The practice of Sustainability - IBGC Engineering at the Federal University of Minas Gerais (UFMG),...

The practice of Sustainability:

Challenges experienced by

corporate governance agents

Brazilian Institute of Corporate Governance

Chairman of the Board of Directors

Vice-Presidents

Members

Officers

Superintendet-General

The Brazilian Institute of Corporate Governance (IBGC) is an organization dedicated exclusively to

the promotion of corporate governance in Brazil and is the main driver of practices and discussions

on the subject in the country, having achieved national and international recognition.

Founded on November 27 , 1995, IBGC – a national non-profit civil society organization – aims to be a

reference in corporate governance, contributing to the sustainable performance of organizations

and influencing key agents in our society towards greater transparency, justice and responsibility.

Gilberto Mifano

Alberto Emmanuel Whitaker and João Pinheiro Nogueira Batista

Carlos Biedermann, Carlos Eduardo Lessa Brandão, João Laudo de Camargo, Leonardo Viegas,

Maria Cecília Rossi and Plinio Musetti

Matheus Rossi, Ricardo Camargo Veirano and Sidney Tetsugi Toyonaga Ito

Heloisa Bedicks

For further information on the Brazilian Institute of Corporate Governance, visit www.ibgc.org.br.

To become an IBGC member, please call: +55 (11) 3043-7008.

Total or partial reproduction of this document is forbidden without formal authorization from IBGC.

th

159s Brazilian Institute of Corporate Governance

The Practice of Sustainability: Challenges experienced by corporate governance

agents / Brazilian Institute of Corporate Governance; coordination: Cibele de

Macedo Salviatto and Carlos Eduardo Lessa Brandão. foreword by José Luciano

Penido; foreword to the version in English by Mary C. Gentile; afterword by Jodie

Thorpe; Translation review by Jodie Thorpe. São Paulo, SP: IBGC, 2009 (Experiences

in Corporate Governance Series 1).

55 p.

ISBN: 978-85-99645-19-2

1. Corporate Governance. 2. Sustainable Development. 3.

Sustainability. I. Title. II Salviatto, Cibele de Macedo, coord. III Brandão,

Carlos Eduardo Lessa, coord.

CDD – 658.4

Librarian in charge: Mariusa F. M. Loução – CRB-12/330

Credits

This work was developed by the Sustainability for Companies Study Commission (CESE for its

Portuguese acronym), established by IBGC.

To the IBGC team, represented by Vera Marques and Henrique Nardini, and to Vânia Campion,

for supporting the CESE and for her contributions to the content of the document.

To those who, at the request of CESE, shared their comments and suggestions, especially to

Cynthia Rosenburg and Peter Harazim.

To the Board of Directors of IBGC and to the Superintendent-General, for their careful revision

and the suggestions they made.

To the seven interviewees who generously gave their time and shared their professional and

personal experiences: Claude Ouimet, Eduardo Bom Ângelo, José Luiz Majolo, Luiz Ernesto

Gemignani, Marcos B. Egydio Martins, Ralph D. Wehrle and Renata de Camargo Nascimento.

To José Luciano Penido for his kindness in writing the Foreword, to Mary C. Gentile for the

foreword to the version in English, and to Jodie Thorpe for her comments and for writing the

Afterword.

To Giovanni Barontini, for his comments on the first draft and for having suggested the idea of

approaching the training of governance agents by focusing on the individual and his or her

dilemmas.

Members of GESE who contributed to this document

Alberto Emmanuel Carvalho Whitaker

Álvaro Plínio Pureza

André Beleza Fontana

André Coimbra Felix Cardoso

Aron Zylberman

Cláudia Martins

Cristine Marian Naum

Cristine Zanarotti Prestes Rosa

Daniela Hollo Aiach

Diva Irene da Paz Vieira

Elisabeth Barbieri Lerner

Ewaldo M. K. Russo

Homero Luís Santos

Cibele de Macedo Salviatto

Carlos Eduardo Lessa Brandão (Coordinator of CESE)

Acknowledgments

Special Acknowledgment

Contributions

Coordination

Luciana Brenner

Maria Eugênia dos Santos Buosi

Paula Peirão Oliveira

Paulo Bento Maffei de Souza

Paulo Conte Vasconcellos

Paulo Vanca

Roberta Simonetti

Roberto Sousa Gonzalez

Rodrigo Pecchiae

Ruth Goldberg

Simone de Carvalho Soares

Vânia Bueno

Table of Contents

Foreword. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06

Foreword to the version in english

Presentation

A word from the chair

. . . . . . . . . . 08

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08

. . . . . . . . . . . . . . . . . . . . . . . . . . . 09

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.1. Recapping some concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1.2. Dilemmas and challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.3. Values and principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

1.4. Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

1.5. Structure of the document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

A Rocky road . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2.1. Short term vs. long term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

2.2. Individual resistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

2.3. Organizational resistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

2.4. Business context and regulatory environment . . . . . . . . . . . . 25

Stepping Stones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3.1. Cultural shift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

3.2. Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3.3. Alignment, dialogue and communication . . . . . . . . . . . . . . . . . 34

3.4. Mapping and measuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

3.5. Creativity and innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

3.6. Commitment and conviction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

1

2

3

Call for reflection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

4.1. When the tool becomes the goal . . . . . . . . . . . . . . . . . . . . . . . . . 40

4.2. Walking the talk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

4.3. Institutes and foundations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

4.4. Limits of action and leadership . . . . . . . . . . . . . . . . . . . . . . . . . . 42

4.5. The future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Afterword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Biographical references(profile of interviewees) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Biographical references . . . . . . . . . . . . . . . . . . . . . . . . . 49

4

5

6

7

6 Experiences in Corporate Governance

Foreword

I have always worked in industries related to basic materials obtained from nature,

first with mining and for six years with renewable plantation forests. As an executive, I

had the privilege of participating in the rapid evolution of thinking and practices of

organizations facing the challenge of securing the future of business. In Brazil, which

experiences such great inequality, I believe the business sector is learning fast and

building a successful concept of sustainability, in tune with the expectations of our

time.

In my youth and until the early 1970s, everything linked with industry represented

progress, enabling improved quality of life and ensuring people's welfare. The

promise of happiness in material wealth derived from economic activity had seemed

inexhaustible until the awareness started growing that it was necessary to change or

nature would be unable to sustain the indiscriminate demand for resources or absorb

the resulting waste.

Hundreds of millions of new consumers in the developing world began to have access

to levels of aquisition hitherto restricted to people in developed countries. It became

clear that human activity is already impacting the Earth's climate, intensifying the

effects of climate change and creating a worrisome burden on the so-called 'natural

capital'. Social issues are reappearing – generated by geopolitical conflicts, by

inequality in the enjoyment of the wealth created so far, and by the exclusion of more

than 1 billion people who still live in extreme poverty. And this is announcing hard

times ahead.

Today, the need for creative and innovative solutions which take account of our

common future gain a sense of urgency, both individually and collectively. But I see a

possible future. I think a revolution in individual and collective mentality is inevitable,

in order to better appreciate the simple things in life, non-material riches and

conscious consumption. New technologies will be developed for the production of

energy and goods that are renewable and recyclable. New public policies should

encourage this behavioral change, burdening, including with taxes, unreasonable

consumption levels, with emphasis on carbon emissions, water consumption,

conservation of natural forests and the expansion of planted forests, land and sea use

to produce food and other natural materials.

In the 1990s, at an event at the IFC in Washington, I heard from James Wolfensohn,

then president of the World Bank, that a successful corporation in this millennium

would be one that knew how to talk with society – high quality management

7Prefácio

standards, complying with legislation and maintaining environmentally responsible

activities would simply be prerequisites. To be sustainable and have a future, it would

be necessary to anticipate the expectations of society and create so-called 'social

value'. When I returned to Brazil, I saw the company over which I presided could and

should do more in this direction. And it would only be achievable if the theme of

sustainability were rooted in strategy and organizational culture.

