Sustainability and the Board of Directors - NACD Case Study EMC & GRI


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Sustainability and the Board of Directors - NACD Case Study EMC & GRI

  1. 1. Case Study | Sustainability Sustainability and the Board The EMC Story EMC Corp., based in Hopkinton, Mass., is a global sustainability is a new concept; others have beenBy Kathrin leader in providing information infrastructure and vir- engaged in addressing sustainability concerns forWinkler and tual infrastructure technologies, solutions and services. years.Rachel Lee Its mission is to lead people and organizations on the Many of EMC’s sustainability initiatives have journey to hybrid cloud computing. EMC’s more than been in place since our early days—from incorpo‑ 53,000 employees serve customers in over 80 countries rating energy efficiency measures in our facilities to and its network of suppliers and partners is distributed encouraging a culture of volunteerism. Historically, around the globe. these programs were typically driven by individuals or small groups in disparate functional areas. Now, Sustainability is a cause célèbre these days, with a EMC has evolved to adopt a more comprehensive, getty i mages growing number of stakeholders voicing interest in holistic approach to building a sustainable future learning more about company positions on envi‑ by incorporating sustainability into our business ronmental and social matters. For some companies, strategy across the company. We have aligned our36 NACD Directorship March/April 2012
  2. 2. efforts to a common set of goals and are pursuing ■■ Providing technologies and services to addressthem through cross‑functional collaboration and some of the world’s challenges, such as energy,deeper engagement with our stakeholders and peers. health care and delivery of government services A key milestone in our journey was the publica‑ ■■ Upholding the protection of human rights andtion in 2007 of EMC’s first sustainability report. investing in furthering education, innovation andThe report provided a formal narrative of our sus‑ inclusion for our employees and in communitiestainability story, reflecting on the different dimen‑ around the world where they live and worksions of our sustainability programs, activities and ■■ Supporting EMC’s continued financial suc‑policies. Since then, these annual reports have cess and increasing shareholder value through ourhelped us, our employees, customers and inves‑ commitments to corporate sustainability, good cor‑tors—indeed, all of our stakeholders—understand porate governance, and maintaining customer andthe challenges and the successes of EMC’s sustain‑ community trustability program. These priorities embody EMC’s philosophy that So what exactly is sustainability? What is the role as we make decisions, we should weigh social andof directors in this effort, and what are the benefits environmental costs and values in the same way thatof sustainability reporting? In other words, why be we consider financial costs and values—all in a waygreen? that enables us to perpetuate the success of the com‑ pany and the well-being of all of our stakeholders.Defining Sustainability Executing these priorities is transforming how ourSustainability can be defined as meeting the needs products and services are sourced, designed, built,of the present without compromising the ability of delivered, and especially how they are used.future generations to meet their own needs. Thisis the definition offered a generation ago when a The Role of the Board of DirectorsUnited Nations study group urged nations to em‑ For companies to realize their potential, theirbrace sustainable development in the broadest boards of directors must be actively engaged in over‑sense of the term, and published it in a landmark seeing company strategy and execution. This assess‑report titled Our Common Future. For corporations, ment should include the identification and evalu‑this meant recognizing that how we conduct busi‑ ation of principal business risks and opportunities,ness today has long-term impacts on the future suc‑ including the impact of social and environmentalcess of our business and the world around us. issues. In this regard, directors should take into con‑ More recently, the Dow Jones Sustainability sideration a broad range of interests.Index offered a different definition of corporate Under Massachusetts law, a director must dis‑sustainability, describing it as “a business approach charge his or her duty 1) in good faith, 2) with thethat creates long-term shareholder value by em‑ care that a person in a like position would reason‑bracing opportunities and managing risks deriving ably believe appropriate under similar circum‑from economic, environmental and social develop‑ stances, and 3) in a manner the director reasonablyments.” The DJSI definition recognizes that busi‑ believes to be in the best interests of the corporation.ness both impacts and depends on natural resources The Massachusetts Business Corporations Act spe‑and on society, and that as a matter of good gover‑ cifically permits directors to consider the interestsnance, corporations should leverage opportunities of the corporation’s employees, suppliers, creditorsand mitigate business risks to achieve long‑term and customers; the economy of the state, the regionsuccess. and the nation; community and societal consider‑ At EMC, these principles come together in our ations, and the long-term and short-term interests offour sustainability priorities: the corporation and its shareholders in determining ■■ Reducing our impacts from energy consump‑ what is in the corporation’s best interests.tion, material use and waste More than 30 states have similar “constituency March/April 2012 37
  3. 3. Case Study | Sustainability statutes” that expressly permit directors to weigh the The EMC Sustainability Report and GRI interests of constituencies other than shareholders As a U.S. public company, EMC reports on its fi‑ and considerations other than profit, including “so‑ nancial health to investors through annual and cietal” considerations. quarterly reports approved by our board of directors and filed with the Securities and Exchange Com‑ Governance Model For sustainability to become mission. Since 2007, EMC has supplemented our a core value of a corporation, it must be integrated SEC filings with a sustainability report that high‑ into every function beginning with the board of di‑ lights our activities. rectors. The charter of the Corporate Governance We use the Global Reporting Initiative frame‑ and Nominating Committee of the EMC board work, a standard that is to sustainability reporting empowers the committee to: “Consider corporate what Generally Accepted Accounting Principles governance issues as well as issues related to corporate (and their global companion, International Finan‑ social responsibility and sustainability that may arise cial Reporting Standards) are to financial reporting. from time to time, and make recommendations to the Some 80 percent of the Global Fortune 250 com‑ board as appropriate. In this regard, the Committee panies and the 100 