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Predicting the Failure – or Success – of Sustainability Leadership

Ed. Note: Elm Sustainability Partners is exceedingly grateful to Commander Kerry F. Gentry, USN (Ret.) who has granted Elm the use of his leadership assessment framework, data and tools developed over more than forty years as a Commander in the US Navy Submarine service and numerous positions within Computer Sciences Corporation.


“Let’s make sure our sustainability program and initiatives fail.”

It is doubtful any company thinks like that. Some companies use sustainability as a fundamental business tool and competitive advantage. Internal organizations are created to support the strategy and people are promoted from within or hired from outside to be Directors/Vice Presidents.

But are those individuals leaders or simply managers? Are they suited to moving all the necessary parts of the organization? Or are they predisposed to mediocrity and be ineffectual? No company intends for their sustainability initiatives to disappoint but by not ensuring the needs of the position match the individual, failure is all too often an option.

Two recent business cataclysms – Wells Fargo and Equifax – perfectly illustrate mismatches between leadership needs and their respective CEO’s capabilities. Both resulted in the CEOs losing their jobs, being grilled at Senate hearings, major loss of customers and of course meaningful drops in stock price and investor confidence.

Even more bad news: these CEOs’ inadequacies were predictable. This article presents Elm’s method for assessing leadership capabilities that can help prevent self-destruction of corporate sustainability success due to inadequately matching the correct person to the unique attributes of sustainability.

Leadership is …?

Leadership is often seen as an intangible characteristic few people innately possess. In the corporate world, managers routinely rise through higher levels of management and increased responsibility, yet few become true leaders. There are examples too numerous to count of managers initiated into internal leadership development or mentoring programs, only to stagnate. Enterprises, law firms and management consultants reward situational success (to be explained later) with promotions up to a point, until an individual’s star fades while another individual rises who demonstrates true leadership, or disappoints.

But these failures are often less the fault of the individual than their assignment to a position inappropriate to their personal aptitude. They are the result of how a company assesses and selects individuals for leadership positions.

Leadership itself should be clarified and defined. Most requirements of leadership are universal, but each situation is unique due to the environment in which the individual must perform. There are four primary components:

  • Setting or accepting objectives and goals
  • Aligning objectives and goals of individuals with those of the leader/organization.
  • Influencing those individuals to achieve those objectives of their own volition.
  • Managing risks to those objectives and goals

Situational success is frequently misinterpreted as leadership. A manager’s success is based on the entire team/organizational ecosystem in which the manager is embedded. Changing the team structure/dynamics, or placing that manager in a different setting frequently produces dramatically different results. In other words, managers perceived as leaders may only be successful in a specific situation; if their situation changes, their ability to succeed may falter. In 1969, Laurence J. Peter published The Peter Principle – a theory that promotions are based on a candidate’s performance in their current role, rather than on abilities relevant to the intended role. Or as commonly summarized – “an employee will be promoted to their level of incompetence.” This is situational success.

Why is situational success not equivalent to leadership? Because each leadership need/position is its own unique situation, with its own unique team/organizational ecosystem.   In assessing leadership, the company must clearly define what is important to be successful in the new role, not how well an individual has performed in their current one.

Leadership is generally confused with management, but they are not the same. Management is characterized by defined processes and learned skills. Because these are conflated, managers are promoted primarily for their management abilities (a technical skill) to the exclusion of other – more important and less teachable – attributes. And, as noted by Laurence J. Peter five decades ago, managerial assessments focus on past performance, not needs of the new position. Managers rise beyond their abilities; leaders rise to their abilities.

The Leadership Wheel

The Leadership Wheel was developed by Commander Gentry as director of the US Navy’s Atlantic Fleet FBM Submarine Training Center. As shown below, it illustrates the relationship between leadership factors. Every position/opportunity requires its own distinctive mix and weighting of leadership characteristics, so there is no “standard.” However, an inventory of frequently identified factors was developed by Commander Gentry and is being adapted by Elm.

At the hub of the wheel are core personality attributes that are necessary for an individual to be a leader in a specific position. These are hard-wired into our brains by the time we are a few years of age. They are essentially not changeable through training, incentives or punishment. Certain abilities and personality attributes – good and bad – exist at different levels within different individuals.

