GE is Generating Momentum

From ecomagination and human rights to stakeholder engagement, General Electric’s citizenship energies propelling the company toward its lofty goals

By Dennis Schaal

As the point men for General Electric’s citizenship efforts, Brackett Denniston and Robert Corcoran realized they had a problem during the run-up to publication of the global conglomerate’s 2007 citizenship report in June.

In crafting the third citizenship report for a corporation with six diverse businesses, $163.4 billion in revenues and operations in more than 100 countries, Denniston, Senior Vice President and General Counsel, and Corcoran, Vice President of Corporate Citizenship, were confronted with a sticky issue emanating from GE Sensing & Inspection Technologies, based in Billerica, Mass.

The business was manufacturing a sensor, primarily used in connection with heart catheterizations, which a customer was fitting into individual munitions in cluster bombs for the U.S. military.

That particular military use contradicted GE’s pledges in its 2005 and 2006 citizenship reports that the company had no involvement “in any way” in the manufacture of land mines or cluster bombs.

Sitting at a small conference table recently in Denniston’s office on the GE headquarters campus in Fairfield, Conn., the two executives credited the company’s citizenship process for detecting the production of the cluster bomb component, which was part of a small contract that GE inherited through an acquisition several years earlier.

“It reinforced the value of putting together the report,” Denniston says. “It creates a process by which you can examine those kinds of risks.”

To rectify the problem, GE decided to cease taking new orders for the sensor’s use in cluster bombs, opted to let the contract lapse at the end of 2007, and, in a bow to more transparency, detailed the entire issue in its 2007 citizenship report.

“The other piece was that inside of GE, not once when the issue was raised to a senior level executive, at corporate or at the business level, was the question asked how can we keep doing this or we really need the income,” Corcoran says. “It was, clearly, we need to deal with this.”

The issue punctuates GE’s ongoing transition as it reinforces its “green is green” ecomagination business strategy, and the complexities in policing GE-owned facilities and supplier practices when your businesses range from light bulbs and jet engines to power generation systems and equipment leasing, and units and partners are scattered over every continent except Antarctica.

GE is very serious about and proud of its citizenship and ecomagination efforts, which are part business strategy, part corporate-culture molding and part image-honing.

There’s been “a dramatic change” in GE’s attitudes, understanding and practices on citizenship since Chairman and CEO Jeffrey Immelt took the reins from Jack Welch four days before the 9/11 attacks, says Elizabeth McGeveran, Vice President of Governance and Sustainable Investment at F&C Management, a global investment group headquartered in London.

McGeveran, one of five stakeholders who offered assorted opinions and feedback to GE officials for months as the company drafted its 2007 citizenship report, characterizes GE’s ecomagination initiative as a “laudable” program that’s supported by substantial research and development monies.

But McGeveran adds that GE’s ecomagination-certified products represent a small part—about 7 percent—of GE’s revenues and the company continues to invest in dirty industries like coal.

“But, there’s momentum here and that’s one of the things I look for,” McGeveran concludes. “It’s not whether they are there yet, but GE has demonstrated momentum for addressing social and environmental issues within its businesses.”

Taking a similar stance is stakeholder panel member Michael Posner, President of Human Rights First in New York, who calls GE a “smart company” that “takes its metrics seriously.”

Posner, who has tangled with global manufacturers in the apparel industry over workplace standards and supply chain practices, says he can tell the difference between companies like GE that are “seriously engaged in the environmental discussion,” for instance, and other corporations, which he characterizes as “bottom dwellers,” that are merely going through the motions.

That commitment was evident during interactions with Corcoran and other GE citizenship officials at a stakeholder information-gathering session on human rights that GE convened with a broad range of individuals and organizations, Posner says.

“There was a sense that they were supported at the highest level and empowered to make changes,” Posner says.

And, they made changes.

For example, GE pledges to more than double its R & D investment in cleaner technologies to $1.5 billion by 2010.

On the energy front, GE reduced its greenhouse gas (GHG) emissions by some 4 percent in 2006 compared with a 2004 baseline, and GHG and energy intensity fell 21 percent and 22 percent, respectively, in the same period.

“On the energy piece, that means good stuff for the world,” Corcoran says. “We don’t have a [mandatory] cap and trade system in the U.S. so it doesn’t mean we get more money for it. Some of it actually costs us because we invested in elements to reduce the emission long term. But, the 21percent reduction versus the volumetric energy consumption is real money.”

GE estimates it saved some $80 million from that reduction in energy consumption.

“It is a significant chunk of change,” Corcoran adds.

