An Evaluation of the Ethics Program at ENERGEX - Case Study Example

An Evaluation of the Ethics Program at ENERGEX Student’s Name: Course: Tutor’s Name: Date: Introduction ENERGEX Limited is an Australian company operating in the electricity sector. Specifically, ENERGEX provides the infrastructure and network services needed in the distribution of electricity into residential and non-residential areas occupied by an estimated 2.9 million people residing in South East Queensland. The company whose headquarters are in Newstead, Brisbane, was founded in 1922 and is fully owned by the Queensland government. In addition to electricity, the company supplies liquefied petroleum gas (LPG) and natural gas. In the 2009-10 annual report, ENERGEX states that it uses expertise from 3,800 employees. Additionally, the company has assets estimated to be in the excess of $8.8 million. According to the company, its huge investment in equipment and a knowledgeable and skilled workforce is meant to “provide customers with energy solutions that are economically, socially and environmentally acceptable and sustainable” (ENERGEX Annual Report 2009-10, p. 3). As a power distribution company, ENERGEX has to retain and maintain good working relationships with a wide range of stakeholders. Such include the electricity generating company, the transmission company, the electricity retailers, and the electricity customers. Notably however, ENERGEX is only in direct contact with the transmission company, which supplies it with power, and the electricity retailers, whom it supplies with power. As the electricity distributor however, ENERGEX also directly deals with electricity customers especially when setting up or maintaining electricity networks. Additionally, when commissioned by the power retailers, ENERGEX assumes the responsibility of connecting businesses and homes to the power network and even reading meters (ENERGEX Annual Report 2009-10, p. 4) The Ethics Program The ethics program at ENERGEX seeks to “...maintain of a longstanding commitment to the community to conduct and report on the affairs of the business transparently and honestly while maintaining processes that ensure our staff at all levels, understand these responsibilities. [Our] ethics are at the forefront of our business decisions to ensure they take into account social, economical and environmental sensitivities as set out in [our] Code of Conduct” (ENERGEX Annual Report 2009-10, p. 5). In the 2009-10 report, ENERGEX appears to have performed extremely well when gauged on the Global Reporting Initiative (GRI) platform. The GRI is a reporting framework developed through consultation among participants drawn from the academic, labour, civil society, the business sector and professional institutions (Global Reporting Initiative, 2011). The framework contains performance indicators and principles for measuring and reporting the social, economic and environmental performance in firms. GRI was chosen for use in this report because it is likely to provide a balanced assessment of how ENERGEX has faired so far in its ethics program. Additionally, the framework is likely to gauge whether indeed the company is focused and committed to attaining the ethical standards set in its corporate social responsibility objectives, hence providing an objective evaluation of the company’s performance. The ENERGEX’s Annual Report 2009/10 is titled “Living our Values”. The report partially meets the GRI criteria in terms of strategy and analysis since it clearly stipulates the vision, mission and purpose of the organisation in the short term; i.e. by 2015. However, the report lacks a statement from a senior decision maker from the company in the introductory part. Instead, the CEO’s report is found further on page 32 of the report. This relegation of the CEO’s report to latter pages in the report could be interpreted to mean that he (the CEO) does not lead from the front, or does not pay special significance to the ethical programs undertaken by the company he leads as suggested by The Economist (2005, p. 7). In other areas however, the report has done well in listing the company’s strategic priorities in the immediate future, the effect that political and macro-economic trends are having on its sustainability options and its performance targets by 2015. The challenges that the organisation is facing (i.e. rising energy costs, future technologies, customer expectations, and sustainability issues (ENERGEX Annual Report 2009-10, p. 5)) have also been well articulated. The company meets the GRI guidelines by identifying some of its failures in the reporting period, which are identified as failure to reconnect power, failure to attend to service-related matters, wrongful disconnection of power and missed scheduled appointment (ENERGEX Annual Report, 2009-10, p. 67). The short- and long-term implication of ENERGEX’s ethics program is that