Corporate Environmental Management Professor Doug Cerf—Spring 2010

Corporate Environmental Management (ESM 281)

Spring 2010

“Whether you believe you can, or whether you believe you can’t, you are absolutely right.

Henry Ford

The world we have created today as a result of our thinking thus far has problems which can not be solved by thinking the way we thought when we created them.……. Albert Einstein

Increasingly companies will sell solutions to the world’s environmental problems.

Stuart Hart

Miss a little, miss a lot. …………….Mike and Mike in the morning, ESPN radio.

Instructor:

Dr. Doug Cerf

Phone: 805-756-2871

Email:

Office hours: by appointment in BH 3408.

Course Objective

Corporate Environmental Management specialization students will be able to use business frameworks, concepts, cases and tools to support corporate environmental management and performance. This involves corporate strategy and corporate culture being aligned with supporting environmental performance. It also involves the use of sound business models and tools to support these initiatives.

Class Time and Location

Fridays 2:00-4:50, Bren Hall 1424. Exceptions: no class 5/21, 5/24 (Monday) 3:30-6:20, 5/28 (Friday before Memorial Day), 10-12:50 Bren Hall 1510

Course requirements

Case analysis (individual)25%

Case analysis (team)50%

Class Participation (discussion of case analysis)10%

Mini-project presentation15%

Total100%

Required Reading (see course schedule below for details)

Harvard cases (the cases are listed in the schedule below)

See “course” entitled Corporate Environmental Management Spring 2010 on Harvard Business school site at:

The case method

The case method is used almost every class period in this course.

If you would like to read about learning through the case method please see HarvardBusinessSchool note #376-241. You might also be interested in how to discuss a case, which is available as a Harvard Business School Press Chapter, product number 2450BC. If you would like to purchase these items (optional) they are in a separate “Harvard” course at the following link (cost $8):

All the cases are listed under the Harvard course entitled, “Corporate Environmental Management Spring 2010.” The link to this course is listed above in the Required Reading section. Each Harvard case costs $3.95. The total approximate cost for the cases and the articles for this class is $40-50 (paid directly to Harvard).

The goal is for students to be ACTIVELY involved in case discussions. This is an essential aspect to learning from cases. Active involvement significantly increases student learning.

If the course schedule (below) requires an executive summary the following are possible items to include to support your analysis (if appropriate), (1) the issues in the case, (2) answers to the case questions (the case questions follow the course schedule in this syllabus), (3) recommended solution to the case and (4) lessons learned. Each section of the executive summary should be labeled accordingly. Generally, executive summaries should include computations in excel spread sheets in the appendices. If the instructions require a half page executive summary to go with your computational analysis this will be your recommendation and lessons learned.

Guidelines for establishing teams

Permanent teams will be used for case analysis and presentations. Permanent teams (4 people) will be set up during the first class meeting. At the end of the term you will be given the opportunity to evaluate the other members of your permanent team (form attached at the end of this syllabus).

Class Participation

Because a good portion of the learning takes place in class, I expect you to attend all classes and participate in class discussions. This is an essential element of this class. The amount that you learn in class is highly correlated with your involvement in class discussions. I do not believe in over use of lecturing (“learn by listening.”) Tell me and I'll forget, show me and I might remember. But INVOLVE me and I will understand.

Class participation will comprise 10% of your final grade. Participation points can not be made up. Much of the learning takes place in class. If you attend class and you are silently involved you will get 70% of the points for participation for that class session. If you miss class, you get 50% credit for participation for that class (to avoid distortion of the average participation score).

The instructor’s responsibilities are to: (1) select the materials that are appropriate for the class learning objectives, (2) facilitate class discussion, (3) clarify (4) facilitate in class activities, and (5) provide a roadmap of where we have been, where we are, and where we are going.

The student’s responsibilities are to: (1) participate proactively in class discussions and activities, (2) read and prepare the assigned material prior to class.

The course schedule begins on the next page.

Schedule—

Most of the cases and articles listed below are available on our Harvard course. The case questions follow the course schedule in this syllabus.

The “Harvard” course that includes these materials is entitled “Corporate Environmental Management Spring 2010 on Harvard Business school site at:

