Ingredients for a Successful/Leadership

CSR program

April 29, 2010 (15-20 mins)

Good evening, it s great to be here in such a beautiful setting. As you have heard, I'm Mark Heintz, the Corporate Social Responsibility Director for Deckers Outdoor Corporation. I joined the company six weeks ago and came from the computer industry where I was working for Hewlett-Packard’s Corporate Sustainability Office heading up Stakeholder Relations.

My move from computers to footwear and Deckers has been interesting. Here’s a couple observations that have made the transition enjoyable:

I have not worked at a place before where people have the ability to glance at your feet and immediately know your shoe size.

Nor have I worked for a place where it is also okay to wear most any type of sneaker, flip-flop or fun casual shoe with any type of business attire.

And lastly, I’m happy to report that I have become much more popular at cocktail parties and social events when people, especially women, learn that I work for Deckers, the company that makes Uggs. I was not aware of the intensity of love for this brand. Needless to say, people don’t react to computers with this level of enthusiasm.

I should also say that in addition to Ugg, Deckers makes several other fine brands of shoes including: Teva, Simple, Tsubo, Ahnu and Mozo.

In addition to the 'Ugg Envy' I'm enjoying, I've received some other types of questions..... When I called a friend and former colleague and told her about my position, the first thing she said to me was “I’ve got some questions for you". Where are the shoes manufactured?...How are the factory workers treated? What sorts of chemicals are used in manufacturing? And so on".

The fact of the matter is that today's consumers are quite savvy about social and environmental practices and they expect information. I am happy to report, that while Deckers is a company deeply committed to managing great brands and delivering excellent products, it is also equally committed to managing not just the traditional economic bottom line, but also the social and environmental results that make up the triple bottom line.

Key Ingredients to a successful CSR/Sustainability Program

This evening, I wanted to share some thoughts on key ingredients for a successful CSR/Sustainability program. I have chosen three but could easily make the case for many more.

Now, I should say that I may use the terms CSR and Sustainability interchangeably. We seem to have a bit of a nomenclature dilemma with what to call this field of work. Sustainability often is used to refer to environmental issues, while Corp Social Responsibility is often used to talk about social issues particularly as they refer to supply chain … I will use both these terms to mean the collection of both social and environmental issues a company faces.

I should also tell you that I put this list together from my years of observing companies that are doing the right things; and also observing companies that are doing the wrong things, or as my father often says, “never feel useless, you can always be held up as a bad example”. And unfortunately he tends to live by this motto much to his children’s’ chagrin.

Ingredient #1: Executive/CEO support for CSR

o Clearly it is important to have this direction come from the leaders in the company and certainly one of the key reasons I joined Deckers.

o In fact you would be hard pressed to find a leading CSR company that does not have or has not had this level of support.

o By support, I mean a willingness to invest the resources, staffing, and money needed to implement change in reducing ones impact.

o It is also helpful to have a CSR culture w/i the company. By that I mean an employee base who are open and supportive.

o While it is important to have Sustainability come down from the top of the organization, the fact is that middle-level managers are making quick business decisions based on $ and timelines, and it can be difficult to factor the “right thing to do” into these decisions.

o That is why I believe Ingredient #1 goes hand in hand with Ingredient #22. Ingredient #2 is Making the Business Case for CSR

o I believe that Sustainability and CSR need to be run like any other function in the company. That means developing a business plan, with goals, objectives and metrics.

o It is very important to identify those links between sustainability and business, and measure them when you can. Here are several examples of ways that I have tied CSR to business

The 1st example is about linking CSR to sales and customer preference While I was working as product steward advising design and supply chain

engineers on how to minimize environmental impact of the products, I would occasionally get a sales tender or RFP across my desk. These

would include requirements often from Northern European customers about environmental design, end-of-life recycling, or use of certain substances.

I started to tally these up the dollars involved in these sale deals and realized that they were in the billions of dollars. This was impressive! even for a large company like HP.

Eventually I decided to go to Scandinavia to visit these customers and ask them what they were doing with the information and how it was impacting their purchasing decision.

I learned that on average CSR was 15% of their purchasing decision criteria. CSR was being used as the tie breaker, when price and quality were at parity. With computers becoming commodities; in other words price and quality being equal much of the time, sustainability was coming into play often in purchasing decisions.

I brought this info back to my company and this completely changed the way that they approached environmental design. Where it previously was driven by regulations and compliance, now it was a customer driven business issue. Linking Sustainable design to customer preference and increased sales was key in mainstreaming this issue.

Example #2 is about linking CSR to Return on Investment. I admit upfront that it can be challenging to measure ROI, but I wanted to share this example anyway.

In order to build a recycling program for the large printer manufacturing plant, I needed the company to invest in infrastructure like fork-lifts, balers, compactors.

I went into a meeting with execs asking for $100K and led off with my environmental reasons to create a successful recycling program: Trees saved, oil saved, water saves…and I was met with what I now affectionately refer to as the “green glaze”. Business managers did not know what to do with this information. It was not business language they could understand. I then followed the environmental reasons with the business justification: money saved by avoided landfill cost; money generated from the sale of precious metals on circuit boards and a ROI of 9 months. That was all it took, Sold!

