While more and more companies see assurance as something
of a magic bullet that lends credibility to disclosures of environmental, social and governance (ESG) performance, the assurance business is ill-equipped
to meet the growing demand for its services. Is assurance
really worth the effort?

Read the article (PDF), published in the December issue of Ethical Corporation magazine.

I went to my bank on Christmas Eve to make a deposit and attempted to make some typical holiday small talk with Max, my favorite teller. “Are you ready for the holiday?” I asked (careful not to say “Christmas” lest I offend). She shrugged and said that it would be quiet, then she told me how a friend who has stage-four breast cancer, and who seemed near death in the spring, was up and about and feeling much better. “I’m just going to celebrate the fact that she’s alive right now,” she said, “and I don’t feel at all bad about not getting out there and shopping.”

Amen to that. There seems to have been an intense focus on how much “consumers” (a consumer somehow being a different species of human being; more on that later) are spending this holiday season. As though what comes out of our thinner-these-days wallets will save our economy and, thus, our world. Meanwhile, there is much moaning about how the healthcare bill that the Senate passed on Christmas Eve simply doesn’t cut it, that’s it’s so watered down as to be a certain failure. And there is much griping about how Copenhagen failed to meet expectations—as though it were even remotely possible to get 190 or so countries to sit down and, in the space of two weeks, agree to global, binding, verifiable targets to reduce GHG emissions.

Can we just celebrate that the United States, whose government only a year ago refused to even sit at the climate-change table, is now pushing itself and governments around the world to address the issue? Can we celebrate that we now have at least a foundation for moving toward meaningful action? And can we celebrate that a sizeable chunk of the US population is one step closer to having meaningful access to health care?

Yes, we have a tremendous amount of work to do. That includes creating jobs and pushing the global economy into meaningful (seems to be my favorite word today) recovery whilst reducing our environmental impacts. It certainly won’t happen by shopping alone. Nor will it happen if we just sit at home and moan. If we celebrate small steps, maybe we can summon the will and the wherewithal to take bigger steps.

Maybe 2010 will be a year of meaningful, positive change. But then, I’ve always been a bit of an optimist.

Happy New Year.

To sum up the most recent meeting of the United Nations Global Compact US Network, held October 19 at PricewaterhouseCoopers offices in San Francisco (I know, this post is terribly late):

Boards need to step up and listen up.

In his opening remarks, Allen White sounded the call that became the theme, reinforced and restated during each panel and discussion that followed. Companies need activist boards, he said, and he presented the following ideas for how companies can begin to cultivate boards that to meet the calls for better governance and attention to some of our most pressing issues:
1. Create a process by which boards reflect on stakeholder management, engagement, and governance.
2. Require all board members to build competency in sustainable governance.
3. Consider sustainability competency as a criterion for selecting new board members.
4. Require directors to hold management accountable for integration of sustainability.
5. Boards should set sustainability goals.

Carolyn Y. Woo, Dean of the Cardozo College of Business at the University of Notre Dame, acknowledged many of the challenges to effective board governance and noted that external pressure is one key to better governance. She also noted that board members need to demonstrate personal ethics and a “moral backbone”.
Several directors who attended and participated in panel discussions, including Dianne Dillon-Ridgely, Rinaldo Brutoco, and Bill Conway, echoed the sentiments of both Mr. White and Dean Woo.

I moderated a panel discussion entitled “Retooling the Board for the 21st Century. Panelists Helle Bank Jorgensen of PWC; Rinaldo Brutoco, director of Men’s Wearhouse; Brian Lowry, Deputy General Counsel at Monsanto; and Dean Woo addressed, in candid and lively fashion, how boards can be better educated, increase the ranks of women and minorities, and should oversee their companies’ sustainability performance. Key takeaways:

Everyone, from management to board members themselves, is responsible for making sure boards are educated on key issues of the day.

Boards need to make sure they understand stakeholder concerns; that may require greater accessibility to stakeholders.

Boards need to be more diverse. Much of the shift and change in the boardroom is due to diversity in terms of gender, ethnicity, background. Board composition should reflect the world we live in and the reality around us. Boards need to be presented, however, with the “good” reasons and data supporting increased board diversity.

The stakeholder panel, whose participants were Stu Dalheim (Calvert), Anne Simpson (CalPERS), Susan Mac Cormac (Morrison & Foerster LLP), and Jonathan Jacoby (Oxfam) addressed the trends in stakeholder engagement with boards, including the increased focus on shareholder rights and scrutiny on issues such as executive pay. A key takeaway was that boards need to be more open and engage more with stakeholder groups in order to better represent their interests.

