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The meaning of green in the boardroom

Tracy E. Houston //February 18, 2011//

The meaning of green in the boardroom

Tracy E. Houston //February 18, 2011//

As sustainability has become increasingly entrenched in public policy, it’s winding its way into corporate boardrooms, prompting directors to examine how to incorporate it into a company’s strategic direction.

The Texas TriCities Chapter of the National Association of Corporate Directors held a meeting in September called “Is It Hard Being Green?” Increased congressional and regulatory focus on environmental impact of doing business, particularly in the energy sector, begs the question: What is the board’s responsibility in this area?

With the question of going green as the next wave of industry in mind, I recently talked with Thomas Seitz, managing director of the Southern Region at McKinsey & Co. Seitz is on the board of the Texas TriCities Chapter of the National Association of Corporate Directors and facilitated the September meeting.

Q: Is it time to put environmental expertise in the boardroom?

A: Yes – we had a clear consensus at the meeting that it is needed. That said, there are four drivers that are relevant and each board should discuss the importance for their company.

1. Carbon-conscious customers.

2. Current and future regulations.

3. Use of constrained resources for production cycle like oil and other natural resources.

4. Change in federal policy (positive or negative), international pressure to sell in other parts of the world, and global censuses.

Q. What push back to the idea of going green in the boardroom surfaced at the meeting?

A. Some comments arose around the level of importance of the issue. Our presentation represented the distinction and prominence of the issue and caused the directors in attendance to ask why, if it is a priority, are we not discussing it more? Another observation was around timing — given today’s mood in the U.S., which could be interpreted as a critical juncture. It is time to move forward.

Q. Are there other ways that a director with this type of competence can help strengthen a board?

A. This is not a one-size-fits-all issue. The job description of this type of director would be based in the strategic direction of the company. In other words, where a company’s strategy has embraced sustainability, this director’s expertise for both risk and reward will help test assumptions and provide the necessary oversight. There was no conclusion along the lines of a “must do” to have an additional director or a subcommittee for the board. That said, it is of note that some public company boards have a standing sustainability committee.

Q. What concerns might there be about this type of director?

A. Overall this expertise was seen as helpful to have on the board but only for a few companies as a stand-alone competence. There was a general feeling that this type of director would add greater value if they came to the table with additional senior-level experience such as customer-base knowledge.

Q. With strategy and risk in mind, how would you advise boards to frame this issue?

A. It is important for boards to look at both risks and rewards when looking at the world of “going green.” Debate the assumptions behind both the negatives and positives. Directors might find it advantageous to take a long view. Some parts of the energy industry – maybe a reinvestment horizons of 40 to 60 years. One director suggested, in light of this issue, a re-examination of the company strategy was in order.

An emerging market – closing thoughts from Tracy Houston

As a board consultant, my thought on “going green” is that a board would be enhanced by a director that understood both the tradition market and the influences that are driving the emerging market.

This director could pinpoint benchmarks and add value on the likelihood of reaching them. Given the fluctuating nature of this industry wave — I see it like the cell phone industry with many generations to come – current knowledge is at a premium.

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