Beyond energy issues, GE’s 2007 citizenship report, entitled “Investing in a Sustainable Future,” broke new ground for the company in providing more information about sustainability performance and its impacts; offering additional detail about public policy and the $1.2 million that GEPAC contributed to Republican and Democrat federal and state candidates and their party organizations; and in formulating a statement on its human rights principles with the intent to extend these tenets to suppliers, business partners and distributors, particularly in emerging markets.

So, is the human rights statement merely a captivating document that the company can use to gussy up its image on the corporate website?

Denniston dismisses that notion, saying the challenge in all of GE’s citizenship efforts is to “operationalize” them, and that developing the corporate-wide human rights policy helped GE clarify its principles and give them more emphasis.

“I’d say it [the human rights statement] has focused us better in project finance,” Denniston says.

In other words, when GE considers investing in a wind farm or power plant in a developing country, the corporation gives greater weight to the cultural and environmental impacts of that financing, Denniston says.

So how did GE, which battled environmental groups and some shareholders for at least 15 years over its PCB (polychlorinated biphenyl) discharges in the Hudson River in New York and at other sites, evolve into a company that forecasts it will increase revenues from eco-friendly products like wind energy and biofuels to at least $20 billion by 2010?

Denniston, who joined GE in 1996 as head of litigation, said the company focused on compliance issues in the 1980s, and in the 1990s turned to ethics concerns such as improper payments, health, safety and employment practices.

“We began to see, maybe a little later than we should have, that citizenship and sustainability values were a little broader,” Denniston recalls. “So, we had to address those, as well.”

And, with almost two dozen years at GE, Corcoran, who became Vice President of Corporate Citizenship and President of the GE Foundation in 2003, attributes the citizenship push in part to widespread changes in the public’s perception of corporations and Immelt’s succession.

“If you look at a significant shift in the world occurring with tech stock stuff happening and 9/11 and with other things like Enron and Parmalat, basically there was a significant shift in business in the late 90s, [where the public’s view of business changed] from the highest credibility rating to something less than that,” Corcoran says. “And, for us, coincidentally, we also had a change in leadership at the chairman level.”

Corcoran adds: “What I think it said over time was that there was a shift in perspective of what’s a definition of a good company, of a responsible citizen. That complying with the law and making money is necessary, but increasingly no longer enough.”

Other factors in the transition, of course, included the realization that there was growing scientific evidence about global warming, an increasing business opportunity in energy-efficient products, and growing pressure, especially in Europe and Asia, for more sustainable practices.

And, today, GE indeed sees its drive to develop cleaner, more energy-efficient products—and putting huge ad dollars into marketing them—as a competitive advantage.

McGeveran of F&C Management notes that GE “is not exiting the old-school businesses any time soon,” but wisely realizes that there are business opportunities in developing products to reduce the environmental impact of coal emissions, for instance.

“Companies can be the first to figure it out or they can be the last,” McGeveran says, referring to the profit potential of sustainable products.

Meanwhile, two products and architects of GE’s compliance and citizenship efforts, namely Denniston and Corcoran, have divergent duties related to corporate responsibility and they go about their daily routines in varying ways.

Denniston, who reports directly to Immelt and is Chairman of GE’s Policy Compliance Review Board, interfaces with Corcoran and the board on citizenship issues, and deals with planning, policy-making and what to add or subtract from citizenship reports.

As a GE Senior Vice President and its General Counsel, Denniston also has a few other matters vying for time slots in his office calendar, including overseeing government relations, governance, compliance, investigations and remediation issues.

GE, which paid $393,345 in environmental penalties in 2006, still “has lots of legacy situations” requiring remediation, and faces compliance challenges given its roster of thousands of suppliers, agents and sales representatives around the world, Denniston concedes.

“That’s a big city,” Denniston says, referring to GE’s massive business footprint. “We are always going to have some people who violate the rules.”

As a rule, meanwhile, Corcoran says his daily routine during the reporting process is “fairly intense” as he helps to coordinate the work of more than 50 subject-matter experts who GE recruits to help shape the report.

However, on this late morning in mid-September, Corcoran is shifting gears from his philanthropic duties, having just returned from an annual GE summit in New York City with some 120 volunteer leaders from around the world. Milwaukee was on his itinerary for the following week, with a visit related to GE’s healthcare business.

The GE Foundation, which Corcoran heads, deals with everything from efforts to combat the effects of flooding in Nepal to providing girls with access to education in locales from Indonesia to Rwanda.
On other citizenship fronts, Corcoran also gets involved in dialogues with shareholders, including institutional investors, whose initial contact point is investor relations.

