Who is Ben W. Heineman Jr. and why am I listening to what he’s saying?  Ben’s message resonates with me.  He is speaking out on values that are at the core of my professional beliefs: business has the responsibility to balance their high performance with high integrity.  This is the title to his recent book:  High Performance with High Integrity (Harvard Business Press, 2008).

We all have professional beliefs that guide our behaviors.  As a Certified Safety Professional (CSP) I have devoted my career to the protection of  people, property, and the environment.  My day-to- day world is to think in frameworks that assess business risk.  I actively look for the people who manage and govern business operations with one purpose: to have a courageous conversation with them on the risks they are taking in pursuit of performance.

So this is where my purpose, passion and professionalism connect with the wisdom of Ben Heineman.  He just makes sense to me in how he approaches the conversation.  Yes, it helps that his distinguished career included being a  Senior Vice President and General Counsel for General Electric From 1987-2003 and SVP for Law and Public Affairs until his retirement at the end of 2005.

So by now you can see that I’m in Ben’s tribe.  The reason I so love what Ben is saying is that it speaks to my belief that the more global our business communities the greater the need for conversations about the impact on people and the world they live in.  Leaders are privileged to be given the trust to be in charge but with it comes great responsibility.

I admire that Ben is out speaking to business leaders.  He supports me everyday as I step up to listen and speak with executives and board directors about risks.  I am joined by other guardian professions: accounting, attorneys, safety, security, risk, human resources and many more.  We all want leaders to make informed decisions that are high performing for your company and your career.  We understand the challenge of performance with integrity.  Most of us work in professions that give us a code of ethics for professional practice.  We’re working to share our ethical insight with you to help you understand the risks you are undertaking.

I urge you to take a moment to listen to the message and thank the messenger for bring this to you.  We are speaking up because we understand risk and care about your challenges of being responsible leaders.

Here are some ideas Ben has on building a safety culture.  Let me lend my support and voice to his message:
But responsible companies will have a strong commitment to obeying the spirit and letter of existing safety law. They will also establish their own internal rules, beyond what the laws may require, if an additional margin of safety is required to protect employees, consumers, and communities. In my view, such voluntary action avoids catastrophic impact on the company and has benefits for a corporation inside the company, in the marketplace, and in global society.

In light of these legal and ethical rules, they will adopt the following safety culture credo:

–Our company is built on the foundation of high performance with high integrity, and safety is an essential element of integrity.

–Each senior leader will be held personally accountable.

–There will be no cutting of corners for commercial reasons. Integrity and safety must never be compromised to make the numbers.

–One strike and you’re out. You can miss the numbers and survive. You cannot miss on integrity and safety.

This credo can create culture through investigation and discipline of company leaders. But, more importantly, an affirmative culture, where employees up and down the line want to do what is right, must be created by leadership aspiration and by leadership action in embedding the key safety principles and practices — risk assessment, risk abatement, continuous improvement, safety auditing, early warning systems, proper education, and training — deep into business operations.

Here are his entire remarks:

http://www.theatlantic.com/business/archive/2010/04/valuing-safety-is-good-for-companies-bottom-line/39128/

Ben Heineman was the Senior Vice President and General Counsel for General Electric From 1987-2003. He then served as Senior Vice President for Law and Public Affairs until his retirement at the end of 2005. Mr. Heineman is currently Senior Counsel at WilmerHale, a Senior Fellow at the Belfer Center for Science and International Affairs at Harvard University’s John F. Kennedy School of Government, a Distinguished Senior Fellow at the Program on the Legal Profession at the Harvard Law School, and a Senior Advisor to the Center for Strategic and International Studies. He researches and writes on a variety of topics, including globalization, anticorruption, corporate citizenship, dispute resolution, and the legal profession. Mr. Heineman also serves on the boards of the Center for Strategic and International Studies, the Memorial Sloan Kettering Cancer Center, Transparency International-USA and the Committee for Economic Development. He is a Fellow of the American Academy of Arts and Sciences, a member of the National Academy of Sciences Committee on Science, Technology and Law, and a recipient of the American Lawyer Lifetime Achievement Award.

On Tuesday, March 16th I’m honored to moderate a panel on Women on Public Company Boards.  The session is being produced by Broads Circle.  Founder Darya Allen-Attar has been an amazing supporter of having this conversation here in LA.  Here are my opening remarks.  Give them a read and join me in this discussion to get independent thinking in the boardroom.

CLICK TO VISIT

I’m Fay Feeney and my company, Risk for Good is a new venture set up with one purpose: to consult exclusively with independent corporate directors to strengthen their expertise and oversight of: risk management, sustainability/corporate social responsibility and talent diversity.  These are areas I believe the 21^st century director will need to understand to keep their business strategy relevant.

