BY TAY KAY LUAN

THE one economic indicator that consistently shows an upward trend during the current global financial meltdown is the number of people made redundant.

The scale of the redundancy poses a severe threat to a key principle of corporate sustainability performance, which encourages the promotion of sustainable human capital, recognises diversity, and regards employees as valued partners in the workplace.

Unemployment is mounting globally as big international companies, including Microsoft, Toyota, Intel, BHP, Hitachi, Panasonic, Boeing and Starbucks, rush to cut costs.

The employment attrition, which started in September last year with the demise of investment bank Lehman Brothers, is starting to spread rapidly to blue-collar and managerial staff in other sectors including the retail, motor, energy, manufacturing and electronics industries. The economic slowdown has also forced many other companies to start shorter working hours for their employees.

The job cuts - which could potentially throw 50 million people out of work worldwide, according to the International Labour Organisation (ILO) - are reaching beyond the financial sector into every corner of the global economy. Cutting manpower is a short-term action that will enable businesses to manage their costs better or, in some cases, survive.

But employees want security. Many naturally feel betrayed and angry and are ill-prepared for such shocks. High unemployment poses a threat to social stability. It destroys employee loyalty and trust which is difficult to build and sustain.

There are companies which do not simply slash their workforce at the first instance. That is why corporations need to consider other options. And strengthening their corporate sustainability agenda should top the list.

Options include rebuilding the competencies for tomorrow, changing the boardroom lifestyle, becoming more efficient and raising ethical standards across the supply chain infrastructures. All of these will go down well with stakeholders.

Building tomorrow's competencies

Climate change, environmental challenges, health and safety consciousness, and consumer awareness are not peripheral issues that concern only the ecologically-minded. In fact, they do have a direct impact on business performance. Imagine the business world without customers or energy or natural resources to draw on.

These challenges have not gone away in this difficult time. Indeed, the next decade will be more carbon conscious, with preferences given to more fuel-efficient and low-carbon technologies, which will significantly impact the business environment.

Changes to the way businesses are going to be managed, run and evaluated will also present challenges to the business environment. That is why corporations should take this opportunity to prepare for the next wave of sustainability growth - and that means developing, managing and recognising new skills.

Buying lifestyles will change with more discerning and health-conscious consumers. These sustainability innovations will have an impact on product design, to even labelling, across construction, transport, banking, retail and power industries.

Again, the implication will mean a need to develop new skills and competencies. Far-sighted companies will take this route to win trust as well as future market share.

Setting the tone

Building a sustainable organisation cannot begin until the board and the chief executive officer are committed to showing greater leadership in the cause.

Recent Wall Street lessons show why the board will need to demonstrate that they will be prudent with executive spending and banish excessive bonuses. And the CEO is expected to set the tone from the top. Winning trust will require the leadership to be more responsible and more accountable in their decisions and actions.

Realigning roles

Overcoming the challenges of the downturn through greater efficiency would, in most cases, focus on improving the way the company operates and delivers its services. Promoting a sustainability agenda includes avoiding excessive spending, wasteful use of resources, paying bribes, and so on.

For example, employees can be engaged for ideas and ways to adopt energy-saving technology and practices that can help generate bigger savings.

Greater efficiency can be obtained from improvements in operational management, including a re-alignment of roles and authority. All these changes will require employees to be champions across the diverse functions. Trust will be regained when employees buy into the true corporate intent. For employees to change their attitudes, they will want to see the success of the improvements; only then will the changed behaviours continue.

Better disclosure

For years, there have been attempts to make management implement information disclosures responsibly. To varying successes, many companies did increase their disclosures on social and environmental performance, and were recognised as past winners in the annual ACCA Environmental and Social Reporting Awards.

A recent study shows that almost 80 per cent of all Standard and Poor's Top 100 companies have sections on their websites reporting on their sustainability policy and performance.

The rise in reporting, however, came with varying standards, and while it is important that information has to be of high quality, reliable and relevant to the management of risks, formal external verification is important.

There is room for improvement. Quantification of liabilities, lack of explanation on material information, misleading data - all these can become risks. And had the disclosures been reported responsibly among the large investment banks and verified properly, many of the ill-fated risk exposures in the financial sector could have been reduced, even if not entirely avoided.

To regain trust in disclosures, information on key business risks, uncertainties, financial liquidity and fair value measurements should be reviewed. Improved internal auditing skills and knowledge are also necessary to ensure credible and complete monitoring. External verifications should also be included to make the process more complete.

No business leader will deny that human capital is the most critical success factor for business performance. Failure to explore options beyond redundancy may in the end erode the employee trust that helps to build long-term business growth and profitability.

The writer is director of the Association of Chartered Certified Accountants (Asean & Australia)

This article was first published in The Business Times.