Sustainability and Management Accounting Assignment
Fortune WizardInsurance has recently set up an internal information system to improve socialand environmental practices within the company. The company has its head office in Melbourneand offices in all capital cities and every regional city with a population of more than 50000people. One of the underlying principles of the company is to be socially and environmentallyresponsible. This principle has been in place for many years, dating back to the firm's founder,Jeannette Dai, who felt that she would like to contribute to society rather than simply maximisingprofits.
The company is a major contributor to charities, particularly those that focus on the homelessand the poor. It actively promotes environmental management in all of the company operations. Itsponsors a program that provides scholarships to disadvantaged students to allow them to attenduniversity, and it is proud to offer employment in the company to long-term unemployed and thepoor. Each year it publishes a sustainability report that summarises its achievements across eachareaof performance.
Over time these activities have become a marketing strength of Fortune Wizard. The social andenvironmental stance taken by the company has attracted many customers to the company. Listedon the Australian Stock Exchange in 2001, the company has also become a preferred investment ofethical and green investment funds.
The mission statement of Fortune Wizard states that it will aim to:
• Support employees in achieving their personal and career goals.
• Act in a socially responsible way when dealing with insurance clients and the generalcommunity.
• Promote a better social and physical environment for the world.
However, the current chief executive officer, Sylvia Trott, thinks that the firm has becomecomplacent and is resting on its past achievements. She is concerned that the firm has built up areputation for good social and environmental practices but is not 'walking the talk'. There is somelevel of discontent among employees about the way that management treats staff, and this isimpacting on employee satisfaction. There have also been negative reports in the media of itstreatment of businesses in Phuket and Langkawi that were damaged in the December 2004tsunami. The reports claim that the company has tried to minimise the amounts paid to thesebusinesses by strictly applying clauses in the insurance contracts that cover earthquake damagebut not flood damage.
In 2004, the company's net profit rose by 15 per cent to $173 million on an asset base of $1,235million. This is the third consecutive year of increased profits. Earnings per share were 62 cents, andthe market value was $5.40 per share. The board is concerned that Fortune Wizard makes a loss on itsinsurance business, while its investments yield a strong return and are the main reason for theincrease in profitability. Its investment portfolio includes shares in BHP Billiton, Qantas, Telstra andJames Hardie Industries.
The board adopts a sustainability approach to viewing its performance and uses the followingkey performance indicators to assess company performance:
Financial:
• Net profit.
• Gross insurance premiums.
• Return on investment.
Economic indicators:
• Policy, practices and spending on local suppliers.
• Procedures for hiring local staff.
• Development projects primarily for public benefit.
Social indicators:
• Employee satisfaction ratings.
• Percentage of women in the top three tiers of management.
• Number of indigenous employees.
• Customers' ethical ranking of sales staff.
• Number of staff hired who were previously unemployed teenagers.
Environmental indicators:
• Tonnes of paper recycled per annum.
• Percentage reduction in electricity usage.
• Litres of fuel per dollar of sales.
Required:
Question1) Explain what is meant by sustainability reporting and why a publicly listed insurance Company like Fortune Wizard may adopt this approach.
Question2) Consider the list of key performance indicators used by Fortune Wizard. Explain how these could be used to help achieve the mission.
Question3) Suggest alternative performance measures that could be included in the performance measurement system to assist Fortune Wizard to achieve its mission.
Question4) Write a report to the chief executive officer explaining what steps she can take to encourage staff to behave in a way that supports sustainability. Specifically, explain to her how the performance measurement system could be used in a balanced way to support the achievementof the company's goals.
Word Limit 2000 words
Take note of the following:
• Make sure that you reference any quoted material using APA Style.
• Always put quoted work in “inverted commas”
• Do not submit your Declaration front sheet with your electronic copy
• Do not start by stating the question as outlined in the assignment.