Learning to listen and cooperate with others in search of harmonious solutions for

complex problems, involving seemingly irreconcilable interests and goals,

considering the short and long term, is one of our biggest challenges. Seeking to do

our part to better influence the collective destiny is already at the top of our agenda,

demonstrating consistency in our personal lives with the values we seek in

organizational strategy and setting an example for the new generation of executives

and for our children and grandchildren.

A valuable contribution to those who are engaged in this mission is to share

experiences and analyze them in a structured manner, as proposed in this publication

by the Brazilian Institute of Corporate Governance that I am happy to preface. In it we

see that overcoming difficulties and dilemmas in the decision-making process, by

bringing new perspectives to old problems, is the raw material for the evolution of

organizations and society.

Once again, I am optimistic. People want happiness, and so do companies. An ancient

eastern proverb says that we are all intrinsically and indistinctly linked to the air we

breathe, from which we get our oxygen and our vital energy.

As for the act of breathing that unites us, we are together in the desire to endure and

to grow. For this simple reason, I think we will know how to be wise enough to preserve

the greater good and the greater value that is life. Starting with, for example, the

wonderful daily miracle of photosynthesis and the huge untapped potential of our

forests, is perhaps one of the greatest strengths of our country and of the planet in

this vast, complex and urgent common task.

Jose Luciano Penido is chairman of the board of Fibria. He completed a degree in

Mining Engineering at the Federal University of Minas Gerais (UFMG), and was CEO of

Votorantim Celulose e Papel (VCP) from 2004 to 2009 and, previously, of Samarco

Mining for 12 years. He was vice president of the Industry Federation of the State of

Minas Gerais (FIEMG), and is director of the Center of Industries of Rio Grande do Sul

(CIERGS) and a member of the Board of Instituto Ethos.


Foreword to the version in english

In the “The Practice of Sustainability,” the Brazilian Institute of Corporate

Governance has produced a rich and valuable source of insight and experience-based

suggestions to guide and inspire corporate leaders who wish to consider and commit

to sustainability in their professional practices.

Although the report provides a clear set of definitions and frameworks for

understanding the benefits, the challenges and the importance of sustainability as a

governing principle for successful corporations, its greatest contribution is the

inclusion of real voices from leading agents of corporate governance in Brazil who

share their commitment as well as their learning in the navigation of these

sometimes difficult waters.

The report is uniquely significant for its emphasis upon the role and impact an

individual leader can have, in both setting and changing corporate culture, so as to

foster sustainable environmental, social and economic performance; its inclusion of

positive stories of such sustainable leadership as exemplars; its identification of the

intersection of personal values with the principles of good corporate governance;

and its inclusion of specific tools and tactics to empower and enable others who wish

to exercise sustainable corporate governance.

These tools include the reframing of and responses to frequently heard arguments

against sustainability; tools for communication and dialogue; emphasis upon the

power of setting a broadly defined organizational purpose and creating metrics to

support sustainability positions; and an emphasis upon the need for leadership at all

levels of the organization.

These are all tools that resonate with the principles of the Giving Voice To Values

approach to enacting values in the workplace and I hope and expect this report will

generate organizational momentum and individual inspiration and empowerment

for realizing the goal of sustainability in Brazilian corporate settings.

Mary C Gentile, PhD is the Director of the Giving Voice To Value curriculum and

senior research scholar at Babson College. Her articles have appeared in Harvard

Business Review, strategy+business, BizEd, CFO Magazine, and Risk Management,

and she has written several books on ethics and diversity.

9Presentation

Presentation

The Brazilian Institute for Corporate Governance (IBGC) unveils a new series of

publications called .

A large portion of business publications are centered around companies. The

purpose of this series is to shift the focus to those who are ultimately the decision

makers. These decisions in the sphere of corporate governance are often subjective

and require judgement calls that are not always easy.

The discussion around embedding sustainability in business strategy, for example, is

a theme which can provide readers an opportunity to reflect and understand how

some of their peers deal with challenges of this nature.

We hope that this publication encourages readers to consider new directions and

ideas in the process of aligning business strategy and management with

sustainability, supporting your personal and professional development as corporate

governance agents, and promoting a more realistic and comprehensive, and

therefore more sustainable vision.

This is another initiative of IBGC as part of its effort to maintain its position as the

main corporate governance reference in Brazil.

Experiences in Corporate Governance

A word from the chair

The rationale for sustainability

Mauro Rodrigues da Cunha

A concept already widely used in business, sustainability touches all of us with its

difficulties and challenges in addressing the issue and embedding it in the day-to-day

life of companies.

Corporate governance agents are its first carriers, responsible for the dissemination,

persistence and continuity of sustainability, which today is a reality and conduct

necessary for the longevity of the organization.

IBGC, through events, courses and publications, has been engaged in this debate,

highlighting the importance of this theme and its relation with the world of business,

as opposed to a superficial view that still exists in the market and with certain

organizations and people who associate sustainability exclusively with marketing

and 'doing good'.

For the institute, sustainability differs from that. It derives from the conviction that,

defined by their statutes, companies have an unlimited duration and so business

decisions cannot be guided solely by timeframes of 10 to 15 years – the time

perceptible in a discounted cash flow – but should take into account the longevity of

the business. This is where the need arises to think about sustainability.

Through candid conversations with those at the forefront of implementing

sustainability, and dealing with its demands and challenges – how to justify its

adoption in terms of business logic and not let the theme be lost in the details of daily

life – this guide presents us with qualitative research and stimulates reflection. The

aim is to help us move forward in the discussion and improvement of organizational

practices and, in particular, in that which relates to decision makers: to people.

Former Chairman of the Board, IBGC


11Introduction

Introduction

About 15 years ago, the relationship between companies and the

concept of sustainability was little more than the aspiration of a handful

of people who, because of an environmental or social cause, believed it

was possible for the business world to incorporate values which would

minimize the negative impacts caused by their operations. During this

period we witnessed the evolution of policies and practices, from a

philanthropic approach and/or one focused on eco-efficiency, towards

actions more embedded in the company's strategy, involving other

levels of governance as well as several stakeholder groups.

The experience of many companies shows that the task of embedding

sustainability themes into strategy and day-to-day management is

neither obvious nor simple, bringing to the forefront various challenges

and dilemmas faced by partners, advisors, executives and other actors

involved in this process. In this context, CESE (IBGC's Sustainability for

Companies Study Commission), following the

, which presented the theme in a conceptual and

comprehensive form, chose to examine in more depth the nature of

these challenges from the practical experiences of those who face them.

As a group of professionals working in diverse areas of sustainability

and, specifically, corporate governance, we realized that this discussion

in institutionalized form, i.e. on the basis of the corporation as the agent,

has limitations. Corporations do not think or feel or act. These are

attributes of people. Thus one of the difficulties of introducing a

sustainability process within companies lies precisely in the human

dimension. Individuals are the ones who make choices, who are

motivated or not, who decide but face resistance and who relate to each

other.

Therefore, we invited corporate governance agents, such as

shareholders, investors, advisors and senior executives, to give their

personal testimonies of dilemmas experienced while trying to fulfill the

commitment to financial and economic results, and at the same time, to

embed sustainability in their companies. Each in their own way shared

with us their motivations and personal beliefs, their frustrations,

successes and what they learned along the way, including their visions

of the world. Our work was to listen, ask, compile, analyze, identify

Sustainability Guide for

Companies1

1.

1 See IBGC, 2007.

CORPORATIONS

DO NOT THINK OR

FEEL OR ACT. THESE

ARE ATTRIBUTES

OF PEOPLE


IS IT POSSIBLE

FOR INDIVIDUALS

TO PLAY THEIR

ROLES IN ALIGNMENT

WITH THEIR PRINCIPLES

AND VALUES, EVEN

WHEN PROFESSIONAL

SITUATIONS REQUIRE

SEEMINGLY OPPOSITE

ACTIONS?

common themes and transform this material into a publication that

would serve as an inspiration and reference for those who are or will

find themselves in similar situations.

This work deals with the gap that can exist between people as human

beings and the role they play in the organizational environment, and

with the challenge of bringing personal values into companies. What

should one do when the rules of the game or even the survival of the

company (or his/her survival in the company) indicate a different and

conflicting direction with one's values. Is it possible for individuals to

play their roles in alignment with their principles and values, even when

professional situations require seemingly opposite actions?

