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HR’s Role in Building a HR’s Role in Building a Sustainable Enterprise:Sustainable Enterprise:

Insights From Some of the World’s Best Companies

Jeana Wirtenberg, Joel Harmon, Kent Fairfield, William Russell

ISE/CHRMS Breakfast Seminar, Nov. 17, 2006

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AGENDAAGENDA

Background on sustainabilityStudy participants & questionsKey qualities of sustainable

enterprisesKey sustainability-related human

resources activitiesContribution of the HR functionNext steps

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What is “Sustainability”?What is “Sustainability”?

A holistic, multi-domain, cross-sector issue, a.k.a. corporate social

responsibility or corporate citizenship

“How the present generation can meet its needs in ways that are not only

economically viable, environmentally sound and socially equitable but that also allow future generations to do the same”

United Nations World Commission on Environment and Development (The Brundtland Commission), Our

Common Future, 1987

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A Definition of Business A Definition of Business “Sustainability”“Sustainability”

“A company’s ability to achieve its business goals and increase long-term

shareholder value by integrating economic, environmental and social

opportunities into its business strategies.”

“Symposium on Sustainability – Profiles in Leadership,”

NYC, Oct. 2001

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Business CaseBusiness Case for Managing Sustainably for Managing Sustainably

“In an increasingly interconnected world, social, environmental and governance issues are no longer just ‘soft’ business concerns but are increasingly becoming material for long-term viability…because helping to build social and environmental pillars makes the global marketplace stronger”

-- Georg Kell, Director, UN Global CompactA partnership of 2,400 firms from more than 80 countries (e.g., Bayer AG, BP, Daimler-Chrysler, Deloitte, DeutscheBank, EDF, Dupont, HP, Novartis, Pechney, Pfizer, Ricoh, Royal Shell, SAP, Statoil, Sumarco, Unilever, Volkswagen) working with governmental, non-profit, and academic institutions to advance goals in human rights, labor standards, the environment and anti-corruption

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What’s in it for Business?What’s in it for Business?

The Sustainability Advantage “Business Case”: Enhancing the Triple Bottom Line of People-Planet-Profits*

Greater employee engagement– Better recruitment & retention of talent– Increased employee productivity

Reduced operating expenses Reduced risk/easier financing Increased revenue/market share

– The “Fortune at the bottom of the pyramid” Increased social/reputational capital

*Savitz & Weber, 2006; Willard, 2002

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Intangible Value

Tangible Value

““Intangible” Corporate ValueIntangible” Corporate Value

1930 – Intangible value

represented roughly 30% of the

market value of major

corporations

2000 – Intangible value

represented 80-85%*

2006 – And beyond ?

* Based on capital market valuations.

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“There is a growing body of evidence that companies which manage environmental, social, and governance risks most effectively tend to deliver better risk-adjusted financial performance than their industry peers.

“Moreover, all three of these sets of issues are likely to have an even greater impact on companies’ competitiveness and financial performance in the future.”

Jean FrijnsChief Investment OfficerABP Netherlands(Largest pension fund in the world)

Managing Sustainably and Shareholder Wealth

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Innovest Strategic Advisors Index: Automotive Innovest Strategic Advisors Index: Automotive SectorSector Correlation to Share Price PerformanceCorrelation to Share Price Performance

50 % outperformance - 9 years (12-96 to 06-05)

-40%

-20%

0%

20%

40%

60%

80%

100%D

ec1

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Difference Above Average EV21 Rating Below Average EV21 Rating

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The Nine “Global Top 100” The Nine “Global Top 100” Companies in the StudyCompanies in the Study

Alcoa 118 Pittsburgh, PAMetals & Mining 129,000 26,159 24.17

Bank of America 222 Charlotte, NC

Commerical Banks 176,638 85,064 235.48

BASF 141Ludwigshafen, Germany Chemicals 80,992 53,113 42.1

The Coca Cola Co. 120 Atlanta, GA Beverages 55,000 23,104 103.96

Eastman Kodak 118 Rochester, NY

Leisure Equipment 51,500 14,268 6.23

Intel 38Santa Clara, CA

Semiconductors 99,900 38,826 112.01

Novartis AG 111

Basel, Switzerland Pharma 90,924 32,526 175.83

Royal Philips 115

Amsterdam, Netherlands

Household Durables 161,500 30,395 42.72

Unilever 121Rotterdam, Netherlands Food Products 227,000 40,213 13.71

Average 122.7 119,162 38,185 84

Sector2005

Employees

2005 Yearend

Market Cap ($USbillions)

2005 Revenue

($USmillions) Company

Years Since

Founded Headquarters

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Focal Questions for InterviewsFocal Questions for Interviews

1. Does your firm explicitly emphasize the social, environmental, governance, and stakeholder aspects of sustainability, and if so, why?