Now that you know who I am, I want to take a few minutes to level set on our topic: Women on Public Company Boards

Tonight I want to acknowledge you for your interest.  In 2010 where we discuss sex, drugs and rock & roll openly, we continue to have a challenge speaking with transparency about who gets rewarded with:  money, power and public company board appointments.

That will not be the case tonight.  Our economic growth, our ability to innovate and our ability to re-energize our uniquely  American values need us to stop blaming business and shift our focus to talking about adapting to a changing world.  A return to a prosperous future is severely impacted when the discussion is constrained by a system that requires sameness.

Let me speak briefly about women’s talent and how it fits into my definition of “diversity,” we are part of a group I like to call “non-traditional” candidates, which is a broader concept that goes beyond race, ethnicity and gender diversity.

The National Association of Corporate Directors frames diversity as “personal characteristics” that are considered along with “professional characteristics.”   I see it simply as being open to bring a new perspective to board appointments with one goal:  ensuring that the discussions and strategies do not fall victim to “group think.”

As executives and business leaders we need to reset our thinking to this new reality: it will take the leadership of executives who are committed to collaboration and cooperation to keep our economy growing.  These are areas where I believe we as women excel.

Tonight we will look at women on public company boards from a perspective of the past, present and future.

Let me begin with the future.  Let’s take a minute and think:  in my wildest dreams if I could sit on a public company board which company would I choose and why?

Anyone want to share their pick?

My crystal ball says the future will be forever changed from just one factor:  The internet has created a business transparency where trust can be eroded quickly in the one to many communication options.  Now we can make or break a reputation in 140 characters or less.

From the Future let’s look at the past:

The earliest mention of a US woman on a corporate board is Marjorie Meriwether Post; her father’s death in 1914 left the twenty-seven-year-old heiress the owner of the rapidly growing Post cereal company.  She took charge of the board and showed great business acumen in her dealings.

In 1987, the very first independent Director of the Year to ever be honored by NACD was Juanita Kreps.  She had many board appointments including R.J. Reynolds and J.C. Penny.  No putting a label of “token” woman on her.

Now to 2010 and Women on Public Company Boards:

What both men and women want from boards are profitable and sustainable outcomes.  These effective boards do well in strategy, corporate performance, and financial oversight.

Tonight our panel will speak to how women fit into the corporate governance landscape.

The 2009 statistics show that women are far out of proportion to their numbers, education and purchasing power.   Women are approximately 50 percent of the labor pool and exercise influence over 70 percent of household spending in the United States

Catalyst found that, on average, Fortune 500 companies with 3 or more women on their boards of directors significantly outperformed those with the least number of women in return on equity (by 53 percent) and return on invested capital (by 66 percent).

However, companies are still lagging in appointing women to board seats.  The Catalyst Census: of Fortune 500- 2009 statistics:

• Women held 15.2 percent of board seats, a number that reflects little growth over the past five years.
• Almost 90 percent of companies had at least one woman director, but less than 20 percent had three or more women serving together.
• Women’s share of board chair positions remained flat at 2.0 percent.

In California, a 2009 UC Davis found that nearly a third of the state’s biggest companies — 118 of the 400 — have no women at the top, either on their boards or in their executive offices.

Let me name a few of these firms: National Semiconductor, Callaway Golf, Hansen Natural.

• In California’s corporate boardrooms women occupy 320 of 3,252 board seats in the top 400 companies — just 9.8 percent.
• Almost half of the top 400 — 46 percent — have no women directors; another 34 percent have just one.

Kudos to the top 25 companies with the greatest number of women in executive suites and boardrooms included some of the state’s most prominent companies: Jack in the Box at No. 5; Clorox at No. 14; Peet’s Coffee & Tea at No. 18; Health Net at No. 19; and Disney at No. 22.

So where is the boardroom thinking on diversity?

NACD’s 2009 Public Company Governance Survey asked the question:

Is “Gender and ethnic diversity are important criteria for board recruitment.”

28 percent – strongly agree

49 percent – agree

23 percent – disagree

I’m not a math whiz but at the current rate of change, it could take women 67 years to reach parity with men as corporate officers. That is in contrast to the 11 years it took the United States to put a man on the moon.

So let me shine a light on the matter, on December 16, 2010, the SEC approved new proxy disclosure enhancement rules, effective February 28, 2010, that mandated certain new disclosure rules. Among them is a new rule that requires companies to disclose if and how they consider diversity in recruiting board candidates.

Let me conclude my remarks and get to this fabulous panel: This data does not tell us why women occupy such a small minority of the board appointments but it seems to me that this new disclosure requirement will begin the conversation.