The analyses were carried out in such a way as to preserve the identity

of the interviewees and the confidential issues of the companies

involved. The text marked with quotes and italics refers to the

comments of interviewees, reproduced as faithfully as possible.

The final product represents our understanding and positioning with

respect to the interviews, and not the details of the interviews

themselves.

Below are some definitions used in the document, as well as the

methodology used in its preparation.

2

2 Wherever we are referring to an individual that we interviewed, we will use the term “interviewee”.

Figure 1: Focus of the report.

Source: Developed by IBGC.

alingment with

SUSTAINABILITY

CORPORATE

GOVERNANCE

environmente

COMPANY

context

INDIVIDUAL

13Introduction

Recapping some concepts

Below are some concepts from the

, which presented the theme of sustainability from the point

of view of corporate governance.

In economic terms, sustainability means to live from the "income"

provided by nature and not from its "capital", the so-called “natural

capital”. All economic activity depends on this natural capital.

Natural capital is responsible for the provision of environmental

services, i.e. benefits that humans get from nature, such as: oxygen

production, carbon sequestration, soil formation, water, wood and fiber

supply, climate regulation, and aesthetic, spiritual and leisure value.

Social capital, in turn, is associated with social stability and prosperity

and is fundamental to the pursuit of sustainability. The concept of social

capital used in this document is associated with the quality of

relationships between individuals and groups in society, with trust being

an essential factor.

Corporate governance is the system by which organizations are

directed, monitored and incentivized, involving the relationships

between owners (shareholders), boards of directors, executives and

control structures. Good corporate governance practices convert

principles into clear recommendations, aligning interests with the aim of

preserving and optimizing the organization's value, facilitating its

access to resources and contributing to its longevity. The source of good

corporate governance practice lies in four basic principles:

Transparency, Equity, Accountability and Corporate Responsibility.

One good corporate governance practice is that the board of directors

provides the strategic direction for the company. In the development of

business strategy, both short- and long-term aspects need to be

considered. Specifically with regards to the latter, sustainability themes

Sustainability Guide for

Companies

The Concept of Sustainability

Corporate Governance and Sustainability

3

4

1.1.

3 Prosperity” is not necessarily associated with unlimited economic growth or other forms of human action that,

although generating economic value, put at risk the quality and continuity of life. With respect to companies, in order

to be viable and lasting, companies depend on well-functioning social and environmental systems, of which they form

a part.

4 IBGC 2009.

THE CONCEPT OF

SOCIAL CAPITAL

USED IN THIS DOCUMENT

IS ASSOCIATED WITH THE

QUALITY OF RELATION-

SHIPS BETWEEN INDIVI-

DUALS AND GROUPS IN

SOCIETY, WITH TRUST

BEING AN ESSENTIAL

FACTOR


GOVERNANCE,

STRATEGY AND

SUSTAINABILITY

ARE INSEPARABLE.

STRATEGY PLANNING

SHOULD NO LONGER

TAKE PLACE WITHOUT

TAKING SUSTAINABILITY

ISSUES INTO

CONSIDERATION

must be taken into account. Therefore, logically, governance, strategy

and sustainability are inseparable. Strategy planning should no longer

take place without taking sustainability issues into consideration.

As result of its direct benefits in management and in facilitating access

to capital, good corporate governance is being rapidly assimilated by

companies, and therefore may function as a "gateway" to sustainability

in the corporate environment. In addition, it can also act as a “guardian”

of the alignment between the company and sustainability.

The relationship between major drivers of economic value and

sustainability aspects can be illustrated using a matrix:

5

Sustainability Matrix

Figure 2: Sustainability matrix.

Source: IBGC (2007, p. 21)

Actions

Business Success Factors

(economic value)

Revenue and market access

Commitmente with

sustainability

Principles,

purpose, vision

Corporate

Governance

Engagement of

other stakeholders

Products, processes,

business models

Relationships, impact acknowledgement,

and dialogue with respectNature of the operation

Sustainability Factors

Cost eficiency and

effectiveness and productivity

Assets management

Tangible

Intangible

Risk management

Licence to operate

Human capital

Brand

Reputation

Outcomes

15Introduction

The stages of sustainability

According to their response to both external (current laws and

regulations) and internal (integration of sustainability in the strategy or

the mission and principles of the company) stimuli, companies may be

classified as being in different stages of sustainability:

5 Based on the Foreword by Mervyn E. King, in the (IBGC, 2007).

6 English terms from Badaracco Jr., 1998 (in the Portuguese version).

7 Machado Filho, 2006.

8 Based on Lobos, 2003.

Sustainability Guide for Companies

Dilemmas and challenges

The decision-making process involves judgments that are based not

only on technical but also ethical aspects, such as principles and values.

Some decisions generate so-called ethical conflicts, which may be

divided into: problems (ethical decisions) , when the right thing to do is

difficult, and dilemmas (defining moments), when any decision will end

up violating some ethical principles.

A few examples of dilemmas of an ethical nature :

Immediate gains are put ahead of prudent and lasting investments;

Individual gains rival community interests;

Being honest within oneself requires breaking commitments to

other (s);

Applying the law calls for sacrifices.

6

7

8

I

II

III

IV

1.2.

Regulatory pressure

Stage 1

Pre-compliance Compliance Beyond

compliance

Integrated

strategy

Purpose &

passion

Stage 2 Stage 3 Stage 4 Stage 5

Eco-efficiencies

regulatory threat

public relations crisis

Business opportunities

risk management

Passionate

founder/chairman/CEO

Figure 3: Stages of sustainability in companies.

Source: IBGC (2007, p. 24)


9 Chapter 5 contains a brief biography of each interviewee.

Values and principles

Methodology

Within the scope of this document, values and principles are linked to an

orienting philosophy of life, i.e. precepts that guide each person's

business and personal conduct. They are demonstrated by our acts and

not our words.

To develop a text based on the dilemmas faced by individuals, the group

felt it would be necessary to obtain original testimony from corporate

governance agents, since this type of information is not readily

available.

Faced with limited time and resources, and in order to obtain greater

details of individual experiences, we opted to undertake qualitative

research, i.e. based on a smaller but representative sample of IBGC's

target audience.

The criteria for selecting interviewees were based mainly on identifying

individuals who had:

A track record of attempting to embed sustainability issues in their

organization's strategy and operations;

Served at various levels of corporate governance (equivalent to that

of IBGC's target audience).

Seven people who work or worked in the field of corporate governance

were interviewed :

Shareholder of a family-owned business: Renata de Camargo

Nascimento;

Investor and chairman of the board: Ralph D. Wehrle;

Board member and CEO: Luiz Ernesto Gemignani;

CEO: Eduardo Bom Ângelo;

CEO and VP of operations: José Luiz Majolo;

VP of operations: Claude Ouimet;

Corporate, voluntary sector and government director: Marcos B.

Egydio Martins.

9

>

>

>

>

>

>

>

>

>

1.3.

1.4.

PRINCIPLES

IBGC has developed its Code

of Best Corporate Governance

Practices based on principles.

In other words, although

practices may change, the

basic principles of

transparency, equity,

accountability and corporate

responsibility tend to endure.

17Introduction

The interviews followed the steps listed below:

Pre-interview, explaining the purpose of the work;

Confirmation of invitation in writing detailing key interview

questions;

Signature of a Confidentiality Agreement by all involved;

Audio recording, when available and authorized by the interviewee;

Interview conducted at IBGC's headquarters, during ordinary GESE

meetings led by one of the members of the group, ensuring

coverage of key questions which included:

> Description of situations of conflict or individual challenge,

including their context,

> The interviewee's role in each situation (mandate, professional

and personal expectations),

> Development of conflicts (difficulties, approaches),

> Outcomes, the interviewee's personal impressions ("how they

felt" during each situation),

> Consequences with respect to the initial situation,

> Recommendations, lessons or suggestions ("what to do" and

"what not to do");

Discussion of the interview within GESE.

