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05.05.2011 - 07:43PM
By CSRwire Contributing Writer Jayne Flannery
Scott Zdrazil, Director of Corporate Governance with Amalgamated Bank, talks to Jayne Flannery about the need to reward executive performance where it matters most in supporting long-term sustainability goals. Look for Scott at the Ceres Conference 2011.
As Director of Corporate Governance with Amalgamated Bank, which manages $12 billion dollars principally invested from pension funds, Scott Zdrazil can be expected to take a long-term view of capital markets. At the forthcoming Ceres Conference 2011, he intends to issue a wake-up call to those corporations which he believes are sacrificing long-term sustainable performance in favour of short-term gain.
"We believe one of the best ways to create enduring shareholder value is by developing executive remuneration schemes that are aligned much more closely to their organisation's stated sustainability goals and objectives. As a society, we cannot afford to see the operational risks inherent in the short-term profit-taking approach nurtured," he states.
Speaking on the anniversary of the BP oil disaster, he sees the environmental catastrophe as an exemplary illustration of how a single low frequency, high impact incident can erase 50 percent of a company's value almost overnight.
"One company involved in the disaster recently congratulated itself and awarded bonuses for reporting a low overall number of safety incidents, despite the magnitude of one of those incidents. It is evident that this is a hopelessly inappropriate metric for an accident that contaminated the entire Gulf of Mexico. It shows that much closer scrutiny is needed by companies and investors on how sustainable performance is managed and reported," he comments.
In the wake of the tragedy, he believes momentum is growing for a new approach to compensation for those executives prepared to actively evaluate and avoid risk-taking behaviour. "For example, we are already starting to see the emergence of oil companies with instances of incentives and rewards tied to environmental performance metrics. The need for more extensive risk mitigation has suddenly become much more widely acknowledged," he states.
He sees restructuring remuneration packages as one element of an integrated holistic approach. "Companies also have a responsibility to embed a culture that highlights sustainable business practices. Incentives and compensation do not govern all behaviors, but the design of compensation packages should never create a preference for short-term profit over long-term sustainable growth," he declares.
The diversity of regulatory schema and globalisation creates new monitoring challenges. In some emerging markets, he believes weak corporate governance and a weak regulatory environment can create a particular temptation to succumb to the temptation of short-term gains.
"As long-term investors with a diversified portfolio, we are very aware that profits derived from unacceptable risk-taking only come at a loss to another balance sheet somewhere else. If a company for example is polluting the environment through its operations, the effects will ripple out and damage and disrupt many other business activities, in addition to all the other negative effects."
"We see it as incumbent on investors to ask more questions and for companies to demonstrate how their reward schemes are contributing towards and driving long-term sustainable performance. My message is simple. Executives should not receive big bonuses if environmental and social risks go unchecked."
About Amalgamated Bank
Established in 1923 by the Amalgamated Clothing Workers of America, Amalgamated Bank continues the progressive traditions of its founders as the only 100 percent union-owned bank in the United States. Chartered by New York State, Amalgamated Bank is an FDIC insured commercial bank with $4.5 billion in assets.
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