Daily Archives: December 27, 2009

Green Your Packaging

Supply Chain Brain recently ran a decent article on 10 Steps to Green Packaging in the CPG Industry that had a few insights that are worth a closer look.

  1. Replenish
    Purchase raw materials from suppliers who employ sustainable resource management policies.
  2. Re-explore
    Use recyclable material.
  3. Reduce
    Use ergonomic design and optimization to minimize the use, and size, of packaging material.
  4. Replace
    Replace hazardous and harmful substances with eco-friendly materials.
  5. Reconsider
    Use renewable materials whenever possible.
  6. Review
    Inspect, monitor, and control waste in the packaging process.
  7. Recall
    Immediately recall harmful packaging and put processes in place to insure that harmful packaging does not get used again.
  8. Redeem
    Collaborate with retailers and collect reusable and recyclable packaging materials in exchange for discounts.
  9. Reinforce
    Set up a Centre of Excellence (COE) to disseminate environmental best practices throughout the organization.
  10. Register
    Sign up for carbon reduction commitment initiative and follow-through.

For more information on the 10Rs, as well as examples on how to achieve them, check out 10 Steps to Green Packaging in the CPG Industry.

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Could Escrow Accounts Return Us To Long Term Thinking?

Besides the fact that you’re probably as fed up as I am at the ridiculous compensation packages that many Executives are getting these days despite the fact that they are on their way out the door having just tanked the company, there’s also the fact that their focus on short term gain is hurting the company and your ability to do your job.

You want to switch to sustainable sources of supply, because you know that the long term savings (as energy, water, and carbon costs are all poised to go through the roof) will dwarf any short term savings you can negotiate, but because there are up-front investment and switching costs, you’re prevented from making the right choice.

You want to license that new strategic sourcing decision optimization platform because you know the 12%+ additional savings you can expect across the board on every event you run through it will give you an ROI of 10X to 20X within a year, but you can’t because an additional overhead cost will decrease EPS for the quarter, which will temporarily decrease the stock price, and, most importantly, impact your CPO’s and CEO’s Christmas bonus. Thus, even though you could probably double EPS and pump up the stock price within a year, you can’t make the right move.

And so on. And to be frank, it just stinks. We’ve made it too damn easy for fat-cats to get big rewards today for results that may or may not materialize tomorrow, and it just shouldn’t be that way. For instance, in Canada, shareholders are only now getting “say for pay” at most public companies — and all that right gives them is the right to tell the Board what they think should happen. The Board, once elected, can still do what it wants. And at many corporations, the shareholders only have two choices when it comes to electing the Board, vote for the nominees put forward, or abstain from the vote. But if even a single person votes for the Board, they Board is elected and, after allowing the shareholders to provide “input”, can still proceed to do whatever they want. Could you imagine if you were told “you can vote for Mr. X for President, or not, but if even one person in the whole United States of America votes for Mr. X, he’s President”. Scary, eh?

Anyway, a new proposal by Alex Edmans, Xavier Gabaix, Tomasz Sadzik, and Yuliy Sannikov (from Wharton, NYU, and U of C) on Dynamic Incentive Accounts could hold the answer to fixing some of these problems. According to the authors, if executive compensation packages were deposited into escrow accounts that vest over a two-to-five year period, with only a certain percentage allowed to be withdrawn each month, it could push executives to focus on the long-term. After all, if an Executive can’t access his Million-Dollar stock bonus for five years, he’ll be highly incented to make longer term decisions that will insure the stock price rises over the long term. And if the company were to grant more stock during a downturn, he’d be double-incented to turn the company around.

The authors also found that an increase in firm value must be accompanied by an increase in pay to keep the Executive motivated (and suggested a 6% pay increase for every 10% increase in firm value), but that’s perfectly acceptable (especially since it too will go into the escrow account). After all, if you increase profits by 20 Million, you should get a good chunk of change as a reward. It’s when you lead the company to a 20 Million loss that you shouldn’t get your bonus, and that’s what the real problem is. Now, the proposal has a bit of a downside in that they authors also found that an Executive’s base compensation would probably need to be increased 20% because of the longer vesting periods, and some of the packages out there are quite generous already, but this would still be okay if a good portion of the package was stock in the escrow account and the executive actually produced continued growth over a five year time frame.

Thoughts? Or am I the only crazy blogger who thinks this proposal makes sense?

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