The text was developed as follows:

A fundamental premise was to not reveal the interviewees or the

companies they represent – which is why the quotes throughout the

document do not indicate the source.

Two members of the GESE were responsible for writing the text,

receiving and incorporating suggestions from others, including

from the secretary-general and board of directors of IBGC and some

invited experts (restricted consultation).

Interviewees were given the opportunity to review the final text, with

absolute right to veto any mentions of their names and/or the

companies they represent.

Additional care has been taken with respect to sponsorship of this

publication: companies linked to interviewees were not considered for

sponsorship.

>

>

>

>

>

>

>

>

PRINCIPLES &

TRUST

>

>

Given the dominant corporate

culture, in which people are

rewarded mainly by productivity

- which in the present context

means ever higher growth rates,

Mark Egydio shared several

situations and dilemmas for

which staying true to principles

was crucial, in order to make

decisions that benefit the

various actors involved.

"In the current context in

which we live and must survive,

being competitive is crucial.

Thus, greater care must be

taken to avoid hypocrisy. We

have to build relationships of

trust within organizational

cultures, in which expectations

are agreed upon and the rules of

the game are clear to all

involved. "


Structure of the document

This document is divided into three parts.

In the first ("A rocky road"), we point out some of the most common

challenges experienced by the interviewees.

In the second ("Stepping stones"), we illustrate in the context of each

interviewee how these challenges could be treated and addressed,

organizing them into six paths.

Because of its nature, the document does not allow for an objective

conclusion. Thus, the third and final part (“Call for Reflection”) raises

some general issues in order to stimulate additional reflection by the

readers.

1.5.

A rocky road

The compilation of interviews identified some common challenges

and dilemmas among interviewees. Four macro-issues emerge,

which reflect the main challenges experienced by these individuals

when they tried to incorporate sustainability in their professional

lives.

2


HOW IS IT

POSSIBLE

TO INCORPORATE

SUSTAINABILITY

METRICS IN DAY TO

DAY BUSINESS IN A

MARKET DRIVEN

BY THE YEAR-END

BONUS?

Sustainability, as the term itself suggests, is particularly related to the

long term. However, in both corporate and political contexts, the quest

for immediate results has been the name of the game. Accordingly,

balancing short-term gains with a company approach more related to

sustainability stands out as a major challenge. It was frequently

reported that the pressure for short-term results, either from

shareholders, or investors, or even executives motivated by their

annual bonuses, risked undermining efforts towards more responsible

strategies.

We noted that those who work in companies in more mature stages of

sustainability have less difficulty in justifying actions that run counter

to immediate profits . We heard of dilemmas experienced by several

interviewees when facing the decision of whether or not to participate

in projects that conflicted with their personal values, and realized that

giving up these projects is easier when the company is already at a more

advanced stage, though still not without effort from the individuals

concerned: "

"

We also realized that adopting a long-term vision contributes to the

process: "

"

There are conflicts of this nature even in companies which have already

developed initiatives that go beyond legal compliance: "

" or "

"

10

11

I never doubted what I had to do, however, it was verydemanding, since people had doubts and needed to be convinced.

We left the project because we understood that by doing so,we were creating more value in the long term than the few million reais[Brazilian currency] that we would make in the short term.

It is because ofthe bottom line that a CEO is maintained. It is very difficult to introducesustainability in the board agenda How is it possible to incorporatesustainability metrics in day to day business in a market driven by theyear-end bonus?

Short term versus long term2.1.

10 See figure 3.

11 For listed companies, this includes short-term share prices.

23A rocky road

Since it is people that make organizations what they are, issues

involving the individual, their personal resistance, fears and mental

models naturally surface as impediments to the integration of

sustainability.

One of the first issues to emerge is related to individual resistance,

which may come from fear of the unknown, or even from a certain

arrogance towards what is known: "

". When it

comes to change and innovation, in general "

" In this context, leaders who have yet to " " are

identified as one of the greatest obstacles: " "

is what one of the interviewees heard during his day.

It is from comments like this that the second issue or sustainability

dilemma at the individual level arises: Is it possible to link personal

beliefs to business? "

", one of them said. Would personal values be

compatible with the needs of companies, with respect to their

performance and competitiveness? It is very common to think that

companies face a dichotomy: to be socially and environmentally

responsible or to be profitable. The idea that it is impossible to reconcile

values and principles with business performance leads to comments

such as: " ", as one colleague of one of the

interviewees said when hearing of the company's new social and

environmental policies.

It should be stressed that, when speaking of personal values, we refer to

respect, honesty, integrity, compassion, respect for life, moderation and

responsibility, among others, which are aligned with the four basic

principles of good corporate governance. These, in turn, "

"

Therefore, the belief that personal values cannot be fully practiced in

What is disturbing is not [only] whatwe don't know, but that which we [think we] know for sure

people don't like it andprefer to maintain the status quo, because they believe it to be lessrisky. buy into the idea

We're here to earn money

There was a dichotomy between personal andprofessional visions

this will sink the company

are present inthe context of corporate sustainability, as long-term strategy, riskmanagement, consideration of intangible aspects, quality of stakeholderrelationships and responsibility for acts and omissions that, sooner orlater, could impact the company's economic value. 12

DEFINITION OF ROLES

AND MANDATES

RALPH D. WEHRLE highlighted the

importance of good corporate

governance in promoting a new

approach to the management of

projects under his

responsibility. The definition of

the role of each corporate

governance agent is

fundamental: "investors invest,

executives execute and reports

organize."

Individual resistance2.2.

12 See section 1.2 of the (IBGC, 2007).Sustainability Guide for Companies


If on the one hand individuals and their beliefs form part of the

organizational culture, this culture also has an impact on individuals.

One of the interviewees explained that he began to assimilate the

company's culture once they understood the coherence and benefits of

a more responsible approach to management.

In some situations the existing culture places restrictions on individuals

who do not feel authorized to exercise their personal values. It is the

fear of the unknown already mentioned, but now as an integral part of

the company's organizational culture. To take measures considered

heterodox in a particular business environment can generate strong

resistance and lead to " ” or even more drastic

consequences. For individuals to have the freedom to act differently,

the company's culture needs to allow it. Note that some respondents

acknowledged their personal satisfaction and relief (“

") when they realized they were in organizations where

they felt authorized and encouraged to exercise their personal values.

Another source of resistance, which may be related to culture, is the

difficulty of dealing with differences in values, opinions and interests.

As the search for faster and more concrete results predominates, the

practice of involving various stakeholders in the planning or execution

of a process is seen as slow and inefficient. Balancing the interests of

various stakeholders is an enormous and draining task. For example, in

order to improve the functioning of the ombudsman's office at a

company with a culture unaccustomed to listening, one of the

interviewees was instructed to provide any sort of partial solution to

clients without dealing with the causes of the problem.

In this context, the lack of alignment and involvement of the leadership

with the issue of sustainability seems to be the main challenge. It is

much more difficult to initiate a process of change in an organization if

the leadership is not adequately involved: "

strategic retreat

a meeting withmy inner me

Changing culture leads tounpopular measures which do not necessarily sit well with the culture of

Organizational resistance2.3.

business is a clear contradiction with the essence of good governance.

Nevertheless, this seems to be the belief of many individuals and drives

the organizational culture of many companies, which the interviewees

see as a major obstacle to the inclusion of sustainability.

25A rocky road

Cultural issues, which generate resistance, can also come from outside

the company, for example, from the value chain: "

". In this case, the dilemma is between, on the one

hand, being competitive and selling a project in line with the client's

wishes and, on the other, acting in a way that is more sensitive to social

and environmental issues. Other examples point to resistance within

industry associations, which see the company's changes as a threat to

sector as a whole. "

"

All interviewees found it difficult to deal with practices in sectors that

are partially 'informal', since those who decide to comply fully with the

law face an initial disadvantage. In certain cases, acting at all times in

accordance with ethical principles inspired by sustainability may mean

going out of business. The question arises: is quitting the business and

stopping trying to improve the business environment the best solution?