Topic/Course Materials / Assignments
April 2
(#1) / Financial Statement Framework
Class Introduction,
Introduction to learning from case analysis
Three common financial statements, Balance Sheet, Income Statement and Statement of Cash Flows
Basic Financial Statement Case: Maria Hernandez & Associates (Harvard Case # 902401) / Please review Maria Hernandez case before class; we will prepare the case as an in-class exercise. You should make your best attempt at completing the questions at the end of the case. I prefer that you make your attempt based on your prior knowledge as opposed to following a process. The answers to the questions should include but not be limited to a Statement of Cash Flows for the pre-operating period (prior to July 1). For the period July through August your answer to the question should include all three statements, Statement of Cash Flows, Statement of Income and Balance Sheet (Statement of Financial Position). The solution to this case will not be collected.
External Financial Reporting of Sustainable Business Practices
Discussion of recording Goodwill. Do financial statements include assets that represent the potential future value of sustainable business practices? “It appears that the assets that really count are the ones that accountants can’t count—Yet.” / Class lecture and discussion. Prepare the short Goodwill assignment question posted on the Bren site. This assignment question will not be collected.
Corporate Environmental Management Case Example
Wal-Mart’s Sustainability Strategy (Stanford Case# OIT-71, available from Harvard). Begin discussion of how Wal-Mart tackled the corporate strategy initiative to reduce the environmental impact of their business. / We will cover the Wal-Mart case over (parts of) three class periods. Please skim the entire case and be prepared to discuss Wal-Mart’s strengths and weaknesses that will allow or prevent them from succeeding in this endeavor.
Each permanent team pick one of the following Sustainable value networks (electronics, seafood, textiles) to be the basis for answering the questions for the second class meeting.
April 9
(#2) / Stakeholder Analysis Models, Corporate Environmental Strategy, Environmental Assets and Liabilities in the Financial Statement Framework.
Model(s) for Stakeholder Analysis. Use the Wal-Mart case as the basis to implement the stakeholder model(s).
Stakeholder Analysis Tool; Product # 808161 / Class lecture and discussion. We will do a stakeholder analysis of three key Wal-Mart stakeholders: suppliers, environmental organizations and customers.
Corporate Environmental Management Case Example
Wal-Mart’s Sustainability Strategy (continued) / In your permanent teams, please prepare written answersto questions 1-3 and 5. We will do question 4 at the next class meeting. The answer to these questions will be collected at the end of the class period and should not exceed 2 pages.
External Financial Reporting of Contingent Environmental Liabilities (in the annual report or 10K)
Contingent Environmental Liabilities:
Purity Oil Sales Case (AICPA Professor Practitioner Case Program). The case is posted on the ESM 281 course site. / Purity Oil Sales Case (AICPA Professor Practitioner Case Program). See assignment below (just after the end of the schedule). Do not try to answer the questions at the end of the case. Each permanent team, prepare Purity Oil sales liability disclosure grid. The PDF of the grid is posted on the ESM 281 site. Please turn in your team’s grid at the end of class with your team number at the top. Please attach a half page justification of your choices on the grid.
Asset Retirement Obligation / Class lecture and discussion. Prepare the short Asset Retirement Obligation assignment question posted on the Bren site. This assignment question will not be collected.
Mini-Project topic selection / Each team will select a mini-project presentation and a presentation date from the options listed after this schedule. The options are, (1) Sustainability reporting, (2) Green house gas inventories, (3) Management strategy and tools to green a business and (4) Socially responsible investing. There will be one or two mini-project presentation per week beginning week 4.
April 16
(#3) / Environmental Strategy, Financial Analysis of an Environmental Cleanup
Corporate Environmental Management Case Example
Wal-Mart’s Sustainability Strategy
Team presentation of Wal-Mart’s environmental strategy “game changer” / In your permanent teams, please prepare an answer to questions 4. The answer will be presented to the class in the form of a 5-10 minute presentation. Please submit a one page description and support for your game changer as explained in question 4. The class will identify the top two game changers and prepare an implementation plan for Wal-Mart.
Wal-Mart Epilogue / Discuss the game changer released by Wal-Mart since the end of the case.
Chesterfield Municipal Landfill Case. The case is posted on the ESM 281 course site. / Individually, please prepare the questions 1-5 for this case to be turned in via email by midnight Wednesday,April 21st(please prepare adraft for class discussion on April 16th). Please put the course number in the subject line of the email. Include a spreadsheet workbook and management recommendation (half page) that explicitly explains which generation will pay for the landfill cleanup under your recommendation. Your spreadsheet workbook should include computations to support your specific recommendation.
Firm Financial Performance Metrics
Brief discussion of Citigroup, Exxon, Apple and Amazon. Common market indicators (Beta, PE ratio etc.) / Class lecture and discussion, no preparation required
Cash Flow Tools
Cash flow model, present and future value, annuity, NPV, IRR, amortization tables.
Impact of environmental risk and cost of carbon on security prices. / Class lecture and discussion, no preparation required

The rest of the schedule will be posted shortly

Case Study Questions

Wal-Mart’s Sustainability Strategy (Stanford Case# OIT-71, available from Harvard)

