Sound Social and Environmental Policies in Investment Determination - Vodafone - Case Study Example

Sound Social and Environmental Policies in Investment Determination Summary Social reporting and environment reporting has emerged in the last few decades as an ever significant aspect of doing business and with particular focus in global business. What exactly is this social and environmental reporting? In its literal definition, it would mean a company’s policy statement on the impact and influence of business operations on the society as well as the environmental where it operates. However, in its practice, social and environmental reporting revolves around the concept of corporate social responsibility (CSR). The ideal economics of a “free market” exist as exhibited in the perfectly competitive markets was the dominant economic theory in the years 1960-1980 (Hoetzlein, 2010). This “free market” theory argued that, in the absence of government interference and control, economies would naturally adjust themselves into an equilibrium using the free forces of demand versus supply. The market was assumed to comprise of numerous participants who trade in numerous products and that the prevailing price levels reflected both the expectations of the suppliers against the demand of the buyers (Hoetzlein, 2010). These assumptions have become the fundamentals for capitalism as we know it today. Ironically, it is upon such ideals of Milton Friedman that heirs to this school of thought erroneously applied it in its rigid and perhaps even crude form; the ‘anything for profit’ approach seems to have been the direct resultant for the extensive pollution of the earth by manufacturing firms worldwide. The world seems to have awoken to the realization that such a trend was a threat to the sustainability of not only corporate profits but also the existence of mankind itself as a species. So then, what is corporate social responsibility? What is this sustainable future? Corporate social responsibility is a business concept. It concerns how a business conducts its operations in a manner that is responsive or sensitive to the social, economic and ecological influences and impacts. It is a deliberate inclusion of these views into business decision making and policies (McElhaney, 2008). A sustainable future would, therefore, involve a vision of how the use of resources to match the demand of a growing and rapidly urbanizing world does not upset or disrupt the ecological balance of the Earth as well as ensuring the primary goal of profitability. This seems to have been the push for most neoclassical theorists like Norman Bowie who argued that firms must surely pursue profits but not at the expense of causing harm on any stakeholder (Kotler & Lee, 2006) Norman Bowie’s models push that, in excess of satisfying the minimum moral obligations as stipulated by law and regulations, the firm is additionally bound by “ethical expectations” to be sensitive to all the communities it operates in as well as its impact on the environment. The corporate social responsibility efforts are not merely philanthropic tendencies of giving back as originally practiced at its inception. Instead, it is-in most cases-a non-contractual adoption of policies by the management teams of corporations to identify the most feasible way of doing business. The question, therefore, arises whether the rallying cries for sound social and environmental practices are merely borne out of the fear of a grim future in its absence? We would argue yes and no. Almost innate is the desire for immortality. Historically, the threat of obsoletion has been a large drive for most discoveries and development ranging from fields of healthcare, agriculture, politics, weaponry and even education. Whether individually or as corporate entities, the need for continuity is a major drive and as such cling so desperately to it. Secondly, we would say no. The need for sound social and environmental practices is inevitable. Developments in both technology and processes and the general alertness of consumers have necessitated that firms be responsive to such concerns. So significant is this awareness that consu8mers have adjusted their consumption behavior to reflect social and environmental responsibility policies. Although they are not willing to pay extra for items that have been environmentally sensitively produced, they will readily and willfully shun down corporations that do not adhere to environmental laws (Bowie, 2002). Calls for social and environmental sensitive policies, therefore, directly influence the firm’s purpose of profitability, growth and going concern. To the consumers, it means the security over an environment that is clean and products that address their trendy concerns and needs. The relationship between the two groups is intertwined by their mutual benefits (Zanda). 