What would be more sustainable? This dilemma leads some to believe

that " ", says one of

the interviewees. There are other concerns related to survival that,

apparently, impede more responsible practices: "

"

There are also situations in which legislation itself presents some

limitations, either by obsolescence, excess bureaucracy or even

inconsistency with more responsible practices. In such cases the

dilemma is with the decision to comply with the law. We see examples of

people who face lawsuits arising from initiatives that were absolutely in

line with their ethical principles, but not necessarily in accordance with

the existing legislation.

Clients often comewith a set demand that does not translate into the best social orenvironmental solution

The first time we talked about this [environmentalissues] with a industry organization, the reaction was not good, sincethere was a fear it would draw the attention of regulators and create aproblem for all.

in emerging markets sustainability comes afterwards

Managing a companymeans making choices between possible alternatives, and not always inaccordance with the company's ideal.

Business context and regulatory

environment

2.4.

the shareholder

they are alreadyahead of the game commercially

". On the other hand we see that even when the

shareholder is convinced of the need for sustainability management,

convincing executives of the need to change when "

" is difficult.

THE FIRST

TIME WE

TALKED ABOUT THIS

[ENVIRONMENTAL

ISSUES] WITH A

INDUSTRY

ORGANIZATION, THE

REACTION WAS NOT

GOOD, SINCE THERE

WAS A FEAR IT

WOULD DRAW THE

ATTENTION OF

REGULATORS AND

CREATE A PROBLEM

FOR ALL


It is a common dilemma, since following the law sometimes requires

sacrifices: "

" In this

case, the lawyers of those accused of corruption found a loophole in the

law, which ended up causing the dismissal of the interviewee.

It is clear that the business context and legal environment can limit

more sustainable practices, be it of a company in its market, or a

governance agent in a company. It is crucial, however, that independent

of the decision being taken, we are ready to assume full responsibility

for its consequences.

As head of an anti-corruption process in a particular company,I acted according to my principles, but ended up being prosecuted. Butmy conscience is clear, because I did what I believed was right.

IT IS CLEAR

THAT THE

BUSINESS CONTEXT

AND LEGAL

ENVIRONMENT CAN

LIMIT MORE

SUSTAINABLE

PRACTICES, BE IT OF

A COMPANY IN ITS

MARKET, OR A

GOVERNANCE AGENT

IN A COMPANY. IT IS

CRUCIAL, HOWEVER,

THAT INDEPENDENT

OF THE DECISION

BEING TAKEN, WE ARE

READY TO ASSUME

FULL RESPONSIBILITY

FOR ITS

CONSEQUENCES.

27A rocky road

Stepping stones

Many of dilemmas and conflicts reported here had outcomes that

generated learning. We grouped the themes that emerged into six

paths.

3


ONE IMPORTANT

LESSON LEARNED

IS THAT THERE IS NO WAY

FOR A COMPANY TO

ALIGN ITSELF WITH

SUSTAINABILITY

WITHOUT ALSO

PROMOTING A

COMPATIBLE

ORGANIZATIONAL

CULTURE

Individual and cultural resistance inside and outside of companies was

identified as an obstacle in the path of sustainability. Therefore, actions

that seek alignment, understanding and development of people are

crucial in the process of embedding sustainability into company

strategy.

One important lesson learned is that there is no way for a company to

align itself with sustainability without also promoting a compatible

organizational culture. We learned of one executive's experience with

shareholder dissatisfaction with company results. His assessment

pointed to a cultural issue that he called "

”, i.e. executives were used to and satisfied with the

justifications for their poor performance and this was already part of

the company's culture. The solution was to work on changing the

management approach, a process that took at least five years to show

results. However, the results generated were very satisfying, both in

increasing internal awareness and in financial performance: "

.

We noticed that the most significant cases of incorporating

sustainability happened in companies where the culture allowed it: "

", says an executive referring to a company that could be

classified in one of the more advanced stages of sustainability from

Figure 3. He added that the culture prevailing at the time had a greater

focus on ethical objectives than on business growth. And, as

consequence, they experienced an increase in business turnover, once

the perception of risk generated outside of the company had

diminished, as they ended up attracting customers who identified with

this culture.

However, organizational culture is not something imposed; it is

constructed and maintained through coherence: "

." And he continues:

"

"

satisfactory under-performance

Byknowing how to deal with resistance and being persistent, peopleincrease their chances of being successful and happy

Thecompany was already oriented towards collective rather than individualresults

Sustaining culture inthe long term depends on each decision, which must prioritize long-termobjectives, at the expense of immediate resultsMoments of crisis don't justify ignoring values." "It is important that

values such as integrity and respect for relationships are reflected ineach action, in each decision of the company.

Cultural shift3.1.

31Stepping stones

CULTURAL

CHANGE

HAPPENS AT THE

LEVEL OF THE

INDIVIDUAL AND IT

IS VITAL THIS WORK

EXISTS IN ORDER TO

INFECT THE REST OF

THE ORGANIZATION

We identified four crucial issues related to the construction of an

organizational culture conducive to embedding sustainability:

There was consensus among the interviewees that change needs to

start with individuals. "

."

Following this same line of thought, another interviewee says that in

order to address the difficulties of spreading the concept of

sustainability in his company, it was necessary to emphasize individual

work, starting with his own, noting his own resistance and limitations,

and then moving onto the other leaders. "

", and there must be balance between personal and

professional life: "

”

We heard the story of a project in a city where the workforce was

believed to be technically unqualified and, for this reason, all ventures in

the region were believed to be adversely affected by poor customer

service. Through an 'inside out' transformation, the project was

developed with maximum involvement and respect for employees,

becoming a model of customer service excellence: "

" “

" And he adds: "

"

We heard in many testimonies that cultural change does not happen

overnight and that it is necessary to persevere in the process. Change is

slow and gradual, but this seems to be the safest way. "

", recommends an

interviewee, while another adds: "

"

Change starts from inside out – from the individual to the

organization and from the organization to the value chain.

It is a process that takes time

It begins with us, in our feelings and emotions, inthe way we relate with the world. We need to change ourselves beforeattempting to change the company or the world

Cultural change happens at thelevel of the individual and it is vital this work exists in order to infect therest of the organization." "You must take your personal values to thecompany

How can people who are not balanced make balanceddecisions?

Respectedemployees respect the customers. Change occurs by example and bydiscussion of the concept. Everything, absolutelyeverything, must be previously tested in house.

The time requiredfor the changes to occur must be respected

Change happens throughdetermination – the expansion of awareness is slow and gradual.. .and itmust have continuity.

a)

b)


RELATIONSHIPS

BETWEEN PARTNERS

A company that belongs to a

holding group composed of

members from different

countries and industries (a

state owned institutional

investor and private owned

operating company) requires

complex governance. In a

scenario like this,

stressed the

"importance of Corporate

Governance to coordinate

such different partners."

EDUARDO

BOM ANGELO

One example that gives a concrete idea of the time required: "

In spite of the need for long-term change, it is very useful both to

establish intermediate goals to provide a sense of progress, and to start

with the practices that are easiest to implement. Each step in the right

direction should be celebrated; not only the final and long-term result.

" In addition, one executive recommends

that this vision of sustainability becomes, as a priority, "

", in order to maximize the number of

people and areas aligned with sustainability.

This issue was raised unanimously. The involvement of leadership is

crucial to start and advance the process of cultural change. One of the

examples tells of the importance of work at board level so that the board

could engage in dialogue about sustainability. "

”, says one interviewee when stressing the importance of

leadership involvement. “

”, in other words, to prepare them to see the

business context as being much more extensive. We also heard that for

culture to spread within the company, "

", so that changes are not dependent on

one or another leader.

It took us15 years to change our way of thinking." "But we must celebrate theprocess, because the results will come in the long term.”

