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| Best Practices: On the Board |
Paragon or Pariah?
Amy Braunschweiger
10/01/2005
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But her strong relationship with management and the perception that these
requests made sound business sense convinced executives to grant her access to
their boards. “Companies today are very interested in trying to be proactive,”
Tanner says. “A board that is fully versed in social and environmental risks can
better help to minimize conflicts, protect the company’s valuable brand and help
the company diminish exposure to criticism.” The end result is an increase to
the bottom line and shareholder value, she claims.
Socially motivated fund
groups are attuned to the board’s influence, even if the two sides never meet.
At one point, a colleague of Tanner’s was involved in talks with Occidental
Petroleum about drafting a human rights policy. The company did so—and then
submitted the draft to the board for approval. “It’s another example of an
indirect way that boards are becoming more aware of social issues that a company
is grappling with,” Tanner says.
In November 2003, a number of funds,
including Christian Brothers and the Connecticut Retirement Plans & Trust
Funds, banded together and filed a shareholder resolution with the board of AEP,
one of the largest coal burners in the country. The funds requested that the
Columbus, Ohio-based company create a committee of independent directors to draw
up a report to evaluate the economic impact of climate change. AEP agreed, and
director Robert Fri, who served as the first deputy administrator of the
Environmental Protection Agency, took the helm. The resulting report reinforced
a belief AEP already held—that it will likely face stricter greenhouse gas
emission standards in the future, despite the opinions of the Bush
administration regarding global warming.
The report also gave AEP specific
information on the surprisingly wide range of expenses it could face in updating
plants and building new facilities, depending on what energy legislation
squeezes through Congress. Though the document made AEP more informed about, and
better prepared to deal with, potential legislation, it is not what prompted the
company to address its environmental policies. That first began six years ago,
at the behest of AEP’s former CEO. Since then, the board has dealt with
environmental concerns as part of larger, strategic reviews rather than as
issues separate from their operations. One of the criteria the board uses to
evaluate management’s performance is based on the company’s environmental
policy. AEP has already joined the Chicago Climate Exchange, a voluntary program
under which North American energy companies cap and trade emissions allotments.
AEP views the project as practice for anticipated future regulations, Fri says.
By trimming its emissions, the company believes it will have a leg up on
competition when tighter federal regulations take hold. “We won’t have to
scramble so much to comply,” he says.
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