Let’s all take a deep breath and appreciate the women who paved the way for us as boardroom pioneers, respect the present and the challenges women sitting in boardroom today face and let’s turn to our panel of experts as we envision a future boardroom that profits from women’s talents.  With great pleasure, let me introduce our panel.

Independent Directors are appointed to serve shareholder interests. A big risk issue is setting executive compensation and ensuring that incentives are aligned with strategy. The more long term the better.

Today I had a meeting with my Financial Advisor, Steve Weinberger, CFP at Heller Capital Resources.
http://hellerfunds.com/new/hellerfunds/

I was very happy with the results considering the financial meltdown of 2008 and the trillions of dollars that evaporated in stock value. Mostly I was happy to reassess my risk appetite for 2010.

What came clear to me was how well things work when incentives are aligned. Steve’s firm manages my investments on a fee-basis. This mean he makes increased fees when my portfolio grows, not by individual transactions. This alignment with my interest is what builds my trust in his services.

The challenge Independent Directors have on their hands is to think alignment/misalignment from the incentives they create for executives. Easy to have unintended consequences from any decision but there is certainty that people will respond to incentives. So step back as you are putting your plans together and ask: “How does this align with the company’s interest and strategy long term”?

If you’re like me you’ll be willing to increase your risk appetite when you know that incentives and interest are in alignment. Here’s to a successful 2010 and seeing Steve grow my investments so both of us can make more money.

http://moneyfornothingthebook.com/content/labels/outrage.html

I have watched this video several times to see how the facts are being presented in a blunt, factual style.  My first reaction was wow these folks are seriously taking corporate boards on.  My norm for this discussion on corporate boards is nuanced , diplomatic and private.

It takes courage to speak out on the status quo and be an activist for change.  I am looking forward to reading the book and watching this movement unfold.  This outspoken view opens the door for me as I’m out marketing to independent directors to engage my new firm, Risk for Good, www.riskforgood.com.

This is an advisory firm exclusively for independent directors to strengthen their oversight of risk, sustainability (CSR), and talent diversity.  I’ve spent the past few years getting my governance education ready for the “New Normal” .  This new business environment will require more robust board discussions on the impact of these issues on  business strategy.

This conversation on boards has been happening mostly in small rooms among institutional & activist investors and diverse community wanting a board appointment.  Now it is out in the open I’ll look forward to it building a community that wants to see more transparency.

The conversation on women’s rights would not have happened if women’s kept their conversation confined to morning coffee only with each other.  It took Gloria Steinem, Bella Azbug and others speaking up and taking the heat in the 1960’s to open the door.

I’m interested to see how directors will respond to the book.   The directors I’ve met are looking to stay informed and most would not think they are represented fairly  in  “Money for Nothing”.  When I look around the room, it is like many industry gathering I attend; senior, successful people who are living in a world that is isolated and  insular.

In my opinion, “Money for Nothing” is here to tell corporate directors that they are naked in this age of transparency.  Leave a comment and let me know what you think boards need to do to improve their governance of risk, sustainability and talent diversity.

Welcome to the New Normal!

http://www.youtube.com/watch?v=F0-UtNg3ots

What Technology do you think will help you thrive in 2010?

Throughout human history crowds were dependent on being together in physical space.  Not any more, communities can form out of share interest, craft, art.

Fundamental New Development:

Outsource to large group using an open call for undefined people using the internet.  Likely outcome: the person you think is right for the job isn’t always the best person.

Changes dramatically how to use the emerging business of using the wisdom of the crowds to tap into customer participation and loyalty.

Governance:

♦ Reputation  risk  strategy

Questions to Consider:

Does your business have people coming together in the context of the community?

• Investors
• Executives and team members
• Eco-system for industry
• Professional Associations & Events

Does your strategy evaluate the  power of web 2.0. used to business advantage?

Does emerging trends ever get to your executive sessions as briefing on strategy, reward and risk.

I’m hoping this becomes a more robust and engaging conversation by independent directors in their board duties.

Watch for new venture, Risk for Good in 2010.  Stay tuned.

Happy Holidays to all my crowd sourced friendships.  Thanks to Facebook, Twitter and Linked in for moving into my communities of care.  Glad you are all here with me.

Best,

Fay

“One of the greatest risks a company can face is its own success.” Ira M. Millstein

Just finished watching @MarkGoulston speak on CNN about Tiger Woods.  He shared about how our excitement needs align with the interest in watching Tiger in his spectacular achievements and embarrassment.  It is mostly about our excitement needs.

If this were happening to a business we’d call it reputation risk.

Being successful is an aspirational goal for people & businesses.  Different meaning and various ways to keep score but very similar motivations – excitement from increases in financial returns and social status.

