- If the first letter of your last name isJ-N, make your initial posting about your case from the perspective of theyellow hat.
9-107-038 R E V : J A N U A R Y 2 9 , 2 0 0 8 ________________________________________________________________________________________________________________ Professor Robert S. Kaplan and Senior Researcher Ricardo Reisen de Pinho of the Latin America Research Center prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management Copyright © 2007, 2008 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545- 7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. R O B E R T S . K A P L A N R I C A R D O R E I S E N D E P I N H O Amanco: Developing the Sustainability Scorecard A modern company must have a much broader and more sophisticated relationship with society, and must respond to issues that didn’t exist previously… Our strategy is the best for the sustainable creation of value. — Stephan Schmidheiny, Grupo Nueva and Amanco’s founder1 On January 9, 2006, CEO Roberto Salas arrived at the new Amanco headquarters in São Paulo after a long and strenuous tour through the company’s key units in Latin America. Salas had conducted intense and productive discussions about how to strengthen and standardize Amanco’s Sustainability Scorecard system (SSC), for use in executing Amanco’s new strategy. Amanco was Latin America’s biggest producer and marketer of plastic pipes and fittings for transporting fluid. It had dominant positions in Colombia and Ecuador, and was a major competitor in Brazil and Mexico. Amanco had become a top brand while establishing a reputation as a leading company in corporate social responsibility. Julio Moura, Amanco’s chairman, explained, “Customers want products that improve the society in which they exist and that protect the environment.”2 Salas reflected on the company’s recent financial performance (summarized in Exhibit 1): Amanco has lived by its triple bottom line values and become one of the Latin American’s most admired socially responsible companies. It has received several awards for being a “best” place to work. Concurrently, our revenues went from $520 million in 2001 to $688 million in 2005, with EBITDA jumping from $52 million to $84 million. For 2006, we expect revenues of $770 million and an EBITDA of $102 million. Living on a Thirsty Planet3 Water was critical for long-term economic development, human health, social welfare and environmental sustainability. Although three-quarters of the planet’s surface was covered by water and it was by far the most abundant natural resource, 97.4% of it was salt water. Most of the 2.6% non-saline water was either inaccessible in glaciers, polar ice caps, and deep underground, or it fell at the wrong time in the wrong place during floods and monsoons.4 The only water readily available for 107-038 Amanco: Developing the Sustainability Scorecard 2 human use lay in lakes, rivers, and aquifers. Of this, 66% was used for agriculture, 20% for industry, and 10% for domestic households, including drinking water and sanitation. The remaining 4% evaporated from reservoirs.5 Global consumption of water had outpaced the rate of human population growth by a factor of two in the previous 20 years. Dense urban and massive industrial growth, pollution, land degradation, leakage, and over-extraction had reduced many regions’ ability to meet their citizens’ growing water demands. For example, leaky pipes in Mexico City lost an estimated 40% of the city’s water.6 Approximately 1.1 billion people lacked access to safe drinking water and 2.6 billion people did not have adequate sanitation. Contaminated water caused about 4,500 preventable children’s deaths every day.7 UN Secretary Kofi Annan stated that “fierce national competition over water resources has prompted fears that water issues contain the seeds of violent conflict.8 A myriad of consultants, equipment suppliers, and service providers fought over the multibillion- dollar global market for water. Some of the world’s biggest investors had chosen water as the commodity that could appreciate the most in the next several decades. “There is only one direction for water prices at the moment, and that’s up,” stated the manager of a $2.9 billion water fund based in Geneva.9 Similarly, General Electric’s CEO Jeffrey Immelt anticipated doubling GE’s revenue from water purification and treatment to $5 billion by 2010.10 The Inter-American Development Bank invested $3.1 billion in water and sanitation projects in Latin American between 2003 and 2005.11 Commitment to Social and Environmental Performance Stephan Schmidheiny, a Swiss lawyer and experienced world traveler, had become CEO of the Schmidheiny Group in 1976 at age 29. The Group was a business conglomerate with decentralized operations in multiple world locations. It owned, among other companies, Eternit AG, an asbestos cement company with operations in more than 20 countries. Eternit’s plants had been threatened by expensive lawsuits and strict environmental standards, including a potential ban on asbestos by the European Union. Schmidheiny initially took pre-emptive measures by installing new equipment in the factories, implementing personnel training