TECHNOLOGY

Stakeholder face-off in the Facebook age

The board challenge ahead: Be better prepared to use the Web proactively and reactively to engage with your diverse constituencies. By James Farrar

C ID96NH HJHI6>C67>A>IN8DCH8>DJH LDGA9, communication needs of stakeholders have expanded beyond traditional reporting to include regular updates on corporate sustainability performance. Most companies address these expectations by summarizing their sustainability efforts in annual reports or at shareholders meetings. While these traditional channels are useful, activities related to environmental and social issues mandate more uid and dynamic dialogue with stakeholders. Using technology to continuously engage and respond to stakeholders is one way of ensuring that dialogue occurs. Specically, Web-based technologies social networking sites, such as Facebook and MySpace, and corporate blogs and wikis are becoming key communication channels for stakeholders to interact with each other and the company about sustainability issues.

A powerful tool
Sustainability reporting has moved into the mainstream, and should be managed as conscientiously as compliance with international accounting standards or SEC regulations. In fact, formal sustainability reporting frameworks like AA1000 and the Global Reporting Initiative require demonstrable, ongoing stakeholder engagement. Using collaborative technology is a cost-effective way to meet these demands while developing a more strategic stakeholder engagement process. The Webs social networking capabilities make it more inclusive and immediately responsive than other channels,
James Farrar is vice president, Global Corporate Citizenship, for SAP AG (www.sap. com). He has more than 15 years of experience working on corporate sustainability issues from both the corporate and nongovernmental organization campaigning perspectives.

and thus an effective way to reach and inuence groups about particular issues. For example, a Canadian mining company decided to sell its interest in an aluminum mine after erce local opposition to its development plan was publicized on the Web, resulting in a global outcry. Similarly, the social networking site Facebook is frequently leveraged by communities who mobilize grassroots campaigns against business practices. Banking giant HSBC recently reversed a fee policy after a successful student protest was launched on Facebook. Moreover, while enterprise software can use structured data to identify business risks, calculate resource requirements, and monitor performance thresholds, the Internet is invaluable in facilitating and capturing unstructured communication between stakeholders and the company. Companies can track the tone and direction of dialogue, synthesize the information and ideas exchanged, and rene their policies and practices accordingly. Ideally, the structured data and Internet (unstructured) data are assimilated for a complete and timely view of sustainability status.

Risks and rewards in engaging stakeholders

Dialogue by denition is a two-way street, rooted in an exchange of ideas. GM North America Chairman Bob Lutzs recent comment that global warming was a crock engendered a lot of vitriol, forcing him to explain on the GM blog that his opinions on climate change have little relevance to his duty to advance GMs business interests. The incident underscores how dialogue with stakeholders is easier when a designated channel like a blog exists, and that dialogue even if its between one company and a crowd doesnt necessarily mean capitulating to the crowds point of view. One clear lesson is that stakeholders will use the Internet to discuss business issues, whether or not a company willingly participates in or supports the dialogue. In fact, Web-based awareness campaigns Continued on page 63

22 DIRECTORS & BOARDS

EXECUTIVE COMPENSATION

On the exec pay front

Continued from page 21 CFOs Exempted from Section 162(m) Deductions: In June 2007, the SEC released interpretive guidance for the determination of covered employees under Section 162(m) of the Internal Revenue Code. A covered employee under Section 162(m) is allowed $1 million in deductible compensation, and anything that exceeds that amount is not deductible unless the compensation is performance-based. Historically, covered employees under the deduction limitations have been the CEO and the next four highly compensated employees. However, the June guidelines from the SEC indicated that the CFO was not a covered employee under 162(m), and only the CEO and the next three highly compensated employees excluding the CFO were subject to the deduction limitation. This decision deviates from proxy disclosure rules, because the proxy rules require that the CEO, CFO, and next three

highly compensated ofcers compensations be disclosed. But Section 162(m) will not be applicable to CFOs even though CFO compensation must be disclosed in proxies. Congress may soon look into the modication of Section 162(m) to include CFOs, however, so companies should not use this transitory interpretation as a reason to change CFO compensation under the new rules. Readers of this article may wish to use these highlights of 2007 as a starting point to gauge the relevancy and implications for their own companys situation. While your company may not provide a $210 million severance package for your CEO, you may still want to look at the levels your executive severance packages provide to decide if they are reasonable. Or, you may wish to take a better look at your CD&A to ensure that it is in compliance with SEC expectations. Q
The author can be contacted at jackdc@dolmatconnell.com.

TECHNOLOGY

Stakeholder engagement
Continued from page 22 have trained the spotlight on a number of issues, from child labor to alleged employment discrimination. Consequently, the issue is really one of how, not whether, to use the Web to engage stakeholders. And for companies such as GM and HSBC, the objectives are to determine how material the issue is and communicate a point of view thats consistent and defensible. The court of public opinion administers swift judgment that isnt always fair or balanced, so companies must be prepared to use the Web proactively and reactively to address a host of sustainability issues. An ongoing, technology-enabled dialogue with stakeholders, while unstructured and unpredictable, can improve trust and foster collaboration, shaping a companys sustainability strategy, providing feedback, and helping alleviate issues when they arise. Lutzs blog, for example, was a perfect vehicle for reacting to criticism of his initial comment and proactively acknowledging stakeholders environmental concerns, thus mitigating any risk his comment might pose for GM.

Associated Press

Sophisticated users and usages

Other high-tech and consumer products companies like Procter & Gamble use Web-enabled open innovation networks to generate product ideas and evaluations. Similarly, many corporations use intranets to gather employee opinions on organizational issues and news. The most sophisticated companies identify specic issues that impact sustainability and request feedback. In this way, they proactively dene and guide the dialogue while capturing information that can be evaluated and, if necessary, acted on. Stakeholder engagement is one of several dimensions of

Bob Lutzs blog was a perfect vehicle for reacting to the vitriolic criticism of his comment that global warming was a crock.

sustainability and assurance reporting that deserves board attention. The Web may be the best and most cost-efcient way for companies to stay continuously connected with their diverse constituencies. By giving stakeholders a channel to voice opinions and marrying that unstructured data to information generated from internal systems, companies can be more proactive and responsive and spot both risks and opportunities as quickly as possible. Q
The author can be contacted at james.farrar@sap.com. ANNUAL REPORT 2008 63