Over the Horizon II/II: Hyperdermics Overboard

The past week has had me pondering the role of whistleblowers, and the ethics of average people looking to do business. The Year of the Whistleblower [2002] seems more than just five years ago, but that was when Enron, Worldcom et al were still fresh in our minds [see excellent Business Week article 2002 Year of the Whistleblower: The personal costs are high, but a new law protects truth-tellers as never before]. Aside from Homer Simpson, I know no employees at nuclear facilities, but there is someone I would love to talk with. Media reported the sentencing of the nuclear plant engineer in Eerie, PA who fudged reporting of a six-inch steel core corroded by acid to within millimeters of a breach of a nuclear plant owned by FirstEnergy Corp. No luminous fish have been found! AP reports from Ohio:

Jurors on Tuesday convicted a former nuclear plant engineer of hiding information from government regulators about the worst corrosion ever found at a U.S.reactor. Prosecutors said Andrew Siemaszko and two other workers lied in 2001 so the Davis-Besse plant alongLake Erie could delay a shutdown for a safety inspection. Months later, inspectors found an acid leak that nearly ate through the reactor's 6-inch-thick steel cap.

What was he thinking? The fracture leaked again during patching in January of this year [where was Homer?!], and the company aims to request another two nuclear operating licenses.

Front page this week was news that a Halliburton man admitted to millions of dollars of bribes [US$180m] to win natural gas contracts in Nigeria in the 1996-2000 period, when current US Vice President Dick Cheney was CEO. The man faces years in prison, but no word on the Nigerian side of the deal, nor the living conditions of the man’s wife and children and their gilded lives his lifestyle must have afforded. Coverage of the case makes for fascinating reading, including the indirect path to the case, following on an unrelated case in France that led investigators in France, the US and Switzerland to hunt down the frauds. Bribing officials subjects executives and their companies to prosecution under the U.S. Foreign Corrupt Practices Act. A French magistrate began looking into the matter in October 2003, uncovering shell corporations in Gibraltar and bank accounts in Switzerland. U.S. investigators joined the hunt in January 2004, according to Halliburton SEC filings, all of this monitored by accountability activists. Perhaps the SEC investigation will pick up further interesting stories... Elsewhere, whistleblowers face an uncertain future. Merck & Co. has agreed to pay $650 million to settle two long-standing lawsuits involving whistleblowers over Medicare pricing practices and related marketing activities. But Wyeth had a suit brought on vaccine training dropped. The landmark Sarbanes-Oxley Act of 2002 gives those who report corporate misconduct sweeping new legal protection. An executive who retaliates against a corporate whistleblower can be held criminally liable and imprisoned for up to 10 years. But this week the US Department of Labor, charged with enforcing the federal law protecting corporate whistleblowers at publicly traded companies, was revealed to have been dismissing complaints on the technicality that workers at corporate subsidiaries are not covered. It was left to Vermont Democrat Sen. Patrick Leahy, who helped craft the whistleblower provision as part of the Sarbanes-Oxley corporate governance act [2002], to say the law was meant to cover workers in corporate subsidiaries. "Otherwise, a company that wants to do something shady, could just do it in their subsidiary". [reported in WSJ 4 Sept 2008].

Then there is the case of sailors and the decisions they make, over the horizon. I hiked another piece of the Appalachian Trail this week with an ex-merchant marine officer who spent some time on coastal freighters carrying crude oil up from the Gulf of Mexico to New York and Boston harbours in the 1970’s and 1980’s. You have time on a hike to think, aloud or alone, and to talk or not talk, as the rhythm of your footfalls and your thoughts dictate. The path is steep to the alpine zone about 3 miles up. As we hiked boulder by boulder, we talked through his experience of sailors making decisions over the horizon, in “international waters” where no-one may see, and where no-one may care what happens, and law is in the eye of the beholder. This is a long way from the moves by food companies this week that pledged not to use cloned livestock meat nor milk, a voluntary action responding to a survey by Center for Food Safety. Of course, my local VT favourite, Ben & Jerry’s, is represented by Unilever, the Anglo-Dutch parent, but in a reflection of how far things have come, includes Kraft, Wal-Mart and Tyson Foods.

