GEMI Survey EHS / SR Governance

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GEMI SurveyEHS / SR Governance A Snapshot

• October 2003

Carl Wirdak Occidental Petroleum Corporation
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Outline

• Survey Recap
• Framework for EHS / SR governance
• Factors that influence EHS and SR
• Role of the Board of Directors
• Accountability systems
• Performance assessment and feedback processes
• Next steps for the GEMI Governance work group

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Survey Overview

• Scope of EHS / SR Governance covered by survey
  was broadly defined
• Survey response rate was just above 50
• Not all companies completed all questions
• But there was good coverage across the sectors
  represented in GEMI
• Thank you to all participants!

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EHS / SR Governance What is covered?

• Almost all companies include the following
• Conventional EHS performance
• EHS costs (ongoing and liabilities)
• EHS risk management
• Legal compliance
• Employee behavior / ethics
• Internal and public EHS communication

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Governance What is on the fence?

• A sizable fraction of companies do not consider
  or only partially include the following topics
• EHS value-added
• Social Responsibility performance
• Supply and distribution chain relationships
• Stakeholder engagement
• New product development
• Product de-selection

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What frames company actions?

• Documents that frame EHS governance for companies
  include
• EHS policy
• Code of Conduct
• Compliance with law policy
• Ethics policy
• Company values principles

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Code of Conduct

• Every company maintains a code of conduct
• The code applies to all employees, not just top
  management
• The code always covers environment and health
  safety

• Does the code of conduct address social
  responsibility?

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What shapes EHS and SR expectations?
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Trends in EHS and SR expectations
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What goals are being pursued?

• Current goals (identified by more than 50 of
  respondents)
• Minimize waste, discharge emissions
• Reduce natural resources and raw materials usage
• Manage EHS risk
• Manage emerging EHS issues
• Reach out to communities
• Engage stakeholders
• Participate in voluntary initiatives

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What goals may be pursued?

• 2008 goals (identified by more than 50 of
  respondents)
• All those on prior slide, plus
• Manage indirect or extended impacts
• Maximize use of renewable energy
• Maximize use of renewable raw materials
• Conserve land
• Protect biodiversity
• Build EHS value into products and processes
• Focus on the bottom of the economic pyramid
• Enhance social structure in developing regions

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Who considers EHS and SR matters?
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EHS / SR consideration by the Board

• Most companies have just one committee that deals
  with EHS SR matters
• Typical size is 3 or 4 members
• Most members are outside directors
• Committees meet 2 to 4 times per year

Year that BOD began addressing EHS / SR
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BOD involvement in setting expectations
No company has its Board involved in drafting
language for goals
15
Information sources for the BOD
Number of responses
How are BODs informed about emerging issues
and/or the companys activities, including its
EHS or SR profile, its performance, etc.?
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What is on the BOD agenda?
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Reporting EHS and SR to the BOD

• Chief EHS / SR officer reports to the BOD
• Others include
• CEO
• General Counsel
• Typically, the format is a presentation that
  covers
• company performance
• positions on issues

Frequency of reporting to BOD
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Organizational background
Organizational Model

• In 70 of companies, EHS and SR does not report
  to one person
• In 50 of companies, EHS or SR functional area
  reports to an Executive V.P. or a Senior V.P.
• Others include
• CEO
• COO / President
• General Counsel

Number of responses
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EHS / SR performance targets
21 companies in sample E HS SR
Companies having targets 20 18 9
Average percent of targets that are quantitative 69 87 32
Percent of companies where all targets are quantitative 45 61 0
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Who is accountable for performance?
EHS
SR
Accountability rests with line management and
staff
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Is compensation linked to EHS / SR?
EHS
SR
Line management and EHS / SR staff have strong
links
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EHS / SR Assurance Sarbanes-Oxley

• For EHS (blue dots), compliance assurance
  mechanisms are mature, but the link to
  Sarbanes-Oxley process certification is not
  complete
• For SR (red dots), there are no assurance
  mechanisms in place

Yes
Sarbanes Oxley link
No
No
Yes
Assurance Mechanism
No. of companies 21
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Where do companies audit?
21 companies in sample E HS SR
Company operations 100 95 24
Suppliers 62 33 5
Customers 10 5 0
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What do companies audit?
21 companies in sample Laws Regs Company Policy Company Values Industry Stds External Codes
Company operations 100 100 76 57 48
Suppliers 48 38 14 29 14
Customers 10 5 0 0 0
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EHS / SR Governance Wish List

• Consistent definition of what is in SR
• An organized management system for SR

• Increased attention at the BOD level
• More routine reports to BOD
• Greater dialog with the BOD during presentations

• External verification of audit process and
  results
• Formal process to obtain stakeholder input

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Closing Comments

• Questions / comments / discussion
• For further information contact GEMI Governance
  work group co-chairs
• Robert Accarino (Abbott)
• David Lowy (Altria)