2. How are you aligning your entire organization around sustainability and what are the most significant challenges you are facing?

3. What roles are human resource leaders and the HR function playing in your sustainability journey?

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Why Emphasizing Sustainability?Why Emphasizing Sustainability?

For us sustainability is business. This is business stuff, it’s not something that sits outside.

Sustainable development ensures the success and strength of the

company for future generations.

I never had even the most hard-edged analyst ask me, ‘when are you guys going to stop monkeying around with the sustainability stuff and pay attention to your margins?’

You can’t talk to anyone [in our company] without them speaking about doing things that make a difference for people. So there is this interaction between the vision, the mission, and the culture, that is all wrapped up in a history of paying attention to this kind of stuff.

Performance and sustainability are inextricably linked

Everyone agrees sustainability is going to help make us one of the greatest companies in the world…if we do it right, nobody would have to hide what they were passionate about.

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How Aligning the Organization?How Aligning the Organization?

When the chairman tells you this is the primary objective for us over the next ten years, a lot of people start to ask, what does this mean to me?

We measure everything… Our internal data is shared externally and really drives us… holds our feet to the fire…keeps us accountable

If we don’t perform, we can’t do anything for anybody…so performance, sustainability, and caring for communities, environment, society are inextricably linked… so we’re going to be as tough as we need to be on this organization so it’s sustainable… so we can make a difference in the world

It’s a central part of our strategy...It’s in the business plans where we want to get things like metrics embedded, because it’s done at the planning stage

It’s very much an integrated approach that relies on different disciplines of people since often times you’ll see legal, supply chain, business marketing, HR people, etc. all working together

People here don’t get promoted if they don’t have the values…a sustainable mindset. If someone is immune, they don’t make it…don’t have the followership.

Give them example after example because it’s hard for an accountant or an admin to see the relationship between what they do every day and sustainable development.

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What’s most challenging is…What’s most challenging is…

The teams involved in sustainability require the ability to lead cross-functionally and that is an important competency that is difficult to develop

That’s what change management is all about…How can I transport that culture of sustainability to seven different continents, 1800 locations, 45 thousand employees. How do you make that change?

It’s everything from personal counseling to helping educate our leaders on how to manage change

We should be spending more time on building strategic organizational capability for the future than worrying just about today . . . and the future is not just tomorrow, but a year from now, 10, 20 years from now. . . Are we putting leaders in place who will reverberate with these kinds of thoughts and ideas?

Many of these issues have been handled by different functions –EH&S, employee surveys groups, ethics officers, external relations folks, etc. –and they don’t often collaborate enough or see sustainability as something that integrates all these issues

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Question 1Question 1What do you think are the key

qualities that a highly-rated sustainable company would possess?

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Qualities of Sustainable Companies Qualities of Sustainable Companies Distilled from Our InterviewsDistilled from Our Interviews

COLLABORATIVEINTEGRATION

•Holistic Integration •Broad Stakeholder

Engagement

TRACTION •Alignment of Hard & Soft Organization

Systems•Metrics – Measurement & Reporting

FOUNDATION •Central to Strategy

•Senior Management Embrace/Support

SustainableEnterprise

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Good-Great Performance of these Select Good-Great Performance of these Select Companies on Key Sustainability QualitiesCompanies on Key Sustainability Qualities

Firm Sr. Mgmt Support

Central to strategy

Metrics: Measurement

Systems Alignment

Stakeholder Engagement

Holistic integration

Mean (1-5)

A 4.79

B 4.67

D 4.43

C 4.31

F 4.28

E 4.21

H 3.97

I 3.67

AVER 4.5 4.3 4.5 4.2 4.4 3.8

4.15G

4.5 or higher3.6 – 4.43.5 or lower

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Robust HR activities?Robust HR activities?

It all feeds back to the branding …the better [our firm] is branded as a company that’s sustainable and doing the right thing, the better I’m going to be able to attract talent, because the talent wants to work with the best companies, and the best companies are those that not only get results, but do it in a way that creates a sustainable environment

A big advantage to sustainability is getting employees engaged because they want to make a difference in the world. I work with a lot of committed people whose lives are about making a difference and choose to do it here

We don’t say no to anyone… anybody who requests any kind of development has been approved, our focus is on developing people

In the HR space, where you obviously can’t do everything the same because the laws change, our goal internally is to have one HR consistent set of compensation and [health] coverage for our people

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Robust HR activities (cont’d)?Robust HR activities (cont’d)?