What is the business case for maritime pollution? Stories of marine pollution are disappointing. Yes, they make me angry. In 1975, the US National Academy of Sciences [NAS] estimated ships dumped 14 billion pounds of garbage at sea. BILLION. Weak enforcement of the United Nations/International Maritime Organization International Convention for the Prevention of Marine Pollution (MARPOL) fails to prevent ships to illegally dump waste oil from bilge and storage tanks into the ocean. A 2001 study from the [NAS) reports that:

Approximately 10–25% of commercial ships violate MARPOL and discharge more than 65 million gallons of waste oil at sea each year, nearly 3 times the amount spilled in catastrophic oil tanker accidents.

One of the stories the ex-officer described shipping of oil north along the US East Coast. After delivering the different grades of oil to NY or Boston the grades of aviation fuel, gasoline, heater and heavy oil, the ships would head south to the South for the next pickup. All the freighters were of similar design, and their tanks had a small inefficiency where a trace amount of oil remained behind that could not be sucked out. Before loading the next load of grades of oil, the ship would pump out the old using seawater. Pure oil, intentionally pumped directly out into the ocean, would jet out of the tanks for a few minutes until the tanks were cleared. The practice was usual. For every one of the loads.
For every one of the ships.
For years.

After a year-and-a-half of advocating, the EU is finally sanctioning this practice. Apparently, the shipping companies and the sailors who manned them needed some kind of bureaucrat to write some kind of regulation to deter the activity. It is likely however, that thousands of gallons of commodities are spewed over the side when no-one is looking over the horizon, when no-one is looking. The impact of business-as-usual is accumulative, and must be making the oceans more dirty, not more clean, according to Oceana.

The pollution of the sea from hydrocarbons (crude oil, fuel, petrol, oily waste, etc.) is a global problem that entails between two and ten million tonnes of these products reaching the sea each year. Although the bulk of public attention is focused on the oil slicks caused by major oil tanker accidents, chronic dumping of these substances – in other words, the residue from ordinary maritime traffic – is three times higher. Washing out the tanks of oil tankers, dumping bilge water and minor spillages on board or in port are the main sources of hydrocarbon pollution of marine origin.

A mid-July, 2008 investor conference call with ExxonMobil and sustainability investors illustrated some of the challenges we face in the sustainability+investment practice integrating ESG factors into investment practice. Scheduled to cover ExxonMobil Environmental/Climate Change initiatives and reporting with the VPs for Safety Health & Environment and Public Affairs, while the PPT slide deck covered a range of issues, no answer was available live nor within 24 hours on what number of tankers shipping XOM oil, and what percentage of tankers, are double-hulled and which are double-skinned. Of these tankers, how many transport XOM oil in environmentally sensitive harbor areas like San Francisco, Valdez etc? Perhaps this is unsurprising from a company that still fought the Exxon Valdez case through 2008, all the while touting corporate citizenship and their technologies for hybrids in full-colour multimedia advertisements. The XOM climate change webpage has not been updated since 29 Feb. 2007. Maybe Gabelli's new green theme investment may offer some answers: Gabelli's eponymous firm is making more noises about exploring the alternative energy and green space. The CEO of Gamco Investors said in a Bloomberg Television interview that he is launching a hedge fund to invest in environmentally-friendly companies. This week the DJSI announced its revisions for 2008, and Alex Barkawi, MD for Indexes at SAM that calibrates the index, commented that "there remains significant room for improvement and thus wide scope for a continued strong sustainability momentum". WSJ even posted a full page congratulatory advertisement on p.C7 tucked in the Money & Investing section, in black & white.

Integrity is not cheap. A working definition of integrity is what one does when no-one is looking. Perhaps it was because I was getting a little more fatigued near the top of Mt Lafayette on the Bridle Path 9 mile loop in Franconia Notch State Park past Falling Water, but I could not understand why sailors and engineers on ships would try and be “company men” by taking short cuts to save “the company” some amount of dollars. The “Company Man” fascinates me: how the average worker calculates the risk and returns of their actions, and expects what they do for “The Company” is good for them vicariously through the company. The sailor that has seen crewmen eject pollutants overboard after regulations direct it is illegal, by the authorities and their company which sought to comply with the rules, and be tacitly and explicitly rewards with a nudge, a wink or a pat on the checkbook by their bosses. There are some happy endings, including this report from the NJ Star-Ledger:

Federal authorities will collect $4.75 million in fines and payments from a Danish company that admitted responsibility in federal court in Newark Thursday for illegally discharging oil sludge and oil-contaminated bilge water into international waters in 2006.