it has met the GRI guidelines on corporate reporting at least on paper. As evidence of this, one can trace most GRI reporting requirements in the 2009/10 report index. Going through the report, one gets the impression that ENERGEX can use it to win its stakeholders’ trust as a company that does not harbour secrets. As Zadek and Merme (2003, p. 5) note however, useful reporting should be differentiated from providing stakeholders, and unprepared investors with volumes of data. At ENERGEX, there specifically seems to be some difficulty in defining materiality. While it is stated that corporate reporting in the company is meant to keep the customers informed (energex.com, corporate reporting), one wonders whether the reports are targeted at other stakeholders. Having noted that the company is fully owned by the Queensland government, there is some likelihood that the omission in defining materiality was overlooked based on the fact that the Queensland government, unlike other investors, would be well-informed about the company’s performance. But why is materiality such an important subject in corporate reporting? Well, according to KPMG (2008, p.4), a practical definition of materiality enables a company to compile and publish reports that are relevant to all stakeholders. To the investors, a report whose materiality is well defined would inform them of the progress that the company is making towards meeting set goals and objectives; to the regulatory authorities, the report would inform concerns regarding compliance; to the consumer, the report would inform about quality, social-friendliness and environment-friendliness; and to the employees, the report would inform about the company’s corporate citizenship and stableness as the employing entity. Other concerns such as environmental concerns are also published to inform anyone who may want to know how the company is fairing in environmental matters. On a scale of 1-10, with 10 being the best rating and 1 being the worst, this report would rate ENERGEX as follows in different areas: 1) Corporate strategy - 9 Although the corporate strategy for the company seems to be a well-kept secret, the reports indication that the company has a general manager who has specific mandate to steer the company towards “corporate strategy and strategic initiative” as indicated on the ENERGEX Annual Report (2009-10 p.36) is sufficient enough knowledge for stakeholders. Additionally the report has indicated that the board of directors had earlier in 2009 approved a strategic direction document that identified the challenges that ENERGEX expected to face in the long-term. 2) Management practices - 8.5 The report offers an impressive coverage of its corporate governance practices and even gives an in-depth detail of the executive team charged with running the company. Profiles of all board members are also given thus creating a picture of a company that is proud of the people who sit at the helm of its management. 3) Environmental impact areas - 6 The report documents how ENERGEX has engaged communities in forming conservation communities. Additionally, the report states that the company is engaged in educating people on how to conserve energy through efficient use. Overall, the company’s environmental engagements are impressive especially in water conservation and offsetting greenhouse gas emissions through tree planting exercise. One lacking area, which is the reason for awarding the company a 6-point rating regards that the type of vehicles the company has in its fleet. In the ENERGEX Annual Report (2009-10, p. 97) it is evident that the company has more than 2000 vehicles ranging from light vehicles to heavy vehicles. Assuming that most of such cars are not green rated; it is evident that their use has a significant effect on the environment. ENERGEX’s reputation as an environment-friendly organisation was notably tainted by its Loganlea-Jimboomba power line route. In October 2010, protests by local and environment conservationists were staged, with the argument that ENERGEX would destroy the koala habitat, equivalent to 42.5 hectares. In an apparent response to the protest, ENERGEX proposed to change the power line route as can be seen in Loganlea to Jimboomba (2010) network upgrade report. Despite the company’s change of route however, residents and environmentalists were still not satisfied with its use of the Logan River for power easement. Evidence of their dissatisfaction is can be noted from local newspapers or even online sources such as Maizey (2010). One notable thing about the 2009/10 annual report is that despite its wide coverage, it does not mention the Loganlea-Jimboomba controversy. Any stakeholder who is privy to the controversy would therefore doubt the objectivity of the report and possibly view it as a publication meant to enhance the public image of the company. 