When someone messes up we want to forgive.  We determine our ability to trust someone when the business or person  owns up and takes full responsibility.    Maybe like Tiger, being successful and powerful is a mixed blessing.  Do you see your  CEO and management team presenting ideas for strategy that provide a thrill (returns) around doing risky things to get an adrenaline rush.

As an independent director you can shape the power of excitement in your CEO and the management team.  You can do this by weighting how this excitement is turned up or down by the incentives you create for them.

If 2009 had you backing out of your driveway and hitting a fire hydrant you can take the counsel Mark gave to Tiger:

We’re all human and not perfect but we need some explanation about what happened.  We want to see and hear an explanation on what happened to our beloved hero.  Our payback starts with you admitting misjudgment and telling us about the insight you’ve learned – we want to get back to admiring, respecting and most importantly trusting you again.

As you prepare for your board service in 2010 this might be relevant in gaining shareholder trust in your leadership.  Take Tiger’s advice to your next executive session and see what you can apply to regaining trust.

For more on Dr. Mark Goulston you can follow him @MarkGoulston or visit his website at: http://markgoulston.com/

A favorite quote from Ira M. Millstein:

Letter to the editor, “Boards Often Failed in Their Duty,” The Wall Street Journal, Feb. 25, 2009.

“The responsibility to set and monitor compensation [for senior executives] is in the boardroom. Boards have avoided that responsibility and remained tone deaf to the public’s concern. Structuring transparent, understandable, fair compensation, even in the millions-of-dollars range, is one thing; failure to consider the risk of perverse escalating outcomes and perks is another. Institutional shareholders have the voice and capacity to put spine in the boardroom by communicating on compensation to compensation committees, filing proxy resolutions, and voting against directors believed to be improvident.”

— Ira M. Millstein, the Eugene F. Williams Jr. Visiting Professor in Competitive Enterprise and Strategy and senior associate dean for corporate governance at the School of Management.

I had the pleasure today to go to a tea with the 5th grade girls at Trinity school.  Don and I were both able to attend and sit with the girls we sponsored.  The tea was the graduation ceremony for their participation in The Crown Jewel Club – www.crownjewelclub.com.

I was at the table with Debbie Lanni who came up with a good idea – sponsor girls for the next class as a holiday gift for those friends who have it all. As much as I like the idea and know it makes sense I have to rethink how I will make gift decisions this year.

This makes so much sense after spending the day with my girl.  She is a shy girl who lives with her grandmother who is raising her and also some young cousins.  One question we answered at the table was “where do you go when you want some quiet?”  She answered that her dad was in jail but his car was there so she sat in it for a quiet space.

There are so many places where our treasure can be used to help others.  This year I’m thinking about how to give some of my gifts differently so they have social impact.

Here’s my short list:

Teaching South Central LA 5th grade girls etiquette and grooming as a way to build self esteem

www.crownjewelclub.com

Helping adults with chronic & persistent mental illness live with dignity

http://www.alcottcenter.org/

Helping women in developing countries become self sufficient using their talent to earn a living

http://www.upfromthedust.com/

Providing a new start to at-risk men, women and young adults to help them attain dignity & self-sufficiency

http://www.workingwardrobes.org/

I know we all have our favorite places to invest our money for social good – please leave a comment and let us know who else should be on our radar this year.  Maybe by the time I make my shopping list I’ll figure out how to “do good” and try something new for the people on my naughty & nice list.

The financial crisis has reminded us of the valuable lesson that risks gone bad in one part of the economy can set off chain reactions in areas that may seem completely unrelated. In fact, risk managers and other executives fail to anticipate the effects, both negative and positive, of events that occur routinely throughout the business cycle. Their impact can be substantial—often, much more substantial than it seems initially.

So How Does Sustainability/CSR Reporting Involve Risk?

It begins by aligning these issues with business strategy and determining the company’s risk appetite.  This is a critical skill for corporate boards that have oversight of risk management.

KPMG defines risk appetite as:

How much risk a board is willing to take in pursuit of its strategic objectives?

As Mike Wallace recently posted on Linked in: Business is seeing there is a growing demand for corporate disclosure on sustainability.

He states “The materiality of carbon is evident, especially in certain industries, and as we see more companies put this information in their financials it sets precedent and expectations.”

Are these issues reported in your 10K under risk factors?  If so, what information is being shared with your shareholders on your risk appetite for sustainability/CSR?  Are you making it a competitive advantage like GE and Walmart?  Or are you keeping it on the low down until you are mandated by regulatory requirements?