In another report from 2000 in Canada, a military patrol plane first documented a 12-kilometre long slick while on routine surveillance in mid-October, 1999, leading to the successful prosecution of a Singapore-flagged vessel owned by a Scots firm. Identifying cuprits is made somewhat easy by oil having a particular "fingerpint" based on where it originates from. Ahead of the last weekend of summer this year [these dates are officially established in the US, summer is officially over!], the Labor Day weekend, there were dramatic media reports that prime beaches in New Jersey were shut in part in Avalon due to medical garbage washing up on shore. The sizeable legal community in the NY/NJ/PA tri-state area will no doubt be bringing in experts to inflate to the right economic costs. Avalon was named by National Geographic Adventure magazine as one of the nation's 10 best places to live, work and play. TV captured the hapless Mayor valiantly trying to sound more on top of this mini-disaster than FEMA following Katrina, while seeming friendly enough to attract the beach crowds his local businesses relied upon. Early on the investigation expected that someone dumped medical waste off the coast, as had been cleaned up many times before. Turns out a 30-year veteran dentist had taken his boat out and dumped the junk over the side. The dentist is from a once grand section of suburban Philadelphia, Wynnewood, an early stop on the R5 from 30th St Station on the way out to Villanova. What was he thinking?

The dentist is charged with unlawfully discharging a pollutant and unlawful disposal of regulated medical waste. Each charge carries a maximum prison term of five years. Fines could total $125,000 if he is convicted on both counts. No word on the environmental costs, nor ruined walks at sunset along a clean beach. At least this nasty little incident offers some very pointed, local sound-bites for the Net Impact conference at Wharton 13-15 November [the Investments track continues to build nicely].

What was he thinking?

***
Update: Suzlon are now reported to be speeding their integration plans for the German wind firm REpower they purchased to speed the technology transfer. Perhaps they are seekin solutions to the high speed/high load failures reported on 2.1MW turbines by Deere & Co. and Edison Mission Energy.

CSI on campus

CSI – crime scene investigation – is one of the most successful TV franchises [even re-runs on Thurs in US garner top 10 ratings and over 10m vierwers according to Nielsens, with a suite of derivatives like CSI Miami and production in several countries. CSI is

"a fast-paced drama about a team of forensic investigators trained to solve crimes by examining the evidence. They are on the case 24/7, scouring the scene, collecting the irrefutable evidence and finding the missing pieces that will solve the mystery".

In Brazil, Malaysia, Vermont, France, CSI may be found on your hotel TV, along with its indelible “duingh-duingh” jingle. TV.com reports that in 2007 nearly 84 million people watched CSI, making it the most watched show in the world, although the clipped dialogue and horizon-long stare of CSI Miami's "Horatio" is spectacularly vacuous acting...

In my work in the sustainability field, “CSI” has been used humourously and more seriously. In the dry humour of a research team, to “CSI company XYZ” was a phrase we coined at KLD in Boston when a seemingly innocuous bit of information is buried by the company, and the analyst would have to embark on some journey of investigative diligence. CSI has recently emerged as something of a favourite phrase for university inter-faculty and research centers, Corporate Sustainability Initiatives. The Aspen Institute’s Center for Business Education Sustainability Center Research Initiative has built a database of academic centers, identifying some activity in sustainability in over 600 centers across top colleges and universities across a variety of disciplines, including 111 MBA programs. Both Duke [Fuqua] and Berkley [Haas] recently posted for CSI EDs.

Through my teaching and seminars at grad-schools like Université de Genève, Harvard Kennedy School of Government, University of Melbourne, MIT and of course the University of North Carolina, Chapel Hill Kenan-Flagler Business School, I have had a fair exposure to where thinking and activity on sustainability is at professional schools. I never expected to enjoy the B-school teaching, but realized there was something there for me, and the challenge of being “on my game” in front of 30+ “show-me” attitude professionals in an academic context is still fun only AFTER over a bottle of red on the final day. I look forward to more in emerging markets like USM in Malaysia [we are moving forward with an RI Survey in SE Asia this year], UCT in South Africa and FGV in Brazil.