programs, and launching research to develop asbestos-free products. Eventually, however, he took more drastic action: I myself had been dangerously exposed to asbestos fibers during my training period in Brazil. . . . I made a radical decision, even though I did not have the faintest idea of how this change was to be implemented. I publicly announced that the group would cease to manufacture products containing asbestos. I made the decision to get out of asbestos based on the human and environmental problems associated with the mineral. It was a painful period, but it was invaluable preparation for my later being thrown into a position of leadership on business and society issues.12 In 1984, the Group was split between two of the founder’s sons and heirs. Schmidheiny became the owner of the Eternit Group. He launched a diversification strategy by acquiring distressed companies in need of basic restructuring. He expanded the family’s investments in Latin America, where it had operated since the 1930s. Schmidheiny attracted global attention by publicly addressing business decisions in social and environmental terms. In 1990, he was appointed chief advisor for Business and Industry to the Secretary General of the United Nations Conference on Environment and Development (UNCED), better known as the Rio de Janeiro Earth Summit of 1992. He helped to organize a forum that later became the World Business Council for Sustainable Development, WBCSD. This organization Amanco: Developing the Sustainability Scorecard 107-038 3 assembled the world’s 160 most important enterprises to develop a business vision for sustainable development. Schmidheiny explained the origin of a key term: While writing the [Changing Course] book, we held a competition to find the most appropriate term to define a company’s potential contribution to sustainable development. We received hundreds of proposals, from which I selected eco-efficiency. The eco prefix elegantly combines two fundamental concepts: economy and ecology. Simply put, eco-efficiency means adding greater value to goods and services while using fewer resources and generating less waste and pollution. 13 Social and Environmental Activities in Latin America In the mid-1980s, Schmidheiny established FUNDES, a philanthropic organization to support the development of small and medium-sized businesses in Latin America. In 1994, he donated approximately $300 million to form the AVINA Foundation. This non-profit organization worked with civil society and business leaders on sustainable development initiatives in areas such as citizen participation, community organization development, and eco-efficiency. The organization also sponsored programs in communications and education, including a partnership with Harvard University and nine leading Ibero-American universities.14 In 1998, Moura, Schmidheiny’s top lieutenant in the region, consolidated the remaining family- owned Americas businesses into Grupo Nueva, a private holding company with leadership positions in forestry, wood, fiber, cement products, pipes, and accessories. Moura required all Grupo Nueva companies to be committed to sustainable development. He recalled, “Business has a tremendous role to play. To tackle the challenges is an opportunity for business, and if business integrates these opportunities into its business strategies and creates win-win situations, it can work.”15 In 2003, all Grupo Nueva stock and other interests were donated to the VIVA Trust, a gift worth about $1.0 billion. VIVA earmarked the dividends from its holdings to promote sustainable development throughout Latin America, especially through the work being done by the AVINA Foundation. Concurrently, Schmidheiny stepped down from all operational responsibilities. In 2005, Grupo Nueva companies had sales of about $1.4 billion and EBITDA of $240 million. It employed 17,600 people in 17 Latin American countries. Amanco was one of its company holdings. Amanco Amanco was a major producer of plastic pipe for water transport. As the demand for drinking water increased throughout Latin America, particularly in large urban areas, the systems for transporting water became a lucrative business. Latin America, however, was far from a homogeneous market. Brazil, accounting for roughly one-third of the Latin American market, was distinct by language and culture. Language and cultural differences within even the Spanish- speaking countries led to local strategies, marketing, and management systems. “Initially, Amanco worked as a federation, with some of its country units operating as stand-alone units,” stated an Amanco executive. (Exhibit 2 shows Amanco’s geographic presence.) In 1999, Moura invited Roberto Salas, the Amanco country manager in Ecuador, to come to Costa Rica and become Amanco’s COO, responsible for developing Amanco as a multinational competitor across Latin America. Salas, who soon thereafter became Amanco’s CEO, transformed the company from a collection of separate geographical units into a more integrated organization. (See Exhibit 3 107-038 Amanco: Developing the Sustainability Scorecard 4 for Amanco’s recent history.) He introduced, in October 2005, a new organizational structure (see