In order to change we must stop seeing only the parts and begin to seethe whole. You can't separate the concept of sustainability from theconcept of systems thinking…, you need a paradigm shift in which thereis the possibility of inclusion of all human beings, all species inhabitingthe planet and future generations. We need to be part of the solutionrather than part of the problem.

somethingsystemic within the organization

Change happens byexample

It is important therefore to prepare leaders todeal with sustainability

it is necessary to train leaders – tocreate leaders at other levels

It requires a systemic vision

It needs the involvement of leadership

"

c)

d)

33Stepping stones

WE MUST

ALWAYS

HOLD OURSELVES

ACCOUNTABLE, EVEN

AT THE HIGHEST

LEVELS. THIS TYPE

OF APPROACH CAN

HELP THE COMPANY

DEVELOP A MORE

RESPECTFUL ATTITUDE

TOWARDS ITS MANY

STAKEHOLDERS

The importance of good corporate governance in the process of

embedding sustainability was very clear. One of the examples of a

company which is reaching level 4 in Figure 3 shows that its positive

evolution stems from the initiation of sustainability at board level, with

the board's own constitution, revision of roles and the alignment of

board members with the theme. The interviewee who brings this

example indicates that good corporate governance practices are

important in spreading values and contributing to the required cultural

change within companies, because they originate from the leadership.

Another interviewee says that the "

We also saw an example of a company in which the strategy included the

simplification of board meetings, the creation of an advisory council, the

strengthening and establishment of committees and the deployment of

an ombudsman.

On the other hand, one of the interviewees highlighted that "

", showing that when this happens,

the process loses credibility.

The development of business with partners led one of the interviewees

to recall the expression ". This

illustrates a critical point in terms of good corporate governance: we

must always hold ourselves accountable, even at the highest levels. This

type of approach can help the company develop a more respectful

attitude towards its many stakeholders

use of good corporate governancewas instrumental in changing the company's management model.Furthermore, the basic principles of good governance – transparency,equity, accountability – were invaluable throughout the process. Youmust have a clear concept of ethics and handle all changes with greattransparency.

manythings are decided at a very high level [board of directors] withoutsustainability being part of the filter

One who has a partner has a boss

"

“

.

Corporate governance3.2.


STRATEGY

When the scope of business

activity expands, it is often

necessary to establish

subsidiaries with corporate

structures suitable for their

purposes, adding an

additional level of complexity

to business administration.

is an

executive from a group with a

unique ownership structure:

the staff of the group are the

sole shareholders of the

holding company, Promon SA.

In this environment,

"adopting good corporate

governance practices, such as

boards of directors and

external advisors, is essential

to provide clarity in defining

the scope of the strategies of

the various entities, and

independence in their

formulation and

implemention"

LUIZ ERNESTO GEMIGNANI

Sustainability also relates to organizational culture and the way of doing

things. Working on the culture is, consequently, essential, and this starts

with the individual, with the support of leadership and good corporate

governance practices. But how do we do this? One path indicated by the

interviewees is through dialogue and communication.

". In addition, the process was

augmented with campaigns and lectures on various themes, such as

carbon neutrality, conscious consumption, etc., geared to internal and

external audiences.

Communication and dialogue emerge as ways of aligning concepts,

sharing ideas and valuing diversity: "

” It is important to emphasize that communication and dialogue

should involve the relevant stakeholders as a way of balancing

relationships: "

"

”. One of the measures for evaluating stakeholder dialogue is to

find out its reach and at what level of the organization it happens. "

", one

interviewee says, adding, with respect to partnerships, "

”

Dialogue is seen as a path towards reflection and resolution of

dilemmas. One interviewee tells us about his experience in a company

that is already advanced with regards to Figure 3: "

"

The power and influence of companies can sometimes interfere in this

relationship model, undermining genuine dialogue. In other words, in

addition to involving various stakeholders in the dialogue, there must be

mechanisms to ensure a balance of power in engagements or

partnerships between companies and their stakeholders.

"

"

We held periodic meetings with all employees in which our main focuswas to be accountable and present our proposal, what we expected andhow they would benefit if it succeeded

Communication is a two-waystreet.

Thinking of only one stakeholder is a risk for sustainability,since you create problems with others – without a doubt, companies thatinvest in balanced relationships perform better.

We must align stakeholders' interests with transparency, equity andaccountability as a way to generate value and contribute to the process ofchange

Itshould go from operational teams to executive and board levels

it's necessary tohave respect and dialogue.

Sustaining the culturein the long term is affected by each decision. As it is not always possibleto define what is black and what is white, discussions take place withineach project and each proposal.

Alignment, dialogue and communication3.3.

DIALOGUE

IS SEEN

AS A PATH TOWARDS

REFLECTION AND

RESOLUTION OF

DILEMMAS

35Stepping stones

THAT

TOOLS

WHICH SEEK TO SET

SOME PARAMETERS

FOR SUSTAINABILITY

PRACTICES HELP IN

CONVINCING AND

ENGAGING MORE

SUPPORTERS IN THE

ORGANIZATION

HOWEVER, IT IS WORTH HIGHLIGHTING THAT NOT EVERYTHING IS "TANGIBLE" OR "MEASURABLE"

AND OBSTINATELY TRYING TO MEASURE EVERYTHING CAN LEAD TO MISTAKES

As to the term "dialogue" itself, it goes beyond formal rituals of

stakeholder consultation, often made with predefined agendas and

without the necessary intention of considering others' points of view or

of empowering others for dialogue, for which the company is often not

ready.

Several of the dilemmas presented may be exacerbated by the lack of

perspective of those involved. After all, the closer you are to something,

the more your perspective is jeopardized. Accordingly, stakeholder

engagement can be very useful, especially when it involves "friendly

critics”, who can see the facts with greater clarity and whose vision

might help those involved make a better decision.

We must " " and "

". Our understanding was that tools

which seek to set some parameters for sustainability practices help in

convincing and engaging more supporters in the organization: "

"

Apparently, sustainability themes still suggest practices that inhibit

operations, increase costs, reduce competitiveness, are excessively

idealistic, and, ultimately, jeopardize results. This idea is linked to the

obstacles already mentioned, such as excessive focus on short-term

results, fear of the unknown and the belief that practicing some values is

incompatible with business. Overcoming these aspects initially requires

using a language that speaks to this existing mental model, in order to

generate less resistance and enable a transformation. The various

forms of measurement fulfill to some degree this role, hence their

relevance. One of the interviewees highlights the "

make sustainability tangible there is a need formanagement mechanisms and tools

It wasnecessary to establish a discussion forum and to create a vision of thefuture which responded to the questions of why be sustainable and whatthe impacts on competitiveness and costs will be.

importance ofcommunication that is adequate for the company's most senior level,

Mapping and measuring3.4.

13 For comments on the diverse types of management tools related to sustainability for companies, see sections 5.3 (g)

and 6.4 in IBGC, 2007.


But how is it possible to remain competitive with the restrictions that

good sustainability practices often impose? The answer, according to

our interviewees, is in the wide use of creativity and innovation: "

".

In general, the interviewees indicated that by considering sustainability

themes as a new set of maps or lenses, corporate governance agents

and other collaborators have the opportunity to see the company and its

business context in a different way, with new elements. The

combinations, alternatives and inspirations underlying this new

approach may lead to new insights and perceptions, feeding a creative

process of innovation. An example is stakeholder mapping, which can

lead to a new organized and strategic analysis of relationships and their

consequences in terms of risk management and identification of

opportunities.

Innovation for sustainability” implies considering limits such as the

ones imposed by the impossibility of the economy growing indefinitely,

which is virtually not dealt with in the business environment.

Wemust think about innovation to avoid a process that is just dreaming,since sustainability may require investments and increase costs

"

Creativity and innovation3.5.

INNOVATION FOR SUSTAINABILITY” IMPLIES CONSIDERING LIMITS SUCH AS THE ONES IMPOSED BY

THE IMPOSSIBILITY OF THE ECONOMY GROWING INDEFINITELY, WHICH IS VIRTUALLY NOT DEALT WITH

IN THE BUSINESS ENVIRONMENT

with the appropriate use of indicators that better communicate with theirdaily activities

demand and stimulateWe must include sustainability performance targets in remuneration

schemes.prove it's real and analyze what

kind of value it may add

".

Standards and monitoring tools also help to " ".

“

" The use of indicators, metrics and diagnostics make the path

to sustainability more tangible and help "

".

However, it is worth highlighting that not everything is "tangible" or

"measurable" and obstinately trying to measure everything can lead to

mistakes.

