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Going Green

Readers write to say small steps in energy efficiency will deliver big returns later; it's not just IT that eats up energy in data centres; the supply chain is vulnerable to IP fraud; and EPS is a weak performance metric when setting executive pay.
CFO Readers, CFO Europe Magazine
July 7, 2008

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In response to "Weather Report" (May), which looked at how to identify the winners and losers of CSR reporting, companies must realise that small investments in energy efficiency now may mean that ambitious emissions-reduction targets set by governments can be achieved in future.

Westpac's recognition that greater operational efficiency would deliver cost savings is right. And as energy prices increase, the savings will increase. Businesses will also improve their bottom lines and boost their green credentials.

Given the impact of soaring oil prices on the world economy, green measures may seem a frivolous gesture in an already difficult financial climate. But many emissions cuts that businesses make will also result in long-term savings.

Putting a wind turbine on the roof of a company's headquarters may save carbon and look good on the cover of the annual report, but it's the measurable savings achieved through cost-effective efficiency projects that truly impress shareholders.

Gary Parke
CEO, Evolve Energy
Henley-on-Thames, UK


In "How Green Is Your IT?" (June), you're right that consolidating IT equipment has an important role in improving data centre efficiency. But it does not address the issue of why data centres consume so much power in the first place. In an audit of our data centres, BT found that only 20% of the electricity consumed was used by IT. Roughly half was used by the air-conditioning systems, with the remainder lost in the power-distribution network and in maintaining standby power sources. In our new data centres, we've introduced two design innovations: fresh air cooling and central-power converters. Blowing filtered air from outside through racks reduces the need for electronic refrigeration, and converting the mains supply from AC to DC centrally rather than for each individual piece of equipment minimises the power lost in the conversion process. These innovations have reduced electricity consumption by 60%.

Operational efficiency is a critical first step in reducing an organisation's carbon emissions, but if we are to achieve the targets required to avoid the catastrophic effects of climate change, we must also innovate to change the way we do business.

Donna Young
Head of Environment and Climate Change, BT
London, UK


Faking It

"Counter Attack" (June) is timely and raises some interesting issues regarding the threat posed by intellectual-property fraud. Access to internet distribution channels has helped criminals as well as legitimate business, and stealing other people's IP is often an easy way to turn a quick buck. Although the companies mentioned are taking steps to protect their IP, we've found the biggest danger to businesses may be ignorance. Companies often aren't aware of the breadth of the threat to their brands, and how it can exist at any point along the supply chain. In particular, businesses spend huge amounts of money developing internal controls and processes only to miss the most effective anti-fraud measure they can take: screening vendors and suppliers to identify and eliminate fraudsters before they have the chance to act. Prevention is better — and usually cheaper — than cure.

Chris Morgan Jones
Regional MD EMEA, Consulting Services Group, Kroll
London, UK


Exploiting EPS

Earnings per share has been used for decades as a metric in bonus schemes for executives ("The Big Freeze," May). But I believe it's one of the weakest metrics because it is susceptible to manipulation. Consider the CFO of a defence contractor who didn't want to disclose its true profit to a government agency with which it had multiple contracts, but did want his incentive plan to pay out. Diverting $500,000 of profit to a reserve account for "taxes" let the company show net profit performance high enough to trigger a payout under the EPS scheme but low enough to ensure the red flag of excess profit wasn't raised to the agency. I'm not an accountant, but I'm sure there are other ways in which earnings can be "creatively" generated or decreased to serve a purpose.

I recommend that there is greater focus on the capacity of a company to generate cash flow while it grows revenue as the success factor instead of the ordinary EPS approach.


James Gough
CompSolver
New Hampshire, US




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