Shareholders and regulatory agencies are seeking greater transparency on these issues. Mike identifies broader sustainability issues (i.e., water, waste, energy, toxics, etc.) that are being increasingly disclosed by companies of all sizes. Here are some recent studies that he quotes:

- According to KPMG’s International Survey of Corporate Responsibility Reporting 2008 – 61% of the N100 (the 100 biggest companies in the USA) have a publicly available corporate responsibility strategy http://www.kpmg.com/SiteCollectionDocuments/International-corporate-responsibility-survey-2008_v2.pdf

Risk: If you are the 39% not reporting – have you considered how  your competition see reporting fitting into their business strategy – cost reductions from lower resource costs, attracting new socially conscious customers, etc. ?

According to GRI’s data, the United States accounts for 10% of all GRI reports published in 2008, which makes the USA the second largest reporting country behind Spain. For 2008, GRI registered 109 reports from the United States  http://www.globalreporting.org/GRIReports/GRIReportsList/

So if you choose not to report are you taking a risk that your strategy will be impacted by competitors that are re-branding themselves as good corporate citizens in your marketplace? Do keep an eye on your competitors – it will keep your business strategy relevant to these uncertain times.

I want to thank Mike Wallace for inspiring me to post this topic.  Mike is Director of Sustainability Reporting Framework at Global Reporting Initiative (GRI).

http://www.globalreporting.org/Home

I just got back from an amazing day on the Stanford campus at the Arthur and Toni Rembe Rock Center for Corporate Governance.  The day was a joint collaboration with Stanford and the CalPERS/CalSTRS leadership.  The day was a fantastic opportunity to hear about the call to action for diversity in the corporate boardroom.  The day was entitled:

Diversity on Corporate Boards: When Difference Makes a Difference.

The difference that was highlighted was the difference that happen when you open the conversation and decision making to people with diverse backgrounds.  This can be gender, race, disability, age, sexual orientation, religion and more.  The more viewpoints you consider the better the outcome.

This may seem like a controversial viewpoint considering the glacial pace of women and minority representation in the boardroom.  Catalyst which has been publishing data on woman’s advancement in business reports in 2008, women held 15.2 percent of directorships at Fortune 500 companies; this number was 14.8 percent in 2007. The number of companies with no women board directors increased from 59 in 2007 to 66 in 2008.

So what does it have to do with risk management and 50 Cent.  As a business you can optimize risk for your reputation and employee engagement when you allow your leadership to consider the impact of who gets to be heard.  A system that excludes voices other than the prevailing majority is taking a risk of customer, activist investors and employees losing trust in decision making at the top.

Back to 50 Cent.  This is an example of listening to the wisdom of a diverse voice.  You may or may not be a fan of his music but any investor and business leader has to appreciate his financial maturity and leadership.  If you are not open to listening to voices coming from people who have differences from you the 21st century is going to be a challenge.  The challenge in the financial world is going to be institutional investors like Calpers/CalStrs.  So you want some big investors to believe in you than this week has convinced me that you had better open up your world.  The time is now to start thinking about the good governance that happens when you look for diversity in your employees and corporate board appointments.

The 50 Cent video was first posted by Bruce Carton who is a former senior counsel in the SEC’s Division of Enforcement and is now the editor of Securities Docket.  He now hosts a Compliance Week blog called “Enforcement Action.”

Time for a reality check: Does your board leadership measure up to these proposed SEC changes? How are you letting your investors know how you manage risk?

The SEC has an opinion that is clearly stated: Companies today face ever-increasing challenges from the business and social environments in which they operate. As recent market events have demonstrated, the capacity to assess risk and respond to complex financial and operational challenges can be important attributes for directors of public companies.

The SEC is in comment phase on PROXY DISCLOSURE AND SOLICITATION ENHANCEMENTS .

This is being proposed to address “The turmoil in the markets during the past 18 months has reinforced the importance of enhancing transparency, especially with regard to activities that materially contribute to a company’s risk profile.

The proposal starts with compensation risk:

A. Your board’s look at executive pay for positions that are reported in the Compensation Discussion and Analysis. Has the final decision been vetted for how and if it creates incentives for risk taking ?

Then on to board leadership risk:

B. Enhanced Director and Nominee Disclosure
The particular experience, qualifications, attributes or skills that qualify that person to serve as a director of the company as of the time that a filing containing this disclosure is made with the Commission, and as a member of any committee that the person serves on or is chosen to serve on (if known), in light of the company’s business and structure.
And now my favorite:

C. New Disclosure about Company Leadership Structure and the Board’s Role in the Risk Management Process
Proposal is to require additional disclosure in proxy and information statements about the board’s role in the company’s risk management process.
Companies face a variety of risks, including credit risk, liquidity risk, and operational risk. Similar to disclosure about the leadership structure of a board, disclosure about the board’s involvement in the risk management process should provide important information to investors about how a company perceives the role of its board and the relationship between the board and senior management in managing the material risks facing the company.
Given the role that risk and the adequacy of risk oversight have played in the recent market crisis, we believe it is important for investors to understand the board’s, or board committee’s role in this area.