Via the students and faculty I have met [from sassy commodities traders to turtle egg counters to marketing marketers] and my work with Net Impact since 2003, I have witnessed the emergence of an academic awareness and activity on sustainability in major and emerging schools. Net Impact has had a marked impact on the evolution of curricula. Net Impact is a global network of over 10,000 MBAs and professionals dedicated to building a better world through their work, activities and leadership. The inaugural Net Impact Europe Conference hosted by the International Organizations MBA HEC Geneve in Geneva, Switzerland, during the weekend of June 12 – 14 allowed members to learn and interact with global leaders representing a full range of progressive business and social entrepreneurship practices. Themed as “Sustainable Prosperity: Taking on the Global Challenge” will bring over 500 professionals and business students together to explore topics in four channels [Innovation, Leadership, The Global Challenge, and Managing Investment & Measuring Results – I developed the faculty for this stream], the conference attracted business, international organization, and not-for-profit leaders and practitioners. The 19^th North American annual conference is hosted by Wharton November, 2008. It will be an opportunity to see where the Social Entrepreneurship effort has reached since 2003, and catch the R5 again.

In recruiting the first generation of executive directors to these roles, universities must attract attention that would have candidates – who will have been successful elsewhere - to consider leaving behind their business, teaching, investment, advocacy or consulting businesses for the right opportunity with a major institution that is committed to developing sustainability competencies for lasting impact.

“ What we have is a series of great opportunities disguised as insoluble problems.” John Hennessy, President of Stanford University.

The ED will need experience and roles having built initiatives, business or widgets from scratch with energy, enthusiasm and expertise - preferably in the complex multi-stakeholder environment of CSR. Knowing how political the tenured faculty intelligentsia of elite or well-endowed universities will be, the role suggests the critical requirement to “interpret” across academic/think-tank world to business and public agencies, and reverse. In my view, two mega-trends will change the dynamic in the sustainability theme over the next five years:

1. the drive for improved metrics and
2. the shifting power of the emerging markets and their sovereign wealth funds.

The work of any new university center focused on CSI will need to cover a range of micro and macro issues in conjunction with developments from the business, environment, and law schools, but these two most pressing mega-trends will systematically change the landscape for sustainability for all companies, especially American companies with foreign market exposure.

Perhaps the ED must be suited to life by committee, but I know I am least suited to the minutiae of academic and PhD life, nor situations with professional jealousy [as recent experience had reinforced]! In pushing over the boundaries of the field, leaders of CSI need to move across for-profit, not-for-profit, and academic boundaries. By developing the business case for sustainability, and investment in sustainability, on a global scale including emerging markets, offers a platform for successive in building a CSI from scratch. It is more than an academic year’s work!

I have enjoyed interacting with business and business schools, positioning my role across thinking-and-doing opportunities, and where as a white African, a South African having proven my abilities on the global stage here in the US and abroad. Even since discovering the phrase “meritocracy" as a 12-year-old at the Durban Amphitheatre one winter’s afternoon, I have sought to work in that dynamic, and after apartheid, even more so – where the colour of my skin is noticed less than my value-add to growing the business or the organization. I assume all are committed to celebrating the success as soon as possible! I am always looking for a team of talented peers, inside and outside the firm, to work with that make the hard days less hard, and the good days brilliant. A friend still talks glowingly about the positive collegial environment she experienced at Goldman Sachs in London, and I still remember my time at the cusp of this century at Nedcor Investment Bank in Johannesburg with our small motivated International Multi-Manager team as a thriving context. My recent campus visit at Duke helped illustrate the context, with seminars for The Fuqua School of Business, Nicholas School of the Environment and Earth Sciences and Nicholas Institute for Environmental Policy Solutions. The ask should help map some CSI thinking:

o Curricula: MBA programmes need to develop modules to integrate education on ESG factors in business strategy and investment decisions

o Case studies: opportunity for:

• New case studies covering ESG activity by companies and effect for investors
• Mapping current best practice in costing and integrating ESG factors
• Effect of investor initiatives

o Publishing: new academic writing and research on:

• Update investment effects and market performance
• Institutional investment decision-making?
• Voluntary vs compulsory regulation

o Endowments: how is your university integrating ESG factors into investment of endowment?