  1. Given the fact that Wal-Mart’s customers generally are unwilling to pay a premium for environmentally friendly products, how is the company deriving business value from its sustainability strategy, or if not, how can it ensure that it does?
  2. Imagine that you are Andy Ruben or Tyler Elm, evaluating the progress of the electronics, seafood and textiles networks. Which networks have been most successful? What factors explain the success (or lack of success) of these networks?
  3. How is Wal-Mart motivating its suppliers to share information about and continuouslyreduce the environmental impacts of products and processes? How can the company stimulate the development of disruptive, breakthrough innovations?
  4. For the network to which you have been assigned, propose one new “game changer”or innovation project not described in the case. To support your proposal, outline theenvironmental benefits, the business value and/or profit opportunity for Wal-Mart, the greatest challenges inimplementation, and how Wal-Mart could overcome them. (optional) Looking beyond your assigned network,what other game changer or innovation project would you propose for Wal-Mart? Each team should prepare to make a 5 minute presentation of their answer to this question.
  5. As evidenced by Exhibit 12, Wal-Mart’s sustainability strategy has generally been veryprofitable. However, two initiatives described in the case benefit society and theenvironment, but apparently decrease Wal-Mart’s profits. Identify those two initiativesand imagine that you are their internal champion. How would you justify pursuing thoseinitiatives?

Clarkson Lumber (Harvard Case # 297028)

Clarkson Lumber Case questions:

  1. Why has this profitable company had to borrow more and more money from the bank?
  2. Does rapid sales growth always result in a need for substantial external finance?
  3. How has Mr. Clarkson met the financing needs during 1993-1995? Has the financial strength of Clarkson Lumber increased or deteriorated?
  4. How attractive is it to take trade discounts?
  5. Will a credit line of $750,000 be sufficient to meet the company’s needs in 1996 if it takes the trade discounts?
  6. What will happen to Clarkson’s financing needs beyond 1996? What would have to occur for the borrowing need to decline?
  7. How rapidly can Clarkson Lumber grow without further deterioration in its balance sheet leverage, assuming no new equity issues and continuation of its policy to pay no dividends?
  8. Would you, as Mr. Dodge, agree to lend Clarkson the money needed?
  9. What are the alternatives open to Mr. Clarkson if Mr. Dodge refuses his request for an increased credit line?
  10. What would you be willing to pay, as an outside investor, for a 30% ownership interest in Clarkson Lumber?
  11. What would you do as Mr. Clarkson?

Wilkerson (Harvard Case # 101092)

  1. What is the competitive situation faced by Wilkerson?
  2. Given some of the apparent problems with Wilkerson’s cost system, should executives abandon overhead allocation to products entirely by adopting a contribution margin approach in which manufacturing overhead is treated as a period expense? Contribution margin is price less direct costs (labor, materials). Why or why not?
  3. How does Wilkerson’s existing cost system operate? Develop a diagram to show how costs flow from factory expense accounts to products.
  4. Develop and diagram an activity based costing model using the information in the case. Provide your best estimates about the cost and profitability of Wilkerson’s three product lines. What difference does your cost assignment have on reported product costs and profitability? What causes shifts in cost and profitability?
  5. Based on your analysis for Question #4, what actions might Wilkerson’s management team consider to improve the company’s profitability?
  6. What concerns, if any, do you have with the cost estimates you prepared in the answer to Question #4? What other information or analysis would you want for better cost and profitability estimates?
  7. Wilkerson has been compensating salespersons with commissions on their gross sales volumes (less returns). Parker wonders whether the company should change the incentive system.

UBS Climate Change, Harvard Case #707-511

  1. Which of the four options should Suter support?
  2. If UBS decides to adopt any one of the four options, do you recommend reducing the company’s own energy consumption or should UBS buy carbon offsets? If you prefer the later, is your recommendation to invest in CERs, ERUs or VERs?

Patagonia, Harvard Case# 703035

  1. Evaluate Patagonia’s strategy
  2. How important to Patagonia’s strategy is its environmental position?
  3. How fast can Patagonia grow? How fast should it grow?
  4. How would Patagonia’s strategy differ if the company were publicly held?

Global Climate Change and BP Harvard Case## 708026

  1. Why did BP make the voluntary pledges it did? How does BP expect to get rewarded for those pledges?
  2. How do you think they will be rewarded?
  3. How do you think other oil firms will react? How does BP want them to react?

Zipcar: Refining the Business Model Harvard Case# 804060

  1. Evaluate this potential venture and the progress that Chase has made.
  2. What is the business model, and how has it changed between December 1999 and May 2000? What do the data from actual operations in September say about how the business model isplaying out in practice? Does this data give you comfort or concern?
  3. What actions should Chase take as a result of the September operating results?
  4. What is the strongest argument Chase could make to a potential investor about theattractiveness of the venture? What, specifically, should her elevator pitch be at the Springboard forum?

"Purity Oil Sales- Superfund Site, A Case on Accounting for Environmental Matters."

American Institute of Certified Public Accountants Case 94-04

General question/theme: Methodology for external corporate reporting under uncertainty when the uncertainty comes from a multiple sources and changes over time. The sources of uncertainty are the existence of a liability and the measurability of the liability.

Complete the table entitled “Purity disclosure grid” (marked page 26 and posted