WORLD INC.WORLD INC. WHY GOING GLOBAL WILL COLLIDE WITH GOING GREEN EACH DAY OF THIS NEW CENTURY

WELCOME TO WORLD INC.

ISE/CHRMS BREAKFAST SEMINAR

FARLEIGH DICKINSON UNIVERSITY

OCTOBER 19, 2007

Tone and Orientation on Framing Emerging Roles for Corporate Leaders

• This is simply a report from the field and nothing more

• It builds from an 18-year leadership benchmarking workshop series called the Corporate Affiliates Program

• My slides are designed to help you visualize what I have experienced as a new trend in capitalism due to the rising role of energy and the emergence of new social expectations

Welcome to World Inc.

Consider these facts:1. Fifty one of the one hundred largest economies in the

world are now corporations, not nations.2. They are massive mansions unto themselves with great

political leverage3. The one hundred largest multinational corporations

(MNCs) now control 20 percent of global foreign assets.4. Three hundred MNCs now account for 25% of the world’s

total assets.5. As much as 40% of the world trade now occurs within

these top MNCs.6. Only twenty-one nations have GDP markets larger than

the annual sales revenue of each of the six largest MNCs.

The - Frontier: the New Frontier

Zone of Examination in World Inc.

1. All corporate strategy on this S frontier boils down to a responsible pursuit of product advantage, terrain advantage, technological advantage, and moral advantage

2. The S frontier enables the firms in the room to compete in new ways from Chicago, NY, and SF to Singapore, Bombay, and the Chinese Golden Coast.

3. The S frontier is a vital element for all leaders to consider as they help redesign the modern corporation

21st Century Capitalism

Price

Technical Quality

Social ResponseCapitalism

Price

Technical Quality

CompetitiveProducts

Competition on Price, Quality and Social Needs

20th Century Capitalism

Better Products

Better Leaders

Social Response Capitalism

• Using price, quality and social needs in products and services. Examined in first third of World Inc.

• Becoming an internal issue for companies both large and small to attract talent and investment.

• Developing products and services that respond to legitimate emerging social pressures and needs

• Examples found in HP, Whirlpool, Toyota and many other companies in today’s global equity market

• Last third of World Inc. on Money Matters, and the rising role of third party valuation groups—these function like helicopters over a crime scene

Social Response Capitalism

On the Social Horizon: Social Responses to Energy

“The era of easy oil is over.”

- David J. O’Reily, CEO, CHEVRON

LEED Certification Growing

• Seen in larger real estate markets: CA, FL, CO, NM, AZ, WA, OR

• 16 states have LEED standards as requirements for new and existing buildings

• 4 states in development or have standards for schools

• LEED also being led at city level in states like NC, HI, TX, VA, MO, MN, WV, NE, UT and GA

AHC Group, Inc.

AZ: EO requires State buildings to be LEED Silver. All new buildings should use renewable energy

AK: Green design strategies including LEED encouraged

CA: EO requires State buildings to be LEED Silver.

CO: LEED for existing & new government buildings

RI/CT: LEED Silver for existing & new government buildings

FL: New gov’t buildings should meet the LEED standard

IL: LEED under consideration for all public projects

ME: LEED be used for existing & new government buildings

MD: LEED (or other green building standard) to be used for capital projects

MA: LEED under consideration

MI: LEED for projects greater than $1M

NJ: LEED for all new public schools

NM: LEED Silver for projects over 15,000 sq. ft.

NY: LEED encouraged for public buildings but not required

NV: LEED required for all state buildings

OR: LEED is required to access a state energy tax credit of 35% for businesses

PA: LEED incentive for schools

WA: LEED Silver for existing & new government buildings WI: LEED for new

construction & existing

HI

AK

LEED Certification Established

LEED Certification Under Review

No Existing LEED Certification

Energy Star Homes Increasing

Source (adapted from): USEPA Energy Star Program, http://www.energystar.gov/index.cfm?fuseaction=qhmi.showHomesMarketIndexAs of January 2007

HI

AK

AZ

CO

IL

CA

NM

NV

OR

WA

ID

MT

TX

UT

ND

SD

NE

ME

PA

NY

FL

GAALMS

LA

AR

MO

IA

MN

MI

WI

OHIN

WVVA

NC

SC

TN

KYKS

OK

WY

MARICTNJDEMDDC

VTNH

AHC Group, Inc.

<3% 3-9% 10-20% >20%

% of Energy Star Homes

MEASURABLE ENERGY SAVINGS

To date, over 525,000 ENERGY STAR qualified new homes have been built, translating to estimated annual savings of:

989 million kilowatt-hours (kWh) of electricity75 million therms of natural gas$124 million in utility bills1.13 million metric tons of CO2 released into the air

Renewable Portfolio Standard Status: What does this mean for your firm?