2. Background to Vodafone Group Plc The Vodafone Group is a British mobile communications company that commands a market of up to 371 million customers globally. It was started in 1984as a subsidiary firm to Rascal Electronics PLc. It merged with Air Touch Communications Inc in 1999 and in 2000 resolved to the current name Vodafone Group Plc. The mobile firm has grown to have operations in 30 countries and presence in at least 40 others globally. Amongst its notable achievements are becoming the first mobile solutions company to offer international mobile roaming calls in 1991. Now as before when it was launched, Vodafone Group Plc is committed in its purpose to deliver useful and inspiring innovation. This is at the center of its high research and development programs into trending and future needs within the telecommunications industry with innovations like Vodafone money and introduction of the world’s first ultra-low cost mobile handset in the Vodafone 150 and revolutionary services such as reverse prepay charge (which allows customers to borrow airtime when have run out of credit and can thus make urgent calls and pay after within a reasonable time). The firm’s commitment to the society goes beyond the provision of sustainable goods and services. At the helm, lies the global social investment which is operated under the Vodafone Group Foundation. The foundation’s kitty is pooled directly from annual contributions by the Vodafone Group. This goes to fund community involvement initiatives of the Vodafone Group and select global initiatives. The firm’s corporate social responsibility is contained in the Social Investment Policy which informs all of its social and environmental policies. The group’s annual sustainable policy reports are, therefore, arrived at based on actions that are prescribed under this single policy statement. It is, therefore, imperative for any existing and possible investors to be acquainted with this policy statement as it directly identifies what culture exists within the firm and its possible operational strategies i.e. where and how the firm will invest shareholder funds. 3. Vodafone Group Plc Social Investment Policy As opposed to other industry and aggregate economic participants, Vodafone’s social investment policy is not a value addition service but an integral part of the business culture and operations. It is not merely a corporate social event or a public relations exercise to be held at routine intervals. This is the clear cut fabric that identifies the firm. It is instead a clear, identifiable, consistent and, therefore, accountable system within the very framework of the firm. In fact, all of Vodafone Group’s subsidiaries are required as a requirement to have an embedded, formal social investment program to be delivered via a most appropriate structure. The Vodafone Group Foundation as the administrator of the policy is not merely a financial contributor. This is a clear deviation from the industry practice where firms merely donate financially to other established charity or social foundations in a bid to help boost their capacity to achieve their own specific-and in most cases varied - objectives. The trustees of the foundation in conjunction with local foundations in communities where it operates and community involvement programs as under the government for instance come up with clear stipulations and guidelines (and in a local language)on the type of activities to be funded (or not), the application and selection procedures, timescale and extent of funding. What does this mean to stakeholders? Firstly, that the Vodafone Group Plc is involved directly in the policy implementation from a position of a partner. As a result, the very virtues, which the firm stand for is upheld and transmitted down to the society through the like-minded local foundations and subsidiary companies’ corporate social responsibility programs. Secondly, accountability and transparency is greatly improved. In addition to the structural guidelines on funding, the partnering local foundations as well as the subsidiaries are furthermore required to make reports of the social investments and performance to the parent firm. This is a big variation from other industry participants whose involvement is generally considered complete after the selection and funding stage. Vodafone Group Plc also commits its technology and human skills fully into ensuring that the social investments made achieve the greatest possible impact on the communities where such initiatives are set up. The initiatives are directly related to the firm’s area of expertise i.e. the social initiatives must be such as to influence the telecommunication sector. This may take the form of increasing access to telecommunication facilities, providing education on the same, and promoting sustainable business practice with the conse5rvation of the environment being central in the former. Above all, there is the desire and need for continued improvement. The accurate selecting, measuring and reporting of the performance of the group social investment is a top priority to the firm. Why is this so? The firm believes that the benefits generated to the communities through its social investment and the long-term nature of relationships established will ultimately generate more effectiveness of the firm to attend to the needs of the community and thereby ensuring a growing and reliable profitability for the firm. This is the edge with which the company prefers to take over the market. Whilst other firms in the telecommunication industry are concerned with gaining recognition of the society in which they operate, we are concerned with building long lasting relationships that are to the mutual benefit of the firm and the society. According to the firm’s sustainable report for 2011, the company wants