My new venture, “Risk for Good” is being designed to help lead directors and chairmen ensure that they are setting the boardroom agenda for risk oversight. I’ll be sharing more details in the coming months. Thanks for reading this and stay tuned.

http://www.sec.gov/rules/proposed/2009/33-9052.pdf

1. identify, characterize, and assess threats
2. assess the vulnerability to specific threats
3. determine the risk (i.e. the expected consequences of specific types of attacks on specific assets)
4. identify ways to reduce those risks
5. prioritize risk reduction measures based on a strategy

The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk and accepting some or all of the consequences of a particular risk.

Give this a look and see how you would manage this risk now that you have given it some thought. 

The Resilient Enterprise – Yossi Sheffi

MIT Press, 2005

Companies are now exposed to a multitude of unexpected events—from natural disasters such as earthquakes to  terrorist attacks and supplier failures.  They not only need to become more resilient to these shocks, but they can actually increase their everyday competitiveness and gain strength from such disruptions. 

 A company can become more resilient by designing its supply chain for robustness. One of the standard ways is to use redundancy, which is expensive. Other ways to make the system more resilient include: forging strong relationships with critical suppliers while developing alternatives for commodity suppliers; working with interchangeable parts; cross-training employees; deploying flexible manufacturing; utilizing concurrent processes of

design, manufacturing and distribution; delaying product differentiation downstream in the supply chain so products remain in a fungible state as long as possible; and collaborating with trading partners.

These principles create supply chains that are not only resilient but also flexible and that can respond to day-to-day demand changes. One begets the other, because a supply shortage and a demand spike are, at their core, a problem of supply/demand mismatch.

Companies that have built their supply chains to respond to significant demand fluctuations have also built in the ability to respond to supply shortages.

Investors Need Greater Transparency

Boards will Need to Make it Happen!

Going forward companies seen to be taking serious steps to augment risk oversight, especially in the financial sector, will be rewarded by the market.”
If you can’t answer YES to these questions your board has work to do:
1. Company disclosures concerning enterprise risk management (ERM)
2. A determination as to whether members of the board involved in risk oversight and / or those serving on the audit committee have relevant industry experience
3.  The prevalence of risk oversight experience among members of the board
4.  Qualifications of members of the audit committee of the board
The new ERM metrics were based in part on a survey and paper GMI prepared jointly with the Risk Consulting Practice of Marsh Inc. (The Importance of ERM during Economic Upheaval, February 2009).

Sherman observed that the disparity between directors with risk management experience and financial or accounting backgrounds was not a surprise given the former has not been a typical career path for board members.
“Ideally, the full board should be involved in risk oversight,” said Sherman. “To that end, we expect to see companies employing a variety of approaches. Whatever path they choose to take, there clearly is a need for increased transparency concerning companies’ overall approach to risk management.

At the end of the day, our job is to help our clients identify companies adopting best practices and those where progress may be lacking.”
GMI’s most recent rating release, made available to clients last week, includes a number of new metrics concerning risk oversight. These had been under consideration for a while but were made paramount by ongoing turmoil in the financial and credit markets.

The new metrics are now factored into the GMI rating model. Some highlights follow:
Standardized disclosure of company-wide risk management is lacking
• Only 33.1% of the 4,162 companies covered by GMI worldwide provide comprehensive disclosure on their enterprise risk management policies (ERM) in the annual report or other publicly available source
• Only 8.4% disclose they have implemented a nationally or internationally recognized risk management charter or standard such as COSO’s Integrated Framework for Enterprise Risk Management
Risk committees of the board are even less common and are sector-specific
• 27.6% of companies covered by GMI disclose having a combined audit and risk committees
• 5.9% of companies covered by GMI disclose a stand-alone board level risk committee or subcommittee
• These were most often found among Banks (35.1%), followed by Life Insurers (21.3%) and Non-life Insurers (17.6%)
• There were no stand-alone board level risk committees or subcommittees in 11 of the 41 sectors covered by GMI
There is a huge disparity between directors with risk management experience and those with general accounting or financial expertise
• Only 1% of the companies covered by GMI globally have at least one non-executive board member who has general expertise in risk management
• By contrast, 77.1% of companies covered by GMI have at least one non-executive member of the board audit committee who has general expertise in accounting or financial management
This pattern is not likely to change any time soon
• Of the 1,659 new board members tracked by GMI so far in 2009, 35% had general accounting or financial expertise, compared to 1.4% with risk management expertise
The Banking sector in particular is racing to raise oversight standards
• Of the 227 new board members tracked by GMI at Banks so far in 2009, 55.5% had general accounting or financial expertise and 3.5% had risk management expertise
The Australia-New Zealand region looks relatively progressive overall
• The Australia – New Zealand region disclosed the widest use of stand-alone board level risk committee or subcommittees (12.1% v. 5.9% worldwide)
• 75.8% of companies in Australia and New Zealand have at least two non-executive directors with substantial industry knowledge, compared to 56.8% worldwide

Additional information can be found at www.gmiratings.com.