The spokes represent habituated behaviors that characterize an individual’s interaction with others, and are those necessary to the position. Behaviors can be learned to varying extents, depending in large part on an individual’s core personality attributes. Generally, modifying behaviors is effective only when training and intervention is sustained over a long period of time.

The rim represents technical skills necessary for the position and is perhaps the most frustrating paradox in leadership decisions. Individuals tend to be selected for leadership positions based mainly on their technical capabilities. Yet of the three leadership elements, technical skills are the most teachable and easiest to attain/modify. Underlying personality attributes and behaviors are less teachable and therefore tend to be more important in leaders.

 Using information from reports about the recent disasters by Wells Fargo and Equifax CEOs, we can build the following example table with some interesting contrasts – but with similar calamitous results. 

Leadership Element Wells Fargo CEO Equifax CEO
Morality No Uncertain
Empathy No No
Courage No No
Confidence Yes No
Decisiveness Yes No
Communication No No
Disclosure Knowledge Uncertain No


The individual traits are obviously notable, but the dynamics between them are also highly relevant. In the case of Wells Fargo, early assessment of the CEO’s deficient moral compass with high decisiveness would have foreshadowed a propensity to make independent decisions that place the CEO’s own interests ahead of the company’s. And had Equifax identified an apparent lack of courage, decisiveness and confidence as attributes of their CEO, they may have prevented catastrophic hesitation in timely public disclosure of their massive data breach, along with his singling out of one employee as the scapegoat. Recall that hub traits are not teachable and spoke behaviors are minimally learnable; therefore, training and education on those topics would be ineffective at altering the actions of those two individuals.

Characterizing Sustainability for the Company

Having defined principles of leadership, the same must be done for sustainability. Sadly, corporate sustainability still is a victim of ambiguity and inconsistency. It is couched in terms of environmental impact, social issues, human rights, employee satisfaction, safety, chemical content of products, supplier behaviors, corporate transparency, talent retention, climate change, governmental lobbying, governance, community involvement and/or philanthropy. The 2017 United National Sustainable Development Goals encompass 17 different topics.

The breadth of sustainability’s potential scope frustrates corporate efforts to describe the concept internally, let alone outside of the organization. There are also diverse views on where a sustainability function should be placed within an organization – does it fit it the EHS department, Investor Relations, Quality, Finance/Reporting or HR?

Setting criteria for performance, success and leadership is problematic without basic scope/definition of a sustainability function and understanding where it fits organizationally. Successful sustainability leaders have necessary defined characteristics in an appropriate mix to influence others in achieving the company’s sustainability objectives. Obviously, without clarity on what sustainability means and where it fits in the corporate structure, a company will be unable to attain effective leadership, and the individual and program are unlikely to last long or prosper.

Connecting the Dots

The common thread between leadership and sustainability is the need for clarity. Clearly defining sustainability helps establish appropriate leadership characteristics, relative importance of skills and expectations of performance. That is used to establish clear criteria with which the company can appropriately assess individuals and create performance goals.

  • What are the core personality attributes necessary to achieving the objectives that are aligned with the scope/definition of sustainability? Critically, the organization must understand that personality attributes are fundamental to an individual’s personality and difficult to modify. Therefore the individual’s inherent character must be well-suited to the particular position to begin with.
  • What behaviors related to interacting with others are required? Does an individual need to change or adapt to the new position/ecosystem and to what extent can the individual do so?
  • What technical skills are necessary and what is their relative importance? What knowledge does the individual currently possess, are there gaps compared to the requirements of the new position and how important are they?

Spinning the Wheel

Elm is adapting the Leadership Wheel by identifying position requirements and developing dynamic interactive versions in Excel to quantitatively assess individuals against those requirements. In order to create requirements for a successful sustainability leader, an inventory of hub, spoke and wheel competencies is developed using internally identified criteria in conjunction with Commander Gentry’s inventory of frequently identified factors. Once the position-specific inventory is ranked and completed, candidates complete a self-assessment, with the same assessment performed by subordinates, peers, managers, mentors, internal sponsors and others. In some instances, third parties such as customers may also provide valuable input. The assessment process can consist of written questionnaires, tests, interviews and role playing exercises. The results are entered into Excel individually and charted/graphed, allowing the data to be analyzed in different ways and manipulated to reflect changes in position requirements, actual assessment results or what-if scenarios.