13

37Stepping stones

WE MUST

"SEARCH FOR

COLLECTIVE AND NOT

INDIVIDUAL RESULTS"

AND "RESIST THE

TEMPTATION FOR FAST

PROFITS" OR “FOR

PROFITS AT ANY COST

Finally, one other indispensable ingredient in this recipe: conviction. Our

interviewees agree among themselves when they say, "

". It became clear that the

search for elements, such as indicators, to sensitize the most skeptical is

crucial; that engaging in a process of dialogue, reflection and

communication in support of cultural shifts is essential; and that good

corporate governance is a powerful support along the way. However, a

great part of the process depends on belief. "

", they say.

An element that is complementary to conviction is commitment, which,

often, requires " ". We must

" " and "

" or “ ". We do not always

have a concrete or quantitative element to justify this sacrifice. As

already mentioned, the results of managing more in line with

sustainability may materialize in the long term or be very intangible. It is

necessary to search for the “ ”, “

". Although the "

"

Behind the scientific information, behind the belief, conviction and

commitment, is an inner perception that there would not be any another

way. It is not about " " ethics or alignment with sustainability, to

the detriment of other factors, but feeling that "

", for the sake of the individual, the company and society.

In practice, this may mean that " ”,"

" or "

". We know that, in

some instances, these choices are outside the reach of each person.

However, as one interviewee points out: "

". It is necessary

to have the will and to continue to practice what is understood as the

right thing and accept the consequences.

Individual involvement with voluntary initiatives, through industry

associations, educational institutes, philanthropy or other initiatives,

helps temper the most exacerbated individualism with the quest for

collective results. This kind of experience may be useful in developing a

sense of empathy and responsibility for others, in line with various

aspects of sustainability.

If there is nobelief, it becomes a bureaucratic process

We must believe, we musthave conviction

giving up individualism and your comfort zonesearch for collective and not individual results resist the

temptation for fast profits for profits at any cost

middle road" and "do what is right evengoing beyond legal requirements change begins forconvenience, it ends up happening out of conviction.

choosingthere is no other

possible choice

sometimes, we must change jobs sellthe company work in organizations in which you identify with thevalues and have the possibility of being a whole person

Sometimes it is impossible todo it 100% right, but we must have the intention to do so

Commitment and conviction3.6.

Call for reflection

Our interviewees have provided us with a series of observations and

questions that create an opportunity for reflection. As a conclusion

we invite you to consider the following questions, without trying to

offer ready-made solutions.

4


Making sustainability tangible, using indicators, management tools and

targets – all of this helps to embed sustainability into company strategy,

but there is a caveat. Indicators and tools do not, by themselves, move us

along the path: "

". It is crucial to realize the

moment a tool becomes a goal in itself, limiting the process to publishing

a report or to designing indicators and metrics, without necessarily

generating a transformation in the way the company acts in the world.

There is no doubt that tools help and may be the beginning of a process

or even the result of steps already taken, however they are the means,

not the end.

It may turn into bureaucracy at the mercy of a leadershipwhich has not understood the final objective

"Everything that can be measured is manageable”, goes the

old business adage, but in the search for sustainability, would

it not be as relevant to also manage that which might not

always be measurable?

How should we understand the purpose of each tool and the

relationship between them?

Superficial initiatives and exaggerated marketing actions are evidence

of the disconnect between what is being talked about and what it being

done. "

”, such as advances in eco-efficiency initiatives and stakeholder

communication without properly focusing on core business. Our

interviewees reinforce the need for coherence, within the limitations

they have mentioned. Still, they draw attention to the issue of intention

and limits of practical reality: " ",

"

". The need for coherence in intentions transforms the search

for sustainability into a process of qualitative and evolutionary change.

In other words, it indicates a movement in which governance agents do

not stand still in the face of actions that go against their values, nor

evade the responsibility of trying to change them. They manage a

sensitive balance between the end they seek to achieve and the means

at their disposal: " ".

Many companies consciously embrace actions to build asustainable image, but their practices end up a long way from that veryimage

Bend the rules, but don't break themWe need to know when we are being flexible and when we are selling

our soul

I may step off the path, but I do not lose my North

When the tool becomes the goal

Walking the talk

4.1.

4.2.

INDICATORS

AND TOOLS

DO NOT, BY THEMSELVES,

MOVE US ALONG THE PATH

?

41Call for reflection

The establishment of corporate foundations or institutes in order to

exercise corporate citizenship deserves more discussion. “

" says one

of the interviewees, emphasizing that function is more important than

structure. Once the management model incorporates sustainability

issues, little additional structure should be required. We heard various

ways in which alignment with sustainability happens through cultural

change, because it requires a mental model distinct from the norm. It is a

different way of acting and thinking, which should permeate the entire

enterprise. Thus, care is needed in establishing an institute or

foundation with the objective of strengthening the company's

sustainability structure, since depending on the level of maturity of

sustainability – or the leadership's level of awareness – it could end up

amounting to an outsourcing of sustainability, which is meaningless.

The ideal iswhen the existence of an institute or a dedicated department is no longerrequired, because sustainability has already been incorporated

A corporate institute or foundation can be a great tool for

social investment or for developing relationships with some

stakeholders, but is it the best vehicle to embed

sustainability in the company's strategy?

What makes social investments sponsored by company

resources a strategic action aligned with sustainability?

If a social investment does not meet a company's strategic

need, would some shareholders not have the right to choose

not to delegate the company this task?

Institutes and foundations4.3.

Given that embedding sustainability into company strategy

is a process, how will governance agents who are willing to

follow this path know if they are being consistent?

How will they know if they are breaking a rule or just being

flexible?

When will they perceive if they are moving away from their

values?

?

?


THE NATURE OF THE

COMPANY

THE NATURE OF

BUSINESS

We must understand the

business deeply and ask

ourselves fundamental

questions leading to

reflections on "what" to do

and "how" to do it.

stressed the

need for "each company to

play the role expected of it,

to be structured to fulfill this

role and to ask whether the

business is being conducted

correctly".

JOSÉ LUIZ MAJOLA

Advancing this theme, Claude

Ouimet says that at some

point, you should "ask

whether the business itself

should be maintained, if it

cannot be operated in a

sustainable manner". This is a

profound question that is not

yet on the radar of most

investors and managers.

We encountered situations in which the search for coherence led

companies to broaden the definition of their sphere of interest and

participate in self-regulation initiatives, expanding the breadth of their

actions. Sectoral initiatives via industry associations, lobbies and

movements to improve legislation, and joint actions for fair trade are

some examples They all extend the reach of the company s actions and

may be a way of maintaining competitiveness when the search for

sustainability gives rise to internalization of costs that were previously

externalized.

. '

14

If the process of taking on new responsibilities can affect the

viability of companies, how do we pursue this path?

How do we know when the company is falling short of what it

could do or overstepping its limits and performing a role for

which it lacks legitimacy in the eyes of society?

In a society aligned with sustainability, what would be the role

of companies?

One last line of questioning was generated by the expression of the

interviewees' world visions, especially regarding the future of this

process. Many agree that we are in the initial stages and that there still is

a long way to go to reverse the unsustainable levels this planet has

reached. Companies will have to undergo many changes to really

incorporate the spirit of sustainability in their processes.

Limits of action and leadership

The future

4.4.

4.5.

?

14 See section 2.2.2 in IBGC (2007).


?Would an organic evolution of this process be enough for us to

move off the path of social and environmental degradation?

Would it not require a discontinuity, a rupture with the

current model, to achieve the necessary and desired

transformation?

What kind of legacy do we want to leave?

To conclude, we believe that transformation in the world of

organizations starts from individuals and we, individuals, change when

we question ourselves, give ourselves the benefit of the doubt and go for

action.

THAT

TRANSFORMATION

IN THE WORLD OF

ORGANIZATIONS

STARTS FROM

INDIVIDUALS AND

WE, INDIVIDUALS,

CHANGE WHEN WE

QUESTION OURSELVES,

GIVE OURSELVES THE

BENEFIT OF THE DOUBT

AND GO FOR ACTION


During 10 years of working in corporate sustainability across many

countries, including Brazil, I have seen the field evolve enormously.