Source (adapted from): DOE EERE, http://www.eere.energy.gov/states/maps/renewable_portfolio_states.cfm As of November 2006

HI

AK State has not yet adopted an RPS.

State has a mandated RPS or nonbinding goals for adoption of renewable energy.

AZ

CO

IL

CA

NM

NV

OR

WA

ID

MT

TX

UT

ND

SD

NE

ME

PA

NY

FL

GAALMS

LA

AR

IA

MN

MI

WI

OHIN

WVVA

NC

SC

TN

KYKS

OK

WY

MARICTNJDEMDDC

VTNH

MO

AHC Group, Inc.

A renewable portfolio standard (RPS) is a state policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date. Currently there are 20 states plus the District of Columbia that have RPS policies in place. Together these states account for more than 42% of the electricity sales in the United States.

Two other states, Illinois and Vermont, have nonbinding goals for adoption of renewable energy instead of an RPS.

A renewable portfolio standard (RPS) is a state policy that requires electricity providers to obtain a minimum percentage of their power from renewable energy resources by a certain date. Currently there are 20 states plus the District of Columbia that have RPS policies in place. Together these states account for more than 42% of the electricity sales in the United States.

Two other states, Illinois and Vermont, have nonbinding goals for adoption of renewable energy instead of an RPS.

GHG Mitigation Plan Status: This Map Should Prove Central to All Projects Run by Social & Corporate Leaders

Source (adapted from): USEPA, http://www.epa.gov/climatechange/wycd/stateandlocalgov/state_action.htmlAs of July 2006

HI

AK State has not yet adopted a GHG Mitigation Plan.

State has adopted GHG Mitigation Plan.

AZ

CO

IL

CA

NM

NV

OR

WA

ID

MT

TX

UT

ND

SD

NE

ME

PA

NY

FL

GAALMS

LA

AR

IA

MN

MI

WI

OHIN

WVVA

NC

SC

TN

KYKS

OK

WY

MARICTNJDEMDDC

VTNH

MO

AHC Group, Inc.

Climate change action plans help states identify and evaluate feasible and effective policies to reduce their greenhouse gas emissions through a combination of public and private sector policies and programs. As of July 2006, 29 states and Puerto Rico have completed, or are working on, action plans.

Climate change action plans help states identify and evaluate feasible and effective policies to reduce their greenhouse gas emissions through a combination of public and private sector policies and programs. As of July 2006, 29 states and Puerto Rico have completed, or are working on, action plans.

Prius 1st Generation

1999 2000 2001 2002 2003 2004 2005 2006 2007+

Prius 2nd Generation

Ford Escape Hybrid SUV

Mercury Mariner Hybrid (Ford) & Chevy Malibu Hybrid (GM)

Honda Accord Hybrid & Lexus

RX400h SUV

Honda CivicHybrid

Honda Insight Hybrid

Toyota Highlander SUV

Saturn Vue Hybrid (GM)

Timeline of Hybrid-Electric Vehicle Introductions by Manufacturer

Toyota announces that they intend to place their hybrid drive train on 10 different models and sell more than 1MM hybrid vehicles by 2010

Social Response Capitalism at Toyota

See www.ahcgroup.com for more detail

The Larger Logic Behind Hybrids

Sources: Domestic prices from the Oil & Gas Journal and international prices from DOE Weekly Petroleum Status Report

Additional information is available from Oil & Gas Journal's electronic information source OGJ Online.

World Inc. is All About Connecting the Dots

Money

Environment People

Energy

Market Access

Margin Improvement

Rapid Cycle Time

Product Differentiation

Reputation Management & Enhancement

Social & EconomicValue Creation

Economic Development

Technology Development & Transfer

National Security

Energy Efficiency & Resource Conservation

Global Climate Change

The Concerns of the Modern Corporation

See www.worldincbook.com

Benefits of Social Response Product Development (SRPD): The Why

• Margin Improvement• Rapid cycle time• Global market access• Product differentiation• Social bundling of value in products• Reducing the risk premium

World Inc. explains why this is more than a growing fad.

Social Response Product Development

International Trade &

Development

Energy Markets

Why Why companies companies leverage leverage social social

responseresponse

State & Federal Gov’t

Financial Markets

Product Manufacturers

NGO’s & Non-Profit’s

New Customers & Markets

…it is about access to new customers and growth in the global equity market

The Iceberg Balance Sheet

Four Key Intangible Value Drivers

Companies for the Creative Class

Stakeholder Capital-Labor relations

-Regulators & Policymakers

-Local communities/NGO’s

-Customer relationships

-Alliance partners

Human Capital-Recruitment retention strategies

-Employee motivation

-Innovation capacity

-Knowledge Development & Dissemination

-Health & Safety

-Progressive workplace practices

Eco Value-New business opportunities

-Cost reduction

-Process efficiencies

-Innovation effect

Sustainable Governance-Strategic scanning capability

-Agility/adaptation -Performance indicators/monitoring

-International “best practice”