I especially enjoyed the seminar with Bob Clemen’s class at Fuqua, Decision Tools for Environmental Sustainability.

After 15 years professional working experience since law school, I have found that I work best in a stretching environment, leading teams in new or emerging businesses, or leading project teams in established businesses into new directions. For example, in an intellectual and organizational vacuum at a global advocacy initiative I spotted the weakness in building meaningful and material relationships, so I designed, developed, tested, and delivered a new model for signatory interaction, EM Call. The EM Call became something professional and inclusive demonstrating a listening mode, and became anticipated the third Thursday of every month. Investment colleagues on 3 continents made personal, positive comments about this regular and valuable new component. Unfortunately, it changed when I left, and I assume it is now undone.

As professional schools, the CSI Varsity must graduate students that recruiters find meet their needs – the WSJ ranking of B-schools is correctly weighted to include corporate recruiters. Some skills are missing from corporate sustainability professionals today, even as sustainability reaches the C-suite [see Chief Sustainability Officers, New York Times 7/3/2007]. In general, the industry needs to establish standards and manage them through professional bodies and certification, in line with comments from a forthcoming article I co-wrote for Journal of Corporate Citizenship. The discipline and skill of articulating how the industry measures itself and its professionals will lead to a fundamental step-up in our work, and its value [see also work by ABC at Duke]. New business models and even formats of institutions in a globalized, Web 2.0 world will also challenge current thinking of sustainability – who has the answers, and where we should be heading? I hope the rich intellectual challenge in the complexities of sustainability will see sustainability professionals leading the way in thinking, experimenting, and scaling new models of business leadership. Only be integrating disciplines will a CSI successfully achieve this.

The CSI will live or die based on the size of their budgets – like any new R&D or product roll-out, a big budget released early for multi-year funding is critical. This was one of the Aspen Institute 2008 findings as they surveyed CSI at leading institutions like IMD, Berkley and using an expansive search of top colleges and universities across a variety of disciplines, adding nearly 400 additional centers to the 111 in the BeyondGreyPinstripes database. Quality of funding will differentiate the CSI quality in 5 years. Respondents described [p.6]

…secure funding allows a center to operate strategically rather than opportunistically; that it gives faculty breathing room to attend to organizational development (otherwise a risk to long-term research productivity); and serves as an “anchor tenant,” helping to create an environment in which other stakeholders feel secure investing time and resources in the center. The amount and term of the funding appears to be more important than the source or intended use (chair, program gift, research support, etc…[I]t’s much easier for a potential sponsor to be inspired by a blank slate than a re-organization or turnaround opportunity; it’s too hard to shoehorn an existing program agenda, image and brand into the interests of a prospective donor; etc. In sum, you’re only born once... In contrast, centers that pursue an opportunistic model in hopes that a focus and funding source will emerge, are much more likely to stay in hand-to-mouth mode indefinitely.

The Aspen Institute Center for Business Education Sustainability Center Research Initiative survey out in Mar. 2008 itself recognized funding from the Applied Sustainability Center at the Sam Walton Business School, University of Arkansas. Fundraising or attracting assets has always been some part of my roles, as a pensions officer or investment banker pitching the unique selling proposition of an investment approach, or attracting co-funding for work at The John Templeton Foundation leveraging seed-capital, or at the UN pitching government agencies for cash or stakeholders for services in kind enabling events to be planned and succeed with just a small direct funding from the project budget. Asset gathering for ED’s will be as crucial as the early years of student selection.

In the competitive context for students and professorial talent, the industry seems at a similar stage to the money management industry which is struggling for experienced money managers and analysts, beyond the social science and pol.-sci. majors that formed the issues base. Now investors need to be front and centre. The paper makes its final pitch for some overarching organization. But I suggest there are lessons to be learned about surrendering agendas and facsimiles of the real thing when cooperation and collaboration is floated. Institutions not joining or leaving initiatives point to the case for caution. Hyper-competitive B-schools will inch forward carefully with their CSI, and do well to stay away from some ossified organizations that struggle in a Facebook-ed world. New thinking deserves new models of collaboration.