The Rapid Response Institute

Tag: Sarbanes-Oxley Act

  • The Power of Synergies

    The Power of Synergies

    An oil and gas industry group, the U.S. Energy Workforce & Technology Council recently released a survey which stated, “companies with a higher percentage of women in executive positions have a 34 percent higher total return to shareholders than those that do not and companies with ethnic diversity on their executive team are 25 percent more likely to have above-average profitability and 27 percent likelihood of outperforming peers in value creation.”  This is a powerful statement!

    Frankly, this should come as a surprise to No One.

    On the Shoulders of Giants

    While not the first time, a well known diversity/inclusion synergy occurred during World War II on the American side.  The Tuskegee Airmen were a group of fighter pilots largely composed of Black men whose mission was to protect bombers (most manned by White men) whose mission was to help defeat Nazi Germany.  According to the US National Park Service, “The airmen flew over 180 combat sorties (missions) without losing a single bomber.”  While many held their prejudices, one cannot deny the success of the “Red Tails” which led to some minds being changed.

    In another high impact case, Vivien Thomas an African American medical lab assistant to a white physician, was instrumental in the pioneering work at the dawn of cardiac surgery.  Together, they developed a procedure to save infants with the Blue Baby Syndrome.  Mr. Thomas is credited as playing a pivotal role in this and other surgical processes.  Likewise, this history has been made into a movie, ‘Like Something the Lord Made.”

    Such a list would be remise if it did not include the women of Hidden Figures.  In an era of segregation (ethnic and sex), these Black women were entrusted with the human ‘computing’ of the complex mathematics necessary at the beginning of the United States (NASA) efforts to launch astronauts into space, ultimately the moon as well as the Space Shuttle.  One can surmise that President Kennedy’s commitment to get to the moon by the end of the decade could not have been met without this team.  Watching the movie, Hidden Figures is worth your time.

    There are many other case studies where a diverse group of people have worked together and significantly contributed to the advancement of human kind.  There is no reason to believe this will not continue.

    Governance

    Post Enron and other corporate malignancies, the question of good corporate governance needed to be addressed.  One approach was The Sarbanes Oxley Act of 2002.  Largely, this act spoke to financial management and reporting.

    However, another phenomenon was noticed that same year.  “McKinsey & Company in conjunction with the Global Corporate Governance Forum conducted a study and found that over 75% of over 200 fund managers would value a stock at a higher price point if the company could demonstrate it had strong governance in place.  Moreover, the study also revealed that for western markets, firms with strong shareholder rights averaged 12-14% higher stock prices.”  This 20 year old study is a powerful statement as well.

    We discuss this point in more detail in our June 21, 2022 blog, Why Corporate Initiatives Fail.  Interested parties are invited to review that material for more details regarding governance models and similar issues such as ESG.

    Capitalizing on Synergy

    Cambridge Dictionary defines synergy as, “the combined power of a group of things when they are working together that is greater than the total power achieved by each working separately.”  This definition says it all!

    Individuals such as the Tuskegee Airmen and Hidden Figures ‘flew’ the way for today’s successful team synergies.  Not just the energy sector but all sectors are benefiting greatly from the work of pioneers and can enjoy the financial and social results of diverse teams.

    There is clear evidence that well run and governed organizations add higher value to their stakeholders.  These organizations take advantage of all the talents at their disposal.  Therefore, as my math professor used to say, ‘it follows that synergic firms are leaders in their sectors.’

    How is Your Organization Capitalizing on the Power of Synergies?

    For More Information

    Please note, RRI does not endorse or advocate the links to any third-party materials herein.  They are provided for education and entertainment only.

    The author’s credentials in this field are available on his LinkedIn page.

    For more information on Cross Cultural Engagement, check out our Cross Cultural Serious Game.  You can contact this author as well.

    Interested parties can also find more information at the Tuskegee Airmen Inc. (TAI) website.

    For those start-up firms addressing energy challenges, the author is a member of Global Energy Mentors which provide no-cost mentoring services from energy experts.  If interested, check it out and give us a shout.

  • ESG Explained

    ESG Explained

    According to Investopedia, “Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.”  Definitions of the three components are pretty straightforward:

    • Environmental–Generally refers to the stewardship of the planet and how organizations facilitate that responsibility.
    • Social–Facilitating organizational responsibility to the global society, at all levels from the globe to the local communities firms operate in.
    • (Corporate) Governance–Typically, the umbrella organizations put in place to assure issues such as transparency, fraud, safety culture and ethics are in compliance with social norms and local regulations.

    Since the Deepwater Horizon incident of April 2020, operators (oil and gas companies) have extended and enhanced the above criteria to their supply chain ecosystem and in some cases even customers with a Safety and Environmental Management System (SEMS).  This is true of most other Critical Infrastructure sectors as well.