Financial Capital

Source: Innovest - an AHCGroup Alliance Partner

Social Product Rating Model:

Time Horizon

Strategic Profit Opportunity

Short Term

Mid-Term

Long Term

PSA

BMW

DCX

Environ-mental Benefit

Size = Market Penetration Renault

VW

Fiat

Ford

MMC

HondaToyota

Porsche

GM

Nissan

Fuji

Time Horizon

Strategic Profit Opportunity

Short Term

Mid-Term

Long Term

PSA

BMW

DCX

Environ-mental Benefit

Size = Market Penetration Renault

VW

Fiat

Ford

MMC

HondaToyota

Porsche

GM

Nissan

Fuji

Analysis of Corporate Environmental Product Strategies

by Innovest

Toyota and Honda, our #1 and #2 rated companies, have developed technologies that have high environmental benefit and are available in the short term. Both now have commercially available hybrid electric/gas cars, the Prius and the Insight, respectively

Source: Innovest – a valuation firm featured in last 2 chapters of World Inc.

Industry Specific DataAnalyst assembles and analyzes industry specificdata

Example of Strategic Profit Opportunities in the Auto sector

An Example from Pharmaceutical EH&S Excellence

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

May

-01

Jun-

01

Jul-0

1

Aug

-01

Sep

-01

Oct

-01

Nov

-01

Dec

-01

Jan-

02

Feb

-02

Mar

-02

Apr

-02

May

-02

Difference 0.0% 4.0% 3.7% 3.9% 7.1% 5.8% 5.2% 5.9% 9.0% 16.9% 16.5% 15.5% 17.2%

Top Half Average 0.0% -1.4% -0.2% -3.5% -1.5% -0.8% -2.3% -3.0% -8.3% -3.5% -4.7% -7.7% -8.2%

Bottom Half Average 0.0% -5.4% -3.9% -7.4% -8.6% -6.6% -7.5% -8.9% -17.2% -20.4% -21.2% -23.3% -25.4%

May-01 Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02

Source: Innovest Strategic Value Advisors, 2002

SPREAD

TOP HALF

BOTTOM HALF

Pharmaceutical companies receiving above average EcoValue21® ratings have outperformed companies with below average ratings by approximately 17 percentage points (1700 basis points) since May 2001.

Developing Leaders We Can Trust

From World Inc.

Lesson One: We are Captive in Our Leadership Options

Lesson Two: Let’s Go Back to School on Social Leadership

Lesson Three: Leadership is About Life in Society

Lesson Four: Leaders Have Articulate Power

Lesson Five: Lincoln as a Model Social Leader

Lesson Six: Leaders Find New Paths of Growth

Lesson Seven: Value Shifts Cascade Social Changes in Business

Lesson Eight: Capture a Sense of Elsewhere & Adventure

Lesson Nine: Standing on the Shoulders of Giants

Lesson Ten: Cultures Pick Winners, Not Vice Versa

CSR rating agencies: Where AHC Group Fits

Innovest ** Hewson BaltzelWell-established and high recognition of their methodology, especially on environmental risk management. Closely associated with climate change issues but limited direct influence on mainstream investors

CoreRatings ** Alan BanksHighly regarded methodology which links risk issues into investment valuation. However, relatively small number of direct clients and limited influence on mainstream investors

KLD/Siri group *Not widely followed by mainstream institutional fund managers. KLD is long-established but influence seems to be declining in US

PIRC *Agenda-driven UK governance activists

Credit Rating agencies: The Risk Premium is State Related

S&P ****Rate almost every corporate debt issue and directly effect availability and price of long-term debt finance. Governance rated separately and also taken into account in credit ratings (see below)

Moodys ***Rate almost every corporate debt issue and directly effect availability and price of long-term debt finance. Governance taken into account in credit ratings Fitch **No longer offers governance ratings. Still working out how to incorporate governance aspects into credit ratings

AHC Corporate Affiliate MembersSince 1990ARCADIS BBLArizona Public ServiceAztech Technologies, Inc.BPCanadian NationalCelanese Americas CorpCH2MHillChemturaChevronDayton Power and LightDow Chemical CompanyDNVDTE EnergyDuPontEarth TechEnergy Answers InternationalESF - SUNY College ESS

First EnergyFMC CorporationGlenn Springs Holdings, Inc. - A Subsidiary of Occidental Petroleum HoneywellHewlett Packard (HP)LPLyondellMarshMetaVuNYDECNorthrop GrummanRutherfoordShell Oil Company Shumaker, Loop & Kendrick, LLP Sterling PlanetSuncor Energy, Inc.TXU Whirlpool

Join Our Leadership Dialog

Learn More at:www.ahcgroup.comlily@ahcgroup.com

Contact:Bruce PiaseckiBruce@ahcgroup.com