Applying the Leadership Wheel in practice for both the enterprise and the individual helps avoid placing individuals in highly stressed positions for which they are ill-suited rather using them where they are most valuable and comfortable – benefitting the company and the individual.

Obvious comparisons arise to what HR departments and recruiters do, but leadership assessments are different in several critical ways.

Leadership Assessment Performance Reviews
Leverages specific data from hundreds of previous structured assessments, with consistent themes Inconsistent data over time due to constantly changing corporate performance management systems, review methods and criteria
Specifically focuses on the individual’s attributes and capabilities by eliminating ecosystem influences on situation success Do not differentiate between the “masking effects” of the ecosystem and the individual’s past performance.   Many times performance is specifically assessed in terms of team – rather than individual – performance
Structured and quantified process of assessing an individual’s attributes and suitability prospectively Use a position requirement statement to compare individuals against each other on past performance. Annual performance reviews are frequently seen as a perfunctory administrative task that is not used after completion

Give us a call to learn more about ensuring the success of your sustainability program by selecting the appropriate leader.

Apropos: Dia de los Muertos and the Billable Hour

Today is Halloween in the US and Dia de los Muertos in Mexico.  It is a time based on the idea of reflecting on death.  Now we aren’t being morbid here – instead we grinned at the amusing irony of the timing of this article on LinkedIn which is an obituary to the billable hour.

We absolutely agree with the downsides of billable hours.  All of us at Elm, in prior points in our careers, have had ourselves and clients held hostage by the almighty billable hour.  Over the past several years, we decreased our use of hourly rates and billings – instead working on a daily rate or, increasingly, on a fixed fee basis.

Given all that is right with eliminating hourly billing, a reasonable person might ask why doing so remains ubiquitous for consulting/auditing firms?  Yet another irony for those of us who help client organizations in changing their internal culture – because it’s the way it’s been done in the past. 


“Too Many Sustainability Standards” No Longer a Solo Chorus

We are not very popular with sustainability consultants, media and self-appointed standards setters.  Rather than supporting  the myriad of initiatives, we have decried them as marginalizing sustainability and splintering the market – thereby substantially diluting any real successes that may be achieved by those implementing initiatives.  But being a contrarian has left us singing acapella solo in the concert hall.

A bit of harmony was added from this article published earlier this week.  The author does a good job of explaining key problems with competing inconsistent standards.  We know of one major corporation who currently fills out more than 100 sustainability questionnaires each year from various stakeholders.  This is not a new development as I recall in the mid-1990s the forest products company I worked for responded to more than 40 such information requests/surveys annually.

Several of the newer sustainability standards/ratings emphasize that they don’t impose on the company for information – they use publicly available information in their algorithms.  In theory, that sounds nice, but it adds inconsistency beyond just the various algorithms – rating models based on surveys use different information than those relying on what is publicly available.

Then there is the matter of how each initiative/standard fundamentally defines “sustainability” and/or weights various associated factors.  Last year, I sat in on a panel discussion that was ostensibly a cheerleading session for the Sustainability Accounting Standards Board (SASB) with some of the major backers on the panel.  When I brought up the idea that sustainability is not clearly or consistently defined in the corporate world, the panelists were incredulous.  Yet others in the audience chimed in with additional comments supporting the variability in understanding of the term.

Its nice to finally have some company in the choir, but even so we expect that proliferation of standards/quasi-standards will continue as long as consultants feel there is money to be made.  We continue to take a very basic client-specific business based approach to defining sustainability based on the individual client, emphasizing achievable expectations and measurable business fundamentals.  This approach may not be as sexy as others, but it is realistic and, um, sustainable.

Across the Finish Line for Conflict Minerals Filings

UPDATE: As of June 15, the total number of filers stands at 1,209 by our count.

Today is June 1, 2016, the day after SEC’s filing deadline for Form SDs and Conflict Minerals Reports (CMRs).  All regulated companies should have submitted their disclosures by now, although we expect to see more continue to trickle in for a few days.  But by our count as of late afternoon June 1, the final tally is 1,197 companies filed a Form SD.  We didn’t look into how many submitted a CMR versus just a Form SD – we will leave that to Dr. Chris Bayer.