“I get the ones they don’t know how to handle,” Corcoran adds jokingly. “‘What about your policy on human rights? What have you done on this?’”

Corcoran’s also heavily involved with stakeholder dialogues, forums that GE has hosted in Poland, Belgium, Hong Kong, New York and other venues over the last few years as it ramped up to write its citizenship reports.

And, once the report is nearing publication, Corcoran is responsible for some of the communications about it, including distributing the report to professionals around the world and getting it onto
the web.

Corcoran and Denniston have several lessons to impart to their peers at other companies about the intricacies of spearheading citizenship/sustainability efforts.

They both strongly assert that commitments in a report must be made operational and can’t be just green-washing.

“Your reports should reflect your actions, your intent and commitments, the aspirational part,” Corcoran says. “And it shouldn’t be some kind of dream document that reflects some alternate reality.”
Corcoran also states that “little things matter a lot more than we thought.”

He adds: “It’s not just the electrical engineer looking at power substation utilization, but it is Flo, sitting outside, thinking if we do this twice a week versus once a day, we can cut back [on energy consumption].”

Denniston weighs in that he’s learned through the citizenship process that taking inventory of one’s operations and policies is worth the risk.

“We’ve learned that self-examination is beneficial,” Denniston says. “We’ve learned that through the self-examination process, connecting different activities leads you to some surprising conclusions.”

And some surprising allies.

Corcoran recalls being amused during last year’s annual shareholders meeting when a discussion took place about a shareholder resolution that called on GE to reduce or cease consulting with activists about the company’s environmental policy.

About seven or eight people, who years earlier might have bristled at GE’s environmental record, lined up at the microphone to defend GE’s ecomagination initiative and its commitment to reduce GHG emissions, Corcoran recalls.

Denniston believes that listening to critics, past and present, is valuable.

“You’ve got to listen to people who you might be skeptical of,” Denniston says. “You might be adversaries or critical, but if you listen with civility … you will end up benefiting yourself by that listening process.”

That’s one of the reasons why, for its 2007 report, GE convened a five-member Stakeholder Report Review Panel and published its findings in the report.

The panel gave GE high marks for new disclosures about public policy, its revelation about and remedying of the cluster-bomb component transgression, and for taking “an important step forward” in making a commitment to put its human rights stance into practice across its business units.

“The report demonstrates the growing priority that the company is placing on developing products that deliver broader environmental and social benefits as part of its core business,” the panel stated.

Still, the report fell short, the panel contended, in failing to detail “more information on specific product impacts, for example, those that did not make the ecomagination portfolio but are within the same product categories, and the impacts of the company’s financial arm and nuclear power business.”

Responding to some of the criticism, Denniston and Corcoran said they will consider each issue the panel raised, and they seemed to agree that the 2008 report would fill in some of the gaps that the panel saw on the “materiality” issue. In that regard, the panel argued that GE should clarify what is material to each business and to specific types of
stakeholders.

“We’re definitely going down the materiality road,” Denniston said of plans for the 2008 report. “We definitely know that we are going to add some metrics.”

The citizenship duo seemed less certain on how next year’s report will deal with stakeholder panel requests for more data, including “country-level data” and information about the impacts from products that didn’t make the ecomagination cut.

“We will have more information and data on some of the environmental [issues], particularly on air and water,” Corcoran says.

Corcoran seemed less willing to pledge to deliver more data on products that aren’t ecomagination-certified. “They are saying, what about all your other stuff?” Corcoran says. “What about the 10-year-old product that does x? We get the request for data all the time. We’ve had this from investors forever … You can provide so much it is overwhelming and it illustrates nothing.”

Denniston concurs, saying GE will have to strike the right balance about data.

“Where we come out on that, I don’t know yet,” Denniston says.

GE’s pending position on the data disclosure issue and other sustainability questions undoubtedly will influence decision-makers, including corporate responsibility officers, across the spectrum of U.S. business.

In that regard, stakeholder panel member McGeveran notes that GE CEO Immelt played a key leadership role in the formation of the United States Climate Action Partnership (USCAP), which in January called for a nationwide, mandatory ceiling on GHG emissions, with a cap-and-trade program as its foundation.

With 10 corporate and four nongovernmental organizations as members when the coalition took shape in January, USCAP’s ranks have grown to 27 major corporations and six NGOs through September.
Or, as McGeveran put it about GE’s citizenship efforts: “Where GE goes, often corporate America goes too.”