by Michael Connor
On a visit to China earlier this year, The Walt Disney Company’s Jay Rasulo inspected contract factories that make Disney-branded products. He met with factory managers, walked factory floors, visited worker dormitories and spoke with Disney team members responsible for auditing labor conditions in the factories. “It was an opportunity for me to see our extended supply chain first-hand,” he said.
A trip like that would not be unusual for an executive in charge of a company’s corporate citizenship program, as Mr. Rasulo is for Disney. What was out of the ordinary is that Mr. Rasulo is also Disney’s chief financial officer (CFO) and a senior executive vice president, responsible for a worldwide finance organization that tracks and manages some $40 billion in annual revenue.
In a recent presentation to corporate responsibility executives at the BSR 2012 conference in New York, Mr. Rasulo explained that his two titles required qualities belonging to two very different Disney characters: Toy Story’s Woody (an amiable guy “who’s 100 percent committed to doing the right thing”) and the classic Scrooge McDuck (a guy who “strives to make every dollar count”).
“I do spend most of my time talking to investors and bankers,” Mr. Rasulo said. But wearing two executive hats – CFO as well as leader of the citizenship program – “allows us to integrate our work in citizenship with the other financial strengths of the company. And if I’m successful in doing that, I believe I’ll actually create even more value for our shareholders.”
While Disney’s structure for its citizenship program is more ambitious than that of most companies, a growing number of CFOs are increasingly involved in environmental and social initiatives (often called sustainability programs) that not long ago were totally divorced from their company’s income statements or balance sheets.
Traditionally, “CFOs ran the numbers, letting others handle soft issues such as social responsibility and corporate citizenship,” says a 2011 report by the consulting firm Ernst & Young. “But those job silos are crumbling. Investors, business customers and other stakeholders have shown a growing desire to connect a company’s financial performance to its social and environmental impact. “
As a result, “CFO involvement with sustainability is deepening,” concludes a 2012 survey of 250 CFOs in 14 countries by Deloitte Touche Tohmatsu Limited (DTTL). Two-thirds (66%) of the CFOs surveyed said they were “always” or “frequently” involved with driving sustainability strategy in their organizations. More than half (51%) said their involvement had increased over the last year. More than three-fifths (61%) said they expected their involvement to increase over the next two years.
One big reason for the greater CFO involvement, the Deloitte survey concluded, is that “sustainability is being operationalized,” with accountability beginning to shift from an organization’s chief executive officer (CEO) or head of sustainability to its chief operating officer (COO) or CFO. The percentage of CFOs and COOs accountable to their company’s boards for sustainability issues nearly doubled from 20% to 36% in the past year, the survey found.
Ernst & Young found that these trends are increasing responsibilities for CFOs across a range of activities. In investor relations, for example, “banks, insurance companies, private equity funds and other institutional investors are now considering the sustainability rankings of the companies in which they invest… As sustainability issues intertwine with business strategy, institutional investors are starting to view financial and non-financial performance as two sides of the same coin.”
That has increased pressure for sustainability reporting and new financial controls. “Among other things, customers increasingly want to know that a company’s distribution model has a low carbon footprint; that its procurement policies take “fair trade” issues into account; and that its supply chain uses alternative energy sources,” the E&Y report said. “While concerns such as these have environmental or social benefits, “each one also has a potential financial impact. Evaluating the return on investment (ROI) of potential capital expenditures and reporting on their bottom-line impact requires the attention of the CFO’s finance team.”
Disney’s Mr. Rasulo said that when it comes to making tough corporate decisions on environmental and social initiatives that involve trade-offs between short-term costs and long-term business benefit, “the CFO is well-positioned to do that.”
Disney’s commitment to corporate responsibility, he said, stems largely from what consumers expect of the brand: “More is expected of us. If we don’t act in accordance with the stories we tell, the experiences we offer, and the images we project, we lose our authenticity. You can’t entertain a family on the one hand and totally disregard the world that that family lives in and the circumstances that they work in. Acting responsibly is core to our brand.”
In speaking to an audience composed mostly of corporate responsibility executives from large companies, Mr. Rasulo cited three examples of “citizenship dilemmas” confronted by Disney in which he – as CFO – has played a critical role.
– A commitment to promote only “healthier” meals – sold at Disney parks, endorsed by its characters or advertised on its TV outlets – has taken about three years to fully implement and “turn into a win” financially. “We are (now) launching product lines that, frankly, we would not have imagined had we not decided to play a role in helping to create healthier generations,” he said.
– A commitment to reduce greenhouse gas emissions company-wide conflicted with plans to grow some highly-profitable businesses – such as Disney cruise ships – that are carbon intensive. The company has imposed an internal “carbon tax” on individual business units to encourage technological innovation and “imagineering.”
– A commitment by Disney – the largest product licensor in the world – to maintain fair labor standards at over 25,000 factories in more than 100 countries, where Disney-branded products are made. “It’s a very profitable business model, as you can imagine,” he said. “It’s also a business model that creates immense challenges for implementing our Code of Conduct for manufacturers as well as our international labor standards that help ensure proper working conditions in this extended supply chain.”
In making decisions as a CFO or senior executive in situations such as this, Mr. Rasulo said, “you’re in the world of tradeoffs; you’re trading off the profitability against the risk…you want a hard and bright line, but most things are grey.”
Internally, he added, persuading business units to adopt more sustainable practices was frequently a challenge: “It’s not easy. It takes a lot of work. It takes a lot of cooperation.” And he advised against using “moral high-ground” as a primary tool of persuasion in internal deliberations about sustainability strategy. “You’ve got to do your homework,” he said. “You have to approach it like every other business problem.”
One advantage of leading a corporate citizenship program as CFO, Mr. Rasulo added, is that it’s easier to make decisions when there are “tradeoffs among business units” or, when there is a “company good in general,” to decide how costs should be allocated to particular business units.
“As fantastical as it sounds,” he said, “as the CFO of Disney I am as committed to meeting the expectations of children and families on Main Street as I am to delivering results to Wall Street – because what’s good for kids and families is good for Disney’s financial future too.”