Business managers speak business language of dollars and timelines, it helpful to speak to them in business language and so linking this to ROI was key.

Example #3 - Brand Enrichment – survey questions

As many of you know, brand is fuzzy stuff, but I was able to get sustainability questions included on the marketing teams brand surveys and sure enough it showed up on their radar. Although not a top tier issue, it was in the second tier and supported earlier data suggesting it was used as a tie breaker This linked sustainability to the business process of defining its brand.

Example 4 is about Employee Retention & Attraction

Studies have shown that college grads are using CSR as criteria for selecting which company they work for. CSR is what often what makes employees proud to be associated with a company. Since I have been with Deckers for only 6 weeks, I have had numerous people come to me and say, we are so glad the company has staffed your position. This is one of the reasons I like working here.

3. Ingredient #3 is about willingness to be accountable and transparento This is near and dear to my heart having set up HP’s stakeholder relations program. I

always chuckle a little when I use the word “stakeholder” – when I came home and first told my then 9 year old son, I had taken a new job at HP managing stakeholder relations, he paused and looked at me puzzled and then said, “Dad did you take some sort of BBQ’ing job at HP?” Interesting take that led to a good discussion about homonyms, and definitions of the word stake that did not include beef.

o My involvement with stakeholder relations has forced me to think a lot about the risks and rewards of transparency. While I won’t say transparency is always the best policy, I do believe that its benefits are often under-rated and overlooked.

What is transparency? – At the surface level it is about sharing information; it implies openness, communication and accountability; but when you look deeper, it is most closely connected to trust. For many of us in the business world, including Deckers, both trust and reputation are the cornerstones of brand value. Many of us see a relationship between transparency, trust and brand.

To flip it around, in situations or places in the world where corruption exists there is almost always a “lack of transparency”.

Leading companies are not just transparent about good stuff but also transparent about their challenges and in fact will bring in stakeholders to get input on decisions.

I want to share a story that links transparency and trust. Several years ago, many of us at HP asked the question, why don’t we

take a CSR leadership position in electronics and disclose the names of our suppliers. After all, many companies in other industries had disclosed their suppliers years ago.

The general feeling was that the suppliers were the “secret sauce” that made the computer unique – special combination of suppliers and expertise that made these computers the best.

There was also the argument that computers are commodities and that very little differentiates them, and in fact most if not all OEMs use the same factories and suppliers.

The company was stuck on this issue. I convened our stakeholder advisory panel which was made up of half

dozen trusted investors and NGOs and also invited representative from Nike, Gap and Levis to join and share their stories of what happened after they shared their suppliers names years earlier.

Their stories were 90% positive; lots of positive PR, the same NGOs that had battered them, were taken aback and quite pleased.

The execs then turned to the NGOs in the room to ask what exactly were they planning to do with this info

The NGOs said, “nothing, we don’t want to go visit your suppliers”, we just want you to be more open, to build trust and take down these walls industry has about who their suppliers are. We want you to set the bar higher by being transparent so that others will follow.

And in-fact, the company did publically disclose their supplier list, got tons of positive press and several others electronics companies followed suit.

So, in 45 minutes, execs who went into the meeting saying, I don’t see why we would share our suppliers names, came away saying I don’t see why we would not…

The point of the story was not about sharing suppliers as that is an issue specific to each industry and market but about the linkages between transparency and trust.

o However, transparency doesn’t really work unless one is willing to be accountable. This can open doors, reduce or remove barriers, thus building trust. It does not necessarily mean taking blame but accepting responsibility for ones role in an issue. Most issues are complex and there is no one source of a problem, but many interacting issues.

o Leading companies figure this out; they proactively reach out to stakeholders, even difficult ones to tackle issues. Leading companies when confronted with an issue are responsive and open.

o I believe that transparency and accountability are ultimately about a willingness to ask questions and actively listen.

Three ingredients

So to review my three ingredients, we have 1) Executive support, 2) Making the B-case, 3) Willingness to be transparent and accountable

Role of Bren

So perhaps your wondering how a place like Bren plays into all this. The role of Bren and academia is key in supporting these key ingredients in several ways:

1. First is the role Bren plays as a provider of solid technical expertise. Both in providing education for its students as well as in its leading edge research. As Sustainability has become fashionable and even trendy, there is much focus on over-marketing and accusations of green washing. Solid technical expertise from students and research brings credibility and validity to issues and solutions. This solid technical expertise is what will help make CEOs comfortable with issues and decisions that support the business case.

2. The second role that Bren plays is exemplified at this Summit meeting - that is as a Collaboration Center. Bren has brought together a wide range of stakeholders and thought-leaders for best practice sharing, networking and collaboration. This can and will lead to new ideas and potential program development concepts, but more importantly to increased levels of transparency and trust.

Thank you very much – it has been a pleasure.