to increase access and connectivity via telecommunication facilities and the interne to over 250 million people largely in emerging markets with innovative technology such as the WebBox and money transfer services like the M-pesa which touch the very social needs of the emerging markets for access and connectivity. A comprehensive research programme on the impact of telecommunications on prosperity and the lives of farming communities in poorer nations of the world has led to the unveiling of a project dubbed “connect agriculture”. The research projects that an increase in excess of $ 138 billion in these communities by the year 2020. The benefits of mobile telephony in providing data on weather forecasts, real time market data and mobile banking are a particular focus for the firm. However, the potential positive socio-economic impacts are limitless with education, urbanization and food security being the key drivers of the same. Sustainability is the ultimate goal of our investment decisions. With particular policies targeting environmental protection, the firm aims to reduce carbon emissions through the creation of over 4 million machine to machine connections with programs such as smart metering and research into the development of smarter cities. It has also adopted the use of more green energy to support its booster station by replacing fuel generators with solar powered panels. This not only lowers the overall operational costs but also introduces the technology to communities where they are situated alongside reducing the level of carbon emission from the fossil fuel. The firm targets a reduction of 20% carbon intensity in emerging markets per network node in 2015. 4. Financial analysis Using the IASs and GAAPs, the financial reports have been prepared and publicly released during the firm’s annual general meeting. The following gives a post reported financial analysis of the Vodafone Group Plc. The fiscal year is given to end at 31st of each year. Table 1: Amounts are given in billions of sterling pounds. Financial period 2007/2008 2008/2009 2009/2010 2010/2011 Revenue 39.103 41.017 44.742 45.884 Operating profit 11.924 5.857 9.480 5.596 Pre-tax profit 5.074 4.189 8.674 9.498 Profit for period 4.931 3.080 8.618 7.870 The returns to the shareholder are a significant point for any potential investor. They would require a positive returns in decided where and how much to invest in any security. Investors generally prefer also an assurance about the increase in their earnings with time as demonstrated with capital gains. The following analysis provides a trend analysis for this. Table 2: Amounts are given in pence Financial period 2007/2008 2008/2009 2009/2010 2010/2011 Final dividend per share 5.62 7.77 8.31 8.90 Earnings per share 9.01 5.84 16.44 15.20 Payout ratio (%) 62.0 133.0 50.5 58.6 The abovementioned capital gain is measured in terms of a rise in the market valuation for the underlying security. As such in addition to a positive return in their investment, a potential investor can be concerned as to the overall liquidity of his asset. Would s/he make a profit/loss upon exchange in the secondary market? The following charts showcase this position by comparing the price fluctuations for Vodafone Plc common shares. Chart 1 Share price in € Chart 2 Share price in € 5. Conclusion Vodafone Group Plc is a promising communications solutions company. Its prospects certainly look equally as ambitious as they are promising. For a firm that has grown so tremendously over a period of 25 years, this is most impressive. Particular turning points in terms of revenue generation unto the future would be in data services and how well the firm is able to diversify its investments portfolio. Particularly, in developing countries with specific attention on market sectors like housing or real estate, tourism and transport. The group’s planned “connect agriculture” programme also offers an area of significant gains in terms of revenues, growth and market ‘locking’. However, it may be wise to caution against counting the eggs before they are hatched. The telecommunications industry is one of the most highly competitive sectors in the global economy, yet with the decline in the “dot com” there is intense pressure from developing countries in the sector such as India and China which threatens the dominant position of ICT majors like Britain and the United States. Secondly, the slow deregulation of the telecommunication industries in the less developed countries means that penetration into such markets will be gradual; perhaps not at pace with the firm’s long-term growth focus. The greater need by state organs to have the infamous ‘spy’ control over the communications industry also threatens to hinder the acceleration on growth into emerging markets. It is a debate that elicits sparking remarks from either side of the floor but whose impact is undoubtedly one that impacts the growth and development of the telecommunications sector globally. Generally, therefore, the investor will find it most conducive to invest in Vodafone Group Plc where returns are positively projected, and the socio-environmental concerns are particularly central in every operations of the business. Reference As You Sow Foundation, 2011. Corporate Social Responsibility. 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