4) Social impact areas - 7 The ENERGEX Annual Report 2009-10 has extensively addressed issues such as risk management, workforce sustainability, and customer service in great detail. The rating of 7 is however given based on the fact that the company’s monetary ($1.4 million) annual dedication to the society through sponsorship programs is meagre compared to its profits. For a company that earned $185.2 million profits, the amount committed to social areas seems negligible. Additionally, the annual social budgetary commitment remains the same throughout the years as indicated in the ENERGEX Annual Report (2009-10, p. 5). This is despite the fact that the company’s earnings have been improving on an annual basis. In the 2009/10 period for example, a 9.8 percent increase in total revenue was registered compared to the 2008/09 results. 5) Assurance and disclosure - 4 Looking at the 2009-10 ENERGEX Annual Report, there is no indication that the company engaged in any sort of independent assurance. Additionally, there are no overwhelming disclosures given to the reader regarding the company’s performance. This is therefore likely to raise concerns among some stakeholders regarding the credibility or transparency of the report. According to KPMG (2008, p. 4), “independent assurance enhances the transparency and credibility of [their] sustainability reporting”. ENERGEX however, did not seem to pay much attention to such a need. Instead, the company seems to have dedicated efforts in documenting results from internal audits. Conclusion As is evident from the above rating, ENERGEX performs below average in assurance and disclosure, and above average in the remaining four identified areas. The below average rating is based on the fact that the company does not provide any disclosures, nor does it give assurance that would indicate that an independent entity verified the content of the report before it was published. Generally, the rating on all five areas indicates that the company still has some room for improvement especially in the environment-related areas. One of the most sensitive areas that ENERGEX as a power distribution company needs to address is how to uphold the integrity of the environment while laying its electricity networks. In a custom way of establishing power infrastructure, the company is on record for clearing trees to pave way for power lines. A point in record is the power line that goes through the Stockleigh environmental park, where ENERGEX had to fell trees in order to create room for the power infrastructure (Veto, 2010). As one company that has been petitioning ENERGEX for its environment handling noted, the company needs to start considering placing its power distribution infrastructure underground as opposed to erecting overhead power lines. Among the proposals that the company could consider include working with road construction authorities in order to include power line conduits during road construction. Another problem area that ENERGEX needs to address is power outages. Unfortunately, the outages are closely tied to the company’s overhead power line infrastructure and their location near forested areas. When strong rains and winds blow trees over the power supply lines, the effect is always the same; power is disrupted in areas that are served by the affected supply lines. Unfortunately, ENERGEX, through its 2009/10 Annual Report does not seem to identify its current infrastructure as a priority area. This then means that the company cannot guarantee the consistency of power provision since climatic factors such as strong rains coupled with strong winds will always be a cause of power disruption in homes and businesses. References ENERGEX Annual Report (2009/10) ‘Living our values’, ENERGEX Limited Corporate Office, Brisbane QLD. Energex.com (2011) ‘corporate governance- our approach to governance’, ENERGEX, viewed October 29, 2011 < http://www.energex.com.au/about-us/corporate-governance> Global Reporting Initiative (2011) ‘What is GRI?’ viewed 28 October 2011 < http://www.globalreporting.org/AboutGRI/WhatIsGRI/> KPMG (2008) ‘Sustainability reporting-a guide’, pp. 1-36. Loganlead to Jimboomba (2010) ‘Network upgrade’, Energex, viewed October 28, 2011 < http://www.energex.com.au/__data/assets/pdf_file/0010/29296/Loganlea-Jimbooba-Summer-2010-newsletter.pdf> Maizey, J (2010) ‘ENERGEX rethinks Loganlea to Jimboomba powerline route’, Logan West Leader Newspaper, viewed October 28, 2011, < http://logan-west-leader.whereilive.com.au/news/story/energex-rethinks-loganlea-to-jimboomba-powerline-route/> The Economist (2005) ‘The importance of corporate responsibility’, A White Paper from the Economist Intelligence Unit, pp. 1-46. Veto (2010) ‘ENERGEX’, viewed October 28, 2011 < http://www.veto.org.au/index.php?option=com_content&view=article&id=90&Itemid=21> Zadek, S. & Merme, M (2003) ‘Redefining materiality-report’, Institute of Social and Ethical Accountability, pp. 1-40. Read More