Good business strategy helps you know who you don’t want as customers as well as who is your ideal client.  So you’ve decided you don’t have any interest in being a supplier to Walmart.  You’re not alone.

Most businesses have other sales channels to sell their products.  However not being prepared to do business with Walmart is taking a risk that only you can decide if it is low or high.

Do you know if any of your customers are interested in Walmart’s business?  If yes, you may find yourself in what is becoming an “audicious supply chain” related to sustainability and social impact. You may never need to have Walmart in your sales channel but your customer might and now so do you.

Yesterday, Walmart announced a new tool to assess the quality of their suppliers.  If you sell a product you are taking the risk of being left behind if you ignore Walmart’s influence.

What you can do:

Take a deep breath and think about who you need to bring together to help you assess your business risk related to sustainability and social influences.  Or not and risk being left behind?

We think of risk as what we are doing but in this case it just might be what you have yet to do!  If you are ready to give this some attention I’m here to help you set the table to evaluate opportunities and risk in your business: (310) 372-0591 or fay@123safety.com

Walmart Sustainability Summit 2009:

Products will be evaluated via a Life Cycle Assessment, this traces products from their raw materials through production, transportation, consumption and disposal.   This intent of the assessment is to cover not just the environmental impact of a product but also its social impact:

“Measurements of sustainability will be holistic and account for both environmental and social imperatives throughout the entire life cycle of the product including manufacture, distribution, consumer use, and post-use. These measurements will be derived from four areas: energy and climate, material efficiency, natural resources, and people and community.”

Conclusion: Regulatory Reform with an Investor Focus

Though I’ve briefly sketched out this morning my view of how a new regulatory system as a whole should work, I will be candid with you: my heart is with investor protection.  Indeed, it is to that cause that I have literally sworn an oath. And so, let me end these remarks with a promise. In the weeks and months ahead, I will do whatever I can to make sure that the interests of investors are preserved in the debate on regulatory reform. Of course, though I am Chairman of the SEC, I am just one person. You must be heard too. I ask you to join me in ensuring that our markets are well regulated and that our investors are left fully protected.

I am certain that bold and innovative regulatory reform can be accomplished in a way that is consistent with the principles I have laid out this morning. I am also convinced that getting it right will require hard work, attention to detail, and an over-riding commitment to furthering the public interest. I know we can do this.

Thank you for listening. I would be pleased to answer any of your questions.

What We Are Doing Now

Understanding that there is no time to waste, the SEC is acting aggressively to transform itself into a stronger, better, and more agile regulator. Our goals are to do more of what we do best and to do all the rest better than ever before.

We have started to revitalize our enforcement program. Led by Rob Khuzami, our new Director of Enforcement, we will revamp the Enforcement Division so that we bring the cases that count, we bring them as quickly as fairness allows, and we achieve results that impress upon wrongdoers the folly of breaking the federal securities laws.

In the last three months, we obtained 27 temporary restraining orders stopping fraudsters in their tracks, compared to seven over the same period last year. I know this group is aware of our action this week regarding the Reserve Fund and its senior officers. In that case, we are acting not only to redress wrongdoing but also to get money to as many investors as possible, as quickly as possible.

We have entered what will be one of the most active rulemaking periods in the Commission’s history. We recently proposed rules to curb abuses in short selling. Next week, we will consider rule proposals for significant enhancements to controls around investment adviser custody of customer assets, to reduce dramatically the possibility that frauds like Madoff might happen again at a registered broker-dealer or investment adviser.

Shortly, we will consider a proposal to enhance investor access to corporate proxies, to make real the promise of universal corporate suffrage, so shareholders can act as the owners the law says they are. We are also working diligently to address problems at the credit rating agencies and recently held a public roundtable to discuss how we can better align the interests of those issuing credit ratings with the investors who use them.

All that is just the beginning. There is so much urgent work to do.

The Future of Financial Regulation

Topping our agenda is regulatory reform. We are lending our voice to the formulation of a structure that will protect our financial system today and for years to come, and will be based on key principles.