Cecily Joseph, Director of Corporate Responsibility at Symantec and the UNGC US Network representative, closed with this succinct summary: Boards need to step up, be trained, have expertise in sustainability, hear from stakeholders, and be reflective of society. Hear, hear.

I sat on a panel at a NIRI chapter meeting on Thursday with Don Kirshbaum, Investment Officer, Policy, at the Connecticut State Treasurer’s Office and Julie Gottlieb, who led the launch of Lenovo’s sustainability program and first report. The discussion was lively: several of the IROs in the room noted that they had never been asked about ESG risk, and one asked whether there had been any studies regarding performance of companies that focus on ESG performance. Happily, I was able to point to SAM’s long-short portfolio (long sustainability leaders, short sustainability laggards), which shows significant outperformance compared with each group; HIP Investor’s HIP 100 Index^SM, which, since 2004, has outperformed the S&P100; and a chart showing the DJSI solidly outperforming both the S&P500 and the DJIA even in this recession.

After the discussion, I was thinking, why are we still having this conversation? How it is that, in this day and age, and despite ample evidence, so many companies still don’t get that sound ESG performance can drive financial performance?

At the risk of oversimplifying, I think that the silo effect is a big factor. The folks in IR don’t talk much to the folks in sales, who, increasingly, have to respond to RFPs seeking information on ESG performance. (Note to federal contractors, if you’re not already getting those questions, get ready: On October 5, as part of a broader executive order, the White House ordered all federal agencies to employ sustainability criteria in the procurement of goods and services (see Section 2(h)). And when the federal government chooses a more sustainable option, it’s not likely to give the losing bidder a call to explain why.)

Yet with more than 11% of all US assets held by firms employing SRI strategies, and with well-respected business journals such as the HBR and the MIT Sloan Management Review extolling the benefits of sustainability as a key driver of innovation (and, ergo, financial performance), there’s no excuse for companies not to get what this sustainability thing is all about.

But some still don’t want to get it. I recently heard one company’s management respond thus to an investor request for greater disclosure of ESG performance: they don’t have to invest in us.

It’s true, they don’t. And increasingly, they won’t.

Read how integration can help to address the disconnect between sustainability efforts and communications in this “by invitation” article, published in the July/August edition of Ethical Corporation.

To drive innovation and brand value, companies should elevate responsibility for managing sustainability. Read my guest column in yesterday’s Environmental Leader.

I used to be a coffee drinker. I would hurry to the coffee maker in the kitchen five or six times each morning and rush back to my office, annoyed that I had to leave my desk for even the 30 seconds or so that it took me to refill my cup and get back to my desk. Two years ago, I stopped drinking coffee and switched to tea.

At first, I would turn on the teapot, run back to my office, work until I heard the shrill of the whistle, and dash back to the kitchen. Then the stress of it all got to be too much. Now, I force myself to take a small break each time I want a new cup of tea. Put the pot on the burner and turn on the stove; open two packages (I have a really big, thermal cup) of jasmine green; and wait. I visit the goldfish, read part of an article from the weekend paper, jot down a thing or two on our running grocery list.

What I’ve found is that these little breaks help me to step away, if only for a few minutes, from the busy-ness that characterizes my days; refocus my mind and my energy; and return to my desk feeling rejuvenated and a little calmer—not to mention happy that I have a fresh cup of tea.

The other day I asked a couple of clients how well their company addressed work-life-balance issues such as telecommuting and flexible working hours. They looked at each other. While some areas were better than others, the company had no policy and work-life balance was not seen as a priority issue. Perhaps if more companies encouraged the equivalent of the tea break* or enabled employees to manage their energy by, for example, formalizing telecommuting and offering reduced work weeks and flexible scheduling, they could benefit from a more motivated and energetic workforce—especially in these trying times. Introduce hot desking and mobility centers and they begin to reduce space usage and carbon footprints, not to mention costs. Build a culture that rewards people for the quality of their work rather than the amount of time they spend at work.

What if employees were encouraged to turn off their Blackberries while on vacation (or at least when they go to bed)? What if, rather than taking a performance bonus in cash, an employee could opt for a year of three-day weekends? Would there even be any takers?

I think I’ll have another cup of tea.

*A book by Jim Loehr and Tony Schwartz, entitled The Power of Full Engagement, takes the idea of the tea break to a whole new level. Definitely worth reading.

