sought to make good where evidence of corporate malfeasance is irrefutable.
What’s more their transparency on various sustainability indices has for a long time been of a leading nature, and their online interactive charts have often been cited as an example for others to follow second to none.
Yet despite all this the DJSI decided the company’s sins in Nigeria were too great and threw the company out in August last year.
This led to a rather difficult impasse within the company’s governance. Shell’s remuneration committee had promised its executives bonuses linked to the company’s performance within the DJSI. Yet, now the company is no longer a member of the DJSI … this means no bonus, right?
Shell and Oracle’s Sustainability Failure?
Wrong. Shell has announced it will now link 10 percent of its executives’ pay to its own sustainability criteria.
Before I get too deep into the implications of this announcement, let’s remember Shell isn’t the only company to have had their ‘sustainability’ status revoked recently.
Oracle were taken off the FTSE4Good index on human rights grounds. This follows the company declining a request in September last the year from activist shareholder group Harrington International to establish a human rights committee at board level.
Shell took nearly 6 months to respond to their exclusion from the DJSI with the establishment of their own sustainability criteria. Oracle have only just been excluded from the FTSE4Good and it would be inappropriate to try and second guess how they will react to their exclusion from the index.
Together, these two events mark the beginning of a new cycle for sustainability businesses. What happens when a major world-bestriding company fails to meet the independent sustainability criteria they’ve subscribed to?
Shell have given one answer: you create your own criteria and measure performance against those. Good, some will think, because at least performance is still being measured in terms of sustainability. An alternative view might be that the original standard ought to, er, stand and the executives don’t receive a bonus until the company is readmitted to the DJSI.
The Ashoka Chakra of Business
In the meantime, and just in case you were wondering, here’s an explanation of the Ashoka Chakra.
The Ashoka Chakra is known as the Wheel of the Law in Buddhism. It has EVERYTHING to do with business, because business often talks about the “business cycle” and the term chakra means a process which repeats itself (and so is often represented as a circle).
The significance of the Ashoka Chakra is two fold. Firstly it was the first chakra which was tied to a time frame rather than a more esoteric concept; it basically says that during a period of time, everything changes; in other words, we change (and hopefully improve ourselves) during our lives.
The second point is that the Ashoka Chakra — a uniquely Buddhist emblem — is best known for being the focal point of the flag of India, a predominantly Hindu country (80% of Indians are Hindu, less than 1% are Buddhist).
The whole point of the Ashoka Chakra is that as time passes the wheel turns (and turns again), giving new perspectives and new insights into life and how to make the best of it. Count the spokes on the wheel and you’ll find there are 24.
The Future of Business Sustainability is change
With Shell ‘falling from the grace of the DJSI’ and deciding it will follow its own sustainability path, and Oracle similarly leaving the FTSE4Good, I argue that we have a definite turn of sustainability’s Ashoka Chakra.
This is not to try and foist my own perspective onto the world, just to try and explain my understanding of recent events.
And that understanding is this. The business cycle has just turned; it’s turned in the favour of sustainability and has left two of the leading companies in the world out in the cold. This is a big turning point, because we see the DJSI and FTSE4Good as badges of sustainability credibility. Shell and Oracle have had those badges revoked, and the chances are they will not be the last companies to face this challenge.
I don’t know how this will all pan out – if I did I’d be out there laying bets buying shares.
In the meantime, there have been many blogs and articles saying that 2011 would be the year of the sustainable business. I guess its up to these businesses to show what criteria they will use to measure their sustainability, and through that turn the Ashoka Chakra of the business cycle to its next point in time.
We live, as the sage once said, in interesting times.
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