Category: Risk Management

Straight Talk on Sustainability

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With all the noise on the topic, I recently decided to spend some time asking Gib Hedstrom to give me the straight scoop about how boards address the issue of sustainability. Gib has been the “expert in the room” on these questions at more than fifty board meetings with major global companies, including Air Products, Ashland, and AlliedSignal (Honeywell).  I asked him three simple questions. (OK, actually I asked him four):

  1. What’s the best way for a board to define sustainability?
  2. What do the “better boards” do in the area of sustainability?
  3. As an individual director, what should I know about the topic? What questions should I be asking?

Here’s how Gib responded:

1. What’s the best way for a board to define sustainability?

Sustainability is about achieving enduring growth and profitability in the harsh face of 21st Century realities. The “new world order” of a swelling population, oil depletion, global warming, water scarcity, and economic turmoil makes this the fiercest competitive battleground for the next 20 years. It means rethinking everything.

It’s what I call “The Messy Transformation.” Most companies face significant risks. Yet whether you sell technology or transportation or consumer products – the opportunities are massive.

2. What do the better boards do in the area of sustainability?

The better boards bring sustainability into their deliberations about both risk and opportunity. On risk, they do three things:

  1. Take a Business Portfolio Risk approach. For example, 20 percent of U.S. coal plants are scheduled to shut down by 2015. If that’s your energy source, it calls for a Plan B — and fast!
  2. Encourage action on managing the relevant risk profile (short and long term) on Carbon Risk. For example, we see Samsung announcing that by 2013 it will cut by 50 percent the greenhouse gas emissions from its own operations and from the use of its products. We see Sony announce its plans to achieve a zero environmental footprint by 2050.
  3. Keep Operational Risk management front and center. You don’t have to look far back in recent headlines for evidence about what a single disaster can do to your operations and public trust.

For the opportunity side, it’s about investment. Even in this uncertain financial climate, over $100 billion has been invested in renewable energy in the past two years. Companies like Cisco, IBM, Google and Microsoft are rushing to capture “smart grid” growth opportunities. P&G has a five-year goal to accumulate $50 billion in sustainable product sales by 2012, and will have “Sustainable Innovation Products” in 30 million U.S. homes by the end of this year. Bank of America recently announced it is ahead of schedule on its 10-year, $20 billion business initiative focused on addressing climate change.

3. As an individual director, what should I know about where a company stands on sustainability?  What questions should I be asking?

Directors really struggle with sustainability. In the 2009 NACD Public Company Governance Survey, directors rate their effectiveness at sustainability (corporate social responsibility) almost dead last. Meanwhile, in 2009 the number of shareholder resolutions on sustainability reached a record level. Investors care!

At the next board meeting (or better yet, before it), ask these questions:

  1. What would it look like to be a true sustainability leader? What would be the characteristics (e.g., zero waste, carbon neutral)? What would the portfolio look like (e.g., percent of sales from green products, services and solutions)? Is this just from our own operations or across our full supply chain?
  2. Do we have a robust sustainability strategy and a multi-year plan that identifies our risks and opportunities? Our own sustainability scorecard?

So that’s what we hear from the true expert. Now, what does your board do?

Adapting to a Volatile Environment: 8 Things Boards Can Do Now

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The recent whirlwind of legislative and regulatory activity has made it obvious that boards must be ready to adapt to a constantly changing business environment. As boards react to the new regulations and restrictions, I’ve crafted a list of eight things boards can do now.

Boards can:

  1. Focus on the business, especially during this time of economic stress and volatility
  2. Evaluate engagement with stockowners to find ways to improve two-way communications with an emphasis on new technologies and methodologies
  3. Focus on corporate board member education—the amount and nature
  4. Re-visit board governance processes—especially those that will enhance efficiency and effectiveness—and find ways to increase time for dialogue
  5. Look to NACD for information about the progress of the almost 300 new rules that will be required to implement the Dodd-Frank Act and make comments to regulators and others
  6. Look at board/committee evaluations with a critical eye towards possible improvements
  7. Focus on board composition and requisite stockowner communications
  8. Join NACD’s Leading the Way Initiative so we can amplify and advocate your good work

NACD Insight & Analysis for September 17, 2010

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Recently, interim CEOs have found themselves in the media spotlight.

This week, the Fortune magazine article “Should CEO be a Team Job?” notes that interim CEOs could be found at companies such as Borders, Sara Lee, and GM, while the boards searched for appropriate replacements. Though an interim CEO may be part of an “emergency” succession plan, boards must prepare to fill leadership roles when needed. Three to five years before a CEO transition is expected, the board should begin to develop long-term succession plans.

CEO Succession Planning - NACD According to the 2010 NACD Public Company Governance Survey (available Oct. 2010), most boards have taken the necessary steps to prepare for an abrupt CEO departure:

  • 70% include development of internal candidates
  • 69% include plans to replace the CEO in an emergency
  • 57% include long-term succession planning (three to five years before an expected transition)
  • 21% include engagement of an executive search firm to identify external candidates

To continually ensure that the current leadership is meeting the needs of the company, directors should engage in CEO succession planning. Well-timed transitions to new leadership enhance long-term shareholder confidence and value.