    Likewise, the Sarbanes-Oxley Act of 2002 enhanced transparency and increased fraud protection after the Enron (and other) scandals.  Other incidents have triggered governance changes as well and some are referred to in linked materials.

    Why Is ESG Important?

    By one account, approximately $12 trillion in investments made in 2018 were driven by those who consider themselves socially responsible.  According to Forbes, in 2019 this accounted for almost 25% of total investments and are seen through the lens of sustainability.  Moreover, between 2016 to 2018, the growth rate in such firms grew at 38 percent.

    These numbers confirm our research going back to the turn of the century and perhaps earlier.  In 1993 we controversially posited that the Principles of Scientific Management were applicable to software development by Knowledge Workers.  Developed by Frederick Taylor, his monograph was published circa 1911.

    In other words, owners (investors) have always demanded top notch, legal and ethical performance.  Activist investors, i.e. Carl Icahn are not new.  As always, they have a very important role to play in the current markets.

    Asset/Equipment Integrity Governance

    There is a buzz of newness to ESG; however, from a contrarian perspective, this is not necessarily the case.  After the Deepwater Horizon failure with significant loss of live and many billions in economic losses to many parties including BP, it became clear that traditional Governance models did not have a focus on operations and the management of capital assets, i.e., manufacturing plants, marine vessels and other revenue producing sources.

    In our book we addressed a New Risk Environment from large corporate operations in which ‘failure is really not an option.”  We stated as a risk element, “Escalation of Consequences: The level of consequences of a disaster in the energy industry can now be larger than from the accidental release of a multi-megaton nuclear weapon.”

    Still governance models continued to struggle.  We believe that in the critical infrastructure sectors there is a lack of strong bonding, in other words top management is still hands off and operating from historical ‘control’ models that are no longer relevant or applicable.

    We do not believe this will change until a Strong Bond (tightly coupled) model is adopted.  We define the term as, “A strong model is used by High Reliability Organizations (HRO) and as part of that model, trained; knowledgeable personnel are empowered to make the right decisions in the field.  The strong model provides an organization with the capability to become and remain and HRO.”

    In 2011, we released our monograph, Asset/Equipment Integrity Governance: Operations–Enterprise Alignment; A Case for Board Oversight (AEIG).  In addition to developing a financial model documenting the Return on Investment (ROI) from strong governance, a Compliance Model, as well as a robust AEIG Matrix which incorporates an Asset Maturity Model are part of the solution.

    The AEIG extends the enterprise governance model to include the full ecosystem including subcontractors to its primary supply chain partners.  While not directly addressed at the time, Diversity, Equity and Inclusion (DEI) is implicit in the model.

    This roadmap is comprehensive and is a good starting point for developing and implementing a vigorous ESG initiative.  Other monographs in our Changing the Dialogue series (exploring our New Business Dynamics) include Structural Dynamics and Rapid Response Management are available online.

    Relationships, Behaviors, Conditions

    Scroll down on The Rapid Response Institute, Operational Excellence Platform page and you will find our R B C Framework Cultural Transformation model.  Shown below for ease of readership.

    The R B C model was originally developed to research international (cross cultural) negotiations.  We have extended it to support the transformation process to a robust and model organization culture such discussed herein.  Readers should note that this model is focused on Operational Excellence and is comprised on Processes & Methods supported by Enabling Tools.

    Built on Structural Dynamics which was developed as part of Dr. Shemwell’s doctoral dissertation in 1996.  It is defined as, “The morphology or patterns of motion towards process equilibrium of interpersonal systems.”

    This proven Framework is grounded in Management Science yet is a useful tool (Roadmap) that real originations can successfully and cost effectively implement.  We believe it is the best approach for attaining ESG.

    Summary

    One can view the current ESG status as part of a continuum to hold organizations accountable as appropriate and frankly, increase their Operational Excellence.  We have long known that firm’s that are well managed command superior stock market multiples and greater equity value.

    Many ‘self-serving’ consultants and pundit would have us believe ESG is breakthrough Thought Leadership in need of their help.  Nothing could be further from the truth.

    In the early 1990s, we document the history and evolution of Management Science/Thinking.   It is not written in stone, like most human endeavors it evolves and has for thousands of years.  ESG is a step in this continuum.

    How is Your Organization Addressing the Requirements of Active Investors?

    For More Information

    Please note, RRI does not endorse or advocate the links to any third-party materials.  They are provided for education and entertainment only.

    For more information on Cross Cultural Engagement, check out our Cross Cultural Serious Game.  Two current online games; Safety Culture and Diverse Teams specifically address issues raised by ESG Criteria.  If you have any questions, please contact this author as well.

    Graphic Source: The Rapid Response Institute derived from a Storyblocks image under license.