With regard to the IPSA count, our final numbers, the listing of the companies conducting an IPSA, and a breakdown of the auditors is available in this post.

Congratulations to all those who crossed the finish line.  Enjoy your summer before having to turn your attention back to conflict minerals.


CY15 Conflict Minerals Filings Analysis Underway: Don’t Call it “The Tulane Study”

As in past years, Dr. Chris Bayer is leading an analysis of the CY2015 SEC filings on conflict minerals.  Like last year’s report, it is an independent review and ranking of the disclosures – what Dr. Bayer is calling “assess and bless”.  Although this year’s analysis of good practice indicators has changed, the compliance indicators remain unchanged.  Previous years’ reports attracted much attention in the media and did indeed drive company behavior rather broadly – perhaps more than other reports or organizations in the past.

However, it is incorrect to refer to the CY2015 report as “the Tulane study” or link it directly to Tulane University in any way.  Dr. Bayer conducted the work under Development International, a firm he founded.  Indeed, the CY2014 study was also conducted under Development International as well.

So for this year, please don’t call it “the Tulane study”.

Who Reviewed Your CY15 SEC Conflict Minerals Filing?

Like shopping days before Christmas, the countdown is beginning for the SEC conflict minerals filing date.  Most of our clients are well into their draft Conflict Minerals Report (CMR) and final smelter/refiner verification.  As in the past, we are offering quick turnaround CMR reviews and supplemental smelter/refiner verification.

Let us know if you are interested in having us review your CMR before the submittal deadline.  But we suggest doing so quickly – we will be presenting at the upcoming OECD Forum in Paris May 10-12 and will have extremely limited availability that week.

Surprise – You Are DRC Conflict Free!

As more companies complete their conflict minerals Reasonable Country of Origin Inquiry (RCOI) and smelter/refiner verification for their CY2015 SEC disclosures, many are surprised to find diminishing data gaps and uncertainties prevalent in previous years.  Information is better, widely available and more smelters/refiners have been audited.  Generally speaking, this is good news.  But it creates a conundrum for some issuers who might not have expected this development yet, especially given the status of the legal challenge to the SEC’s conflict minerals disclosure rules.  What’s the problem, you may be asking.  It all comes down to how you summarize the information.

Let’s begin our trip Down The Rabbit Hole.

A product can be classified as “DRC Conflict Free” (using that term for ease of discussion) as a result of the RCOI or from subsequent due diligence.  When RCOI processes conclude that the company has no reason to believe that any necessary 3TG in a product may have originated from Covered Countries, or that the necessary 3TG originated from 100% recycled or scrap materials, the product(s) is/are “DRC Conflict Free” because no materials originate from Covered Countries.  In this case, the filing issuer must only submit a Form SD and no Independent Private Sector Audit (IPSA) is required.

If the RCOI indicates that some necessary 3TG may have originated from a Covered Country and did not originate from 100% recycled or scrap materials, additional due diligence is required.  Two outcomes of the due diligence are generally possible – (1) confirmation that 3TG may have originated (or did indeed originate) from a Covered Country, or (2) a finding that the initial RCOI indication was incorrect and the 3TG did not originate from a Covered Country after all.  In the second outcome, the relevant materials/products are considered “DRC Conflict Free” as discussed in the above paragraph. See Final Release, pages 151 – 152, and Section (c) of Item 1.01 – Conflict Minerals Disclosure and Report.  In the case of the first outcome, filing issuer must submit a Conflict Minerals Report (CMR) in addition to the Form SD.  This is the situation where a smelter/refiner sources from a Covered Country but doing so does not fund or benefit armed groups as verified by the Conflict Free Sourcing Program (CFSP) or similar programs.