largest firms based in the United shall act in accordance with the Massachusetts corpo‑ States have produced sustainability reports, most of rate statute whereby a director may consider the inter‑ them using the GRI framework. ests of specified constituencies and factors, including The GRI framework lays out a process for com‑ societal considerations.” panies to identify relevant and material topics on Management regularly reports on sustainability which they should report. GRI provides a useful matters to the EMC governance committee and checklist that can be adapted and tailored by in‑ the full board. The governance committee over‑ dividual companies; it is not a check-the-box re‑ sees and advises the board on corporate governance porting exercise. Indeed, the GRI guidelines cau‑ matters and oversees the board’s execution of its risk tion: “The process begins with the identification of management oversight responsibility. In addition, relevant topics. Relevant topics are then prioritized at least twice a year, the chief sustainability officer as material aspects, which are then validated. The provides an update to the governance committee end result of this process is a list of material aspects on our sustainability initiatives and progress. Topics and related standard disclosures.…The reporting discussed have included our priorities, engagement organization’s senior decision-makers should take with stakeholders, customer feedback, employee ownership of the process for defining report con‑ engagement, and public reporting of challenges tent, and should approve any associated strategic and accomplishments. Furthermore, sustainability decisions.” matters are discussed at meetings of the EMC Consistent with the GRI framework, EMC fo‑ board in connection with reviews of the company’s cuses our reporting on topics that are important strategic plans. to our business. As the GRI “technical protocol” At the company-level, EMC’s Green Business reads: “Material topics for a reporting organization Leadership team, a virtual team comprised of leaders should include those topics that have a direct or in‑ from business functions throughout the company, direct impact on an organization’s ability to create, acts together to ensure they are working from a set of preserve or erode economic, environmental and common goals and assumptions, aligning their initia‑ social value for itself, its stakeholders and society at tives, tapping into the talent of the global workforce large.…Sustainability impacts create both oppor‑ and driving global, corporate programs across the tunities and risks for an organization. The ability company. Ultimately, however, the responsibility to of an organization to recognize opportunities and incorporate environmental and social considerations risks, and act effectively in relation to them, will into our business resides with every individual in the determine whether the organization creates, pre‑ company (see illustration at left). serves or erodes value.”38 NACD Directorship March/April 2012
  4. 4. How We Applied GRI EMC organizes our anal‑ standards and/or voluntary initiativesysis around the three categories proposed by GRI: ■■ Encouraging transparency and accountabilityeconomic (including financial performance, market ■■ Improving our reputation in the general pub‑presence and indirect economic impacts); environ- lic and among customersmental (including materials, energy, water, biodi‑ ■■ Recognizing the achievements of our employ‑versity and emissions/effluents/waste, compliance, ees and encouraging innovation globallyproducts and services, and transport); and social There are also benefits that accrue to the world(including labor, human rights and product respon‑ around us. The reporting process has contributedsibility). to improvements in EMC’s performance—from Each category has a series of detailed indicators reducing our energy consumption and green‑that EMC uses to determine the topics most signif‑ house gas emissions, to design innovations thaticant to our business. We also seek input from our have reduced material use and waste from prod‑shareholders, customers, employees and suppliers, ucts and packaging, to investments in educationand obtain information from structured analyses and health care. The report has been a primaryof our sustainability impacts, dependencies and means for sharing our own experiences, chal‑opportunities. lenges and successes with others that are con‑ Each year, we review the GRI indicators and con‑ fronting similar issues and opportunities. Finally,sider where we can and should expand the scope of it has provided external stakeholders and inves‑our reporting. All in all, GRI offers well over 100 tors with the information they need to track ourpossible topics on which companies may consider impact on society, and society’s impact on ourreporting. business. Kathrin Winkler (top) is EMC’s sustainability programs are receiving chief sustainability officerBenefits of Sustainability Reporting recognition. In 2011, EMC was listed in the Dow at EMC. Rachel Lee is se-While some foreign jurisdictions are beginning to Jones Sustainability Index for North America. We nior corporate counsel at EMC.mandate sustainability reporting, it is still voluntary were ranked 13th in the U.S. in Newsweek’s Greenin the United States. In our experience, being a vol‑ Rankings, and listed in the Carbon Disclosureuntary reporter is challenging, but well worth the Leadership Index for the fifth year running. Ineffort. The report has served as a vehicle to help us 2010, we were named Board of the Year by thearticulate and gain buy-in across the company for New England Chapter of the National Associa‑our sustainability goals and strategies; to inspire us tion of Corporate Directors, in part because of ourto measure and track our performance; and to im‑ work in sustainability. These rankings recognizeprove communication with all of our stakeholders. and applaud the hard work and creativity of EMCOther benefits include: employees. ■■ Creating a structure with which to assess the Despite considerable progress, we are early inenvironmental and social risks and opportunities in our journey. As we wrote in our most recent re‑EMC’s business port: “We have accomplished much, but know it is ■■ Clarifying the relationships between financial a constantly evolving process. We are past the easyand nonfinancial activities wins and working toward the true challenge—em‑ ■■ Establishing a cadence for the collection and bedding sustainability into our every day businessreview of performance data throughout the company culture and strategy.” D ■■ Helping to streamline processes, reduce costs,and increase efficiency by encouraging year over EMC and GRI co-presented on sustainability and theyear monitoring and goal-setting board, with an inaugural program in November at ■■ Benchmarking and evaluating our sustainabil‑ the NACD Heartland Chapter in Kansas City. A pro-ity performance with respect to external norms such gram is now being planned for Southern California;as industry or other codes, regulations, performance other local chapter programs will follow. March/April 2012 39