In this edition, we discuss the challenge of making the monumental shifts needed to transition to a sustainable society. We also highlight the achievements of two of our clients: Symantec and Seventh Generation. Both companies were recently honored with Ceres-ACCA North American Reporting awards. PDF

by Kathee Rebernak, Ethical Corporation, April 2009, Link

It’s Saturday morning; I’m having my tea and reading an Economic Times interview with Rosabeth Moss Kanter, the renowned management expert and Ernest L Arbuckle Professor of Business Administration at Harvard Business School. I have included exerpts from the interview here because I agree with much of what she says, in particular her comment that principles and profitability are not necessarily antithetical (I tend to think of them as symbiotic). I do think that there are other, better examples of the mutually reinforcing nature of principles and profit than the P&G example she gave—think Seventh Generation, IceStone, Equal Exchange. The questions of the interviewer are in regular typeface, Professor Kanter’s answers in italics:

What do you think is changing – human nature of the nature of business?

. . .

As far as the nature of business goes, there is nothing inherent in the idea of profit, which says you have to make it in ways that violate social norms or that it has to come only in the short term. That’s the nature of the financial systems that are erected around the business and they can be dismantled. So we can change the rules as we have in the past.

I think companies with values are more sustainable in the long run because they are willing to make short-term trade-offs in the interest of longer-term benefits. It’s like what Winston Churchill said about democracy, ‘It’s the worst system we could imagine, except for all the others’.

Do you think the present financial crisis will change the way we do business? Will there be a movement towards responsible leadership?

I hope so and actually I think it will. Not today or tomorrow, but hopefully by the end of August, when people will be ready for that message. Because you can demonstrate that the surviving companies with good reputations and high sense of values are also profitable and that gets people’s attention.

The rising generation is much more socially conscious and idealistic, and also somewhat angry. They are not going to stand for these practices and they now have new communication tools. So there is a big generational effect that’s going to help. And the problems of the world are much more apparent to people now. There is more pressure and interest in solving these big problems, and business has the capabilities. It’s really about a better way to run a company that pervades all aspects of business because when you begin with values and principles, you use them to assess what you do.

You speak of values-led capitalism. In these difficult times, can one realistically expect values to prevail over profits?

It does not have to be principles over profits. In fact, principles often get you profits because the bank in Brazil (Banco Real) that walks away from customers who didn’t pass muster on their environmental and social loan selection criterion, had the customers coming back to them with a plea to help them comply. They also got new customers who said this is where we would like to put our money.

There is evidence that these two put together work very well. P&G had a product that they thought was a wonderful way to make a difference in the world, something the poor could really afford and needed. It’s a water purification sachet called ‘PuR’, and it turns out they couldn’t make a business out of it.

There was a big argument in the company to pull the plug on the product but people said ‘we can’t do that because of our values’ and this is important for poor people. So they set up a nonprofit organisation and gave the sachet to it, and they got enormous goodwill from other partners, like NGOs and governments.

After the tsunami, the demand for sachets was such that warehouses were emptied. So they recovered the cost but value to them came in employee commitment, demonstrating their values to the customers, and in many other ways.

. . .

When you do have a handful of companies practicing values-based capitalism, what is it about their culture that allows them to foster such values?

It has to start with the leaders. I remember being criticized as a sociologist years ago because I had to fall back on explanations involving individual leaders. But it does begin with leaders. New CEOs who take over have a sense of obligation to the country in which they operate. Leaders like Lorenzo Zambrano of Cemex, who wasn’t the founder but had the feeling that his company had to meet the highest standards. High standards are really something that these companies have in common, but to just talk about values misses the point. They aspire to be the best, one can call it ambition but then values mean being the best on multiple dimensions.

These companies are responding to the leaders and they are also responding to the times and these companies are much more in touch with their various stakeholders. They take in the feedback. If you are listening to a range of various stakeholders, you are much more likely to be sensitive to them. You are less likely to use a corporate jet when you are going for a handout.

In good times, everyone was a good leader. But now when the tide has ebbed, lots of people seem to be swimming naked. Are a lot of good leaders making bad decisions or they were not such good leaders to begin with?

They weren’t too good to begin with. I have no trouble in saying they don’t deserve a disproportionate share of wealth because they didn’t necessarily have to work very hard. I think they were probably okay, but not geniuses, and the times were good.

Social psychologists called it the fundamental attribution error: in examining the behaviour of others, people exaggerate the role of internal causes and invoke traits as a primary cause. They were lucky to be presiding in good times when the companies had a lot of momentum, and they also had a lot of smart people working for them.

Read the full interview at http://economictimes.indiatimes.com/Interview/Rosabeth-Moss-Kanter-Professor-Harvard-Biz-School/articleshow/4289927.cms