We have a winning inclusive culture strategy, focus on how to achieve “cognitive diversity,” and in the global context, we focus on practices in the workplace and social issues affecting compensation, such as providing a living wage in developing countries

We have mandatory ethics and compliance training, and we make it fun. It includes appropriate ways to be working, sustainability and our values

Living the values is really meant around here…. It’s not just lip service. If you’re not living the values, you’re not going to hang around…

We have a leadership model to make sure we are building the type of leaders that are part of our sustainable journey…that’s why leadership becomes a crucial aspect of making that happen, how we live, breathe, behave in different parts of the world

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Table Discussion Q 2Table Discussion Q 2What kind of HR activities – whether

done by the HR function or line managers – do you think need to get done to build these sustainability qualities in an organization?

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Many robust areas of sustainability-Many robust areas of sustainability-related human resource activitiesrelated human resource activities

Company

1. Ethics &

Gov

2. T & D

3. Ldrshp

Develop

4. Diversity multicult

5. Talent Mgmt

6. Wkfce Engag

7. Inculc Values

8. Change Mgmt

9. Collab Tmwk

10. Health Safety

A ?

B ? ? ?

C ?

D E ?

F ? ?

G ? ? ?

H I ?

 Robust sustainability-related human resource activities 

Need for more robust sustainability-related hr activities

? = Unknown/ not discussed

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Question 3Question 3What strikes you about this pattern?

In which of these hr activity areas do you think the HR function should and/or could make its strongest contributions?

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HR’s Contribution (or Lack of)HR’s Contribution (or Lack of)

HR had a lot to do with [the strategy development and the roll-out of the strategy] because it has the potential to be transformational for the company, and in its role, it was really critical to people to make it happen

I’m always looking for an engineer that’s thinking beyond building the structure, but understands that building that structure impacts the people around the community. So hiring those people is one of the greatest sustainability benefits HR can bring.

I see little initiative from the HR area. They are reactive; if they’re given something, they’ll do it, but they’re not leaders in the company.

HR’s a pretty big player on AIDS, Labor Relations, Employee Relations, Diversity, Supplier Guidelines and Principles - all reside in HR

Our HR function has been great in helping develop the competency models (with input from our substance experts) and the technology platforms for sustainability training

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HR Function Contributing in HR Function Contributing in Many (but not all) AreasMany (but not all) Areas

Company

1. Ethics &

Gov

2. T & D

3. Ldrshp

Develop

4. Diversity multicult

5. Talent Mgmt

6. Wkfce Engag

7. Inculc Values

8. Change Mgmt

9. Collab

& Tmwk

10. Health

& Safety

A HR HR HR HR ? HR HR

B ? HR HR ? HR HR HR HR ?

C HR HR HR HR HR HR ?

D HR HR HR HR HR HR HR

E HR HR HR HR HR HR HR HR ?

F HR HR HR HR ? ? HR HR HR HR

G HR ? HR ? ?

H HR HR HR HR HR HR HR HR HR

I HR HR HR HR ? HR HR HR

HR = Areas where the HR function is making a strong contribution

HR Function/Leaders Strategic Positioning > 4.25 (out of 5)

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The SUSTAINABILITY PYRAMIDThe SUSTAINABILITY PYRAMIDTMTM: : When It All When It All Comes TogetherComes Together

Creating Qualities of a Sustainable Company

Creating Qualities of a Sustainable Company

Sustainable

•Strategic Centrality

•Senior Management Support

•Particip

ate in Stra

tegy Form

ulation

•Pro

vide Lea

dership D

evelo

pment O

pportunitie

s

to Build

& R

einforce

Top M

anagemen

t Support

Enterpris

e

•Metrics/Measurement

•Systems Alignment

• Create

& Manage

Transfo

rmatio

nal

Change Pro

cess

•Crea

te & In

culca

te Values

• Support

Work

force E

ngagemen

t

HR’s Contri

bution: M

anaging & Supporti

ng

the Tra

nsform

ative J

ourney

to Susta

inability

The Triple Bottom Line

•Holistic Integration•Broad Stakeholder Engagement

Facilita

te

Collabora

tion &

Holistic

Integ

ratio

n

©Institute for Sustainable Enterprise, 2006

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Next StepsNext Steps HRI-AMA Worldwide Managers Survey

about Sustainable Enterprise:– Drivers, Inhibitors, Qualities and Practices

“The Sustainable Enterprise Fieldbook: When It All Comes Together!”

SHRM Research Grant Proposal on the Role of Human Resources in Sustainability

Your thoughts?