These principles are those bequeathed to us by the New Deal reformers who created the SEC 75 years ago, as well as much of the regulatory apparatus that has served us so well for generations. While the time plainly has come to update that apparatus to serve the needs of today and tomorrow, the time will never come to discard the underlying principles.

The Principles

I believe these are the principles that we must follow:

First, any system of regulation must take as its touchstone the protection of individual well-being. At the SEC, as you know, we call it investor protection. Though we are not, as some would have you believe, focused solely or even primarily on retail transactions, and we regulate institutions and markets, our focus has been and must remain on how our actions benefit the workers, savers, and investors of the United States.

We must and do attend to the safety of institutions, particularly those that are significant to our financial system, but as a means to an end and not as an end in itself.

Second, any system of regulation should be designed to facilitate fair and efficient financial markets, not to supplant them. Events of the last year provide a brutal reminder that markets are neither self-regulating nor self-correcting. A strong and steady regulatory hand is needed to assure their continued survival. But that hand must not be so intrusive as to point to winners and losers, lest we lose the benefits of competition.

Our regulatory system must accommodate lively competition for capital. Competition for capital forces our markets to be both innovative and efficient. Competition for capital ensures that money flows to where, over the long run, it does the most economic good. Our new system of regulation must balance the difficult tasks of ensuring the safety of financial institutions while protecting the continued vibrancy and competitiveness of our capital markets.

Despite the economic devastation of the 1930s, the New Deal reformers possessed the wisdom and foresight to recognize that competitive capital markets are essential to allocate risk efficiently and promote economic prosperity. They did not attempt to banish risk from the capital markets; instead, they fashioned a regulatory structure that would channel competitive forces to manage risk efficiently. Stable markets that manage risk and allocate capital effectively are essential for economic prosperity.

Third, any new regulatory system must promote and preserve public trust in our financial markets. Markets do not work well unless investors believe they do. And investors will not believe that markets work well unless they do, in fact. That means, above all, that investors must know that the information upon which they base their investment decisions is the truth, the whole truth, and nothing but the truth.

Some may believe that there may well be extraordinary circumstances in which the truth is withheld from the markets when the very survival of indispensable financial institutions is at stake. But make no mistake, when the truth is withheld, we all pay a very high price. Without that essential confidence that they have truthful and complete information upon which to base their decisions, investors will avoid our financial markets for ones that are more transparent, or they will demand risk premiums for their continued participation.

The efficient allocation of capital is simply impossible without transparency. To state the obvious, markets rely on words and numbers. They must both be true; and any new regulatory structure must preserve the integrity and independence of those charged with the responsibility for setting standards of financial disclosure.

Investors also need to be confident that when they transact in markets the architecture will work. Amidst all the economic devastation, it is understandable that we forget that over the last year, despite record volumes and enormous volatility, our markets have priced, processed, and cleared hundreds of billions of dollars in customer orders in an orderly and generally fair way.

The New York Stock Exchange, for example, had an average daily trading volume of approximately 4.1 billion shares in the fourth quarter of 2008. These trades were processed efficiently and effectively.

Finally, when investors transact through intermediaries, they must be able to trust that those intermediaries deal with them honestly and fairly and with investors’ well-being as their sole goal.

The Architecture of the New System

We can have a system of financial regulation that accommodates these principles. That system should include —

• An entity responsible for the regulation of the markets for investment capital
• An entity (or entities) responsible for regulating banking institutions
• An entity responsible for monitoring and averting risks to the financial system as a whole, and…
• An entity responsible for resolution of troubled institutions.

Let me elaborate briefly.

Systemic Risk Regulator and Resolution Regime

Finally, there needs to be a government entity whose responsibilities include the monitoring of our financial system for system-wide risk, with the tools to forestall emergencies. Moreover, we need to improve our capacity to wind up financial institutions that are no longer able to function. I believe there is substantial consensus about the need for these regulatory functions.

There is, though, rather less consensus about the precise form such a regulator should take — whether a single entity, a College of Regulators approach, or a hybrid as FDIC Chairman Sheila Bair proposed this week: a single regulator for systemically significant firms coupled with a systemic risk council to provide macro-prudential oversight of risk. Regardless of the form, it should have access, largely through the functional regulators, to sufficient information to provide a view of the financial system as a whole. And it should have sufficient power to direct prudential regulators to strengthen capital requirements and to direct institutions they regulate to reduce leverage as circumstances require. That said, there are many important issues around the definition of authority for such a regulator.

I’m inclined towards the structure envisioned by Chairman Bair. Given the various components of effective financial regulation, I have long been concerned about excessive concentration of power — which really means excessive concentration of point of view — in a single regulator.

But at the end of the day, what will most ensure the success of a new regulatory structure is the clear commitment to vigorous regulation and oversight of our financial markets and institutions.