There is a growing recognition of the legitimate and crucial role that

business can play in sustainable development. That said, while the

potential contribution of business now seems clear, the path from

awareness to decision, and then to action, is much less certain. Whether

companies move towards sustainability is ultimately determined by the

collective impact of myriad individual decisions and actions – and this is

where '

' makes a timely contribution.

One challenge described in the document, which resonates with my

experience, is the risk that governance tools – stakeholder engagement

or risk management, for example – can become ends in themselves,

rather than means to an end. Tools then become tick box exercises,

divorced from the functions they are meant to fulfill. In their haste to

move quickly to end results, companies often miss processes and steps

that are critical to how the tools function, with potentially detrimental

consequences further down the road.

This tendency to race ahead is intimately linked with the question of

time horizons, which comes up again and again throughout the

document. While business executives are generally measured and

rewarded based on quarterly and annual achievements, sustainability is,

by definition, a long-term affair. One response to this tension is to phase

a company's sustainability strategy. By tackling easier aspects first,

'quick wins' are created, demonstrating what is possible and thus

building momentum for the steeper challenges which lie ahead.

The document also raises a sensitive dilemma. How does a business

leader know if they are really being true to their values – or whether

these are being crushed under the weight of competing priorities,

alternative cultural norms, or simply the pressure to get things done?

The challenge arises not only because the issues are rarely clear-cut,

but because it is difficult to view our own decisions with perspective.

Here is where third parties, especially 'friendly critics' can play an

invaluable role – reflecting back to companies a view of their decisions

and actions. Stakeholders can only play this role, however, when they

are enabled to engage with companies on equal terms. This underlines

once again the importance of the process that lies behind tools like

stakeholder engagement, if they are to function properly.

The practice of sustainability: Challenges experienced by

corporate governance agents

Afterword5.


While the press is peppered with interviews where individual business

leaders describe critical decision points and challenges they have faced

in steering their organizations to success (and sometimes failure),

there have been few attempts to systematically analyze the combined

experiences of corporate governance agents. This has been the

objective of '

', and the result is a rich document

and a unique analysis that makes an important contribution to our

understanding of leadership and sustainability, and merits a wide

dissemination.

The practice of sustainability: Challenges experienced

by corporate governance agents

Jodie Thorpe has worked in the field of corporate sustainability since the late

1990s, as an advisor to both the private and civil society sectors. She is a former

Director at SustainAbility, an international consultancy and think-tank

specializing in business strategies and sustainability. She led their Emerging

Economies program, advising leading companies such as Anglo-American,

Aracruz Celulose, Banco Real, Coca-Cola, Natura, Nestle and Unilever, as well as

authoring or co-authoring numerous articles and reports.


The following is a brief biography of the interviewees.

Claude is an executive with InterfaceFLOR, a company well-recognized

for its commitment to integrate sustainability throughout the corporate

culture. With extensive experience in production, sales and marketing,

Claude is the senior vice president and general manager for Canada and

Latin America. He is a member of Banco Santander Real's Advisory

Council for Sustainability and of the National Business Advisory Council

of the David Suzuki Foundation.

Eduardo is CEO of LAZAM MDS Gestão de Seguros, the third largest

company in its sector in Brazil, and member of the board of directors of

MDS Holding, the world's 15th largest insurance and reinsurance

brokerage firm. Formerly he was president of Brasilprev and CIGNA

Previdência. Eduardo holds a degree in economics from FEA-USP and a

post-graduate degree in finance and marketing at FGV-SP. He's the

author of the book "Empreendedor Corporativo”, published in 2003. He

is also an advisor to private companies, to the Akatu Institute for

Conscious Consumption and to EDH - Entrepreneurs for Human

Development, and a member of the Advisory Council of CONARH and

the Corporate Governance Committee of AMCHAM/SP.

José Luiz is an advisor with Condere Consulting, and was a senior

executive in large banks in Brazil and abroad, including Barclays, ING,

Santander and ABN AMRO. With ABN Amro he was executive vice

president of Banco Real, CRO (chief risk officer) and COO (chief

operating officer) of ABN AMRO in Latin America, including Argentina,

Chile, Colombia, Venezuela and Mexico. He is the founder and president

of Terpenoil Tecnologia Orgânica.

Luiz Ernesto graduated in engineering from the Polytechnical School of

the University of Sao Paulo, and completed specialized courses in

administration, finance and planning at FGV, USP-FEA, Wharton and

Harvard. He joined Promon in 1978 and, since 1986, has been part of the

Executive Committee. In 2001 he was elected CEO of Promon S.A. and

president of the Deliberative Council of the Promon Social Welfare

Foundation. He is a member of the Board of Natura and of the Advisory

Council of the Akatu Institute.

Claude Ouimet

Eduardo Bom Ângelo

José Luiz Majolo

Luiz Ernesto Gemignani

Biographical references6.

47Biographical references

Marcos B. Egydio Martins

Marcos is an agricultural engineer, with specialization in organic

agriculture, and is an associate consultant with Apel Research and

Project Development. He was manager of agriculture and livestock

(1985-95), executive director of the Forestry Foundation / Secretary of

the Environment-SP (1995-99), ombudsman for SABESP (1999-2001),

director-superintendent of Ecofuturo Institute (Group Suzano: 2001-05)

and director of sustainability of Natura Cosmetics (2005-07). He

participated in the Environmental Forum Leaders at Columbia

University, and served as a member of the Strategic Advisory Group of

ISO26000/CSR. He did an executive MBA at BSP-SP, the global MBA by

the Rotman School, Canada and the green entrepreneurship course at

Schumacher College, England. Currently Marcos is a consultant

specializing in planning, management and sustainability strategy

implementation, and organizational culture. He is a member of the

Advisory Council of IBD Certificações, and is a partner of Origami

Consulting in Sustainable Business Management.

Ralph is representative and investor of AxialPar in the Advisory Councils

of invested companies, including acting as president for one of the

councils. He has management and administrative experience in

agribusiness and transnational companies. He was a member of the

Global Executive Committee of Novartis Animal Health AG in

Switzerland, and CEO of Novartis Animal Health SA de CV, in Mexico. He

graduated in veterinary medicine at USP in 1972, received a doctorate in

animal breeding from the Hannover Superior School of Veterinary

Medicine in 1974, and CEAG from FGV in 1984.

Renata is one of the shareholders and directors of Participações Morro

Vermelho S.A. (PMV), holding company of the Camargo Corrêa Group,

one of the largest private business conglomerates in Brazil. Since 1975,

she has been active in the area of social development, through the

creation of and/or support for organizations active in the areas of

education, community development and corporate social responsibility.

Renata is a member of the council of several organizations, including the

Camargo Corrêa Institute, Loma Negra Foundation, Alpargatas

Institute, Institute for Corporate Citizenship-Maranhão, Cradle Work

Association, Inter-American Foundation and Alcoa Foundation. She is

executive-president and founder of the Institute of Corporate

Citizenship SP, president of the Alcoa Institute and of Comunitas –

Parcerias para o Desenvolvimento Solidário.

Ralph Dieter Wehrle

Renata de Camargo Nascimento

49Bibliographical references

BADARACCO JR., J. (1998) "The discipline of building character", in:

HARVARD BUSINESS REVIEW (2003)

, The Harvard Business Review paperback series.

Boston: Harvard Business School Press.

IBGC - Brazilian Institute of Corporate Governance (2009)

, 4th edition, São Paulo: IBGC.

IBGC - Brazilian Institute of Corporate Governance (2007)

Corporate Governance Handbooks, 4, São Paulo:

IBGC.

LOBOS J. (2003) , São Paulo: Instituto da Qualidade.

MACHADO FILHO, C. A. P. (2006):

, São Paulo: Thomson.

Harvard Business Review oncorporate ethics

Code of BestPractice of Corporate Governance

SustainabilityGuide for Companies,

Ética & Negócios

Responsabilidade social e governança:o debate e as implicações

Bibliographical references7.

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