Because of the NAM v. SEC lawsuit, issuers filing the SEC conflict minerals disclosure are not compelled to provide specific conclusionary or determination wording in CY2015 CMRs.  Any such wording in a CMR is voluntary, but where the phrase “DRC Conflict Free” is used – or the status is strongly implied – an IPSA is required*.  Don’t forget, the determinations (or lack thereof) are to be made at the product level, not the company level.  Aggregating different product determinations to come up with an “averaged” (or diluted) determination for the entire company is not appropriate, which itself adds to the complexity.  The CMR does not need to include the product names/descriptions for products that are “DRC Conflict Free”, nor must the CMR  include the list of smelters/refiners associated with “DRC Conflict Free” products.  See Final Release, pages 183 and 194, and Section (c)(2) of Item 1.01 – Conflict Minerals Disclosure and Report.

To sum it up – if due diligence confirms that at least one product contains 3TG that may have originated (or did indeed originate) from Covered Countries AND is “DRC Conflict Free”, then you must choose how to approach your CMR language for the product(s).

  • If you voluntarily use the words “DRC Conflict Free” in the CMR for any product(s), then an IPSA must be conducted.  But the CMR does not have to include names/descriptions for the product(s), nor must the CMR include a list of smelters/refiners associated with the product(s).
  • If you do not to use the words “DRC Conflict Free” in the CMR for any product(s), then no IPSA is required.  But the CMR must include names/descriptions for the product(s) and the list of smelters/refiners associated with the product(s).

Technically speaking, the IPSA is limited to applicable CMR wording specific to only the DRC Conflict Free products, but practically speaking, the due diligence framework design and measures undertaken will most likely be company-level processes rather than product-level processes.  We expect in reality, an IPSA will typically have a company-level scope.

Finally, we are frequently asked how to balance SEC filing language with customer requirements for being Conflict Free.  The answer is actually simple – you probably don’t need to.  Customers generally rely on the technical information submitted directly to them, for instance through a CMRT, rather than what is filed with the SEC.  Some customers may cross-reference the two, but that isn’t very likely given that everyone faces the same filing deadline.  And companies sophisticated enough to do this are very likely to be sophisticated enough to understand the differences.

Please feel free to call us with any questions.


* Again, the IPSA is not required for Form SD-only filers, even if the phrase “DRC Conflict Free” is used.  The IPSA is only applicable to CMRs.

How Many CY2015 Conflict Minerals IPSAs Will Be Conducted?

The Conflict Minerals Reports (CMR) for CY2015 were to include an Independent Private Sector Audit, or IPSA, for companies other than  “smaller reporting companies”.  Although it can be explained in more complicated terms, the IPSA is (under the original rule wording) triggered by the same conditions that trigger a CMR, but the IPSA was deferred for two reporting years for all registrants, plus another two reporting years for smaller reporting companies.

But the 2014 and 2015 court rulings in NAM v. SEC resulted in the SEC’s Partial Stay of the Rule (May 2, 2014), along with a Statement from the Division of Corporate Finance providing additional information related to the Stay (April 29, 2014).  The practical effect of these actions was to extend the IPSA deferral, as, according to the Statement:

Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.

For CY2013, only four IPSAs were conducted.  For the CY2014 filings – the first year the Statement and Stay were effective – only six issuers conducted an IPSA.  Which makes us wonder – how many IPSAs might we see for the CY2015 filings?

The six companies that filed 2014 IPSAs will likely do so again.  We have been engaged to conduct four IPSAs for the CY2015 submittals (one of which is a repeat from 2014).  To our (admittedly limited) knowledge, only three other IPSAs have been contracted, making a grand total of 12.  There are likely more that will be conducted, but it is far from clear if the total will be 15 or 150.

We are interested in getting a better idea of what really is to be expected for CY2015 IPSAs.  If you have information you can share, please let us know.  We aren’t seeking confidential information like company names or even industry sectors – just a count.  Feel free to call or email us.

Free Reprint of Risk&Compliance Magazine Article on Conflict Minerals

Risk & Compliance Magazine, published by Financier Worldwide, has published their Fourth Quarter 2015 issue that includes a “mini-panel” discussion on the current landscape in conflict minerals compliance and reporting.  Questions were posed to

  • Kristen Sullivan of Deloitte & Touche LLP
  • James Moloney of Gibson, Dunn & Crutcher LLP
  • Sonal Sinha of MetricStream
  • Mike Loch of Responsible Trade LLC and
  • Lawrence Heim of Elm Sustainability Partners.

A free copy of the official reprint is available for download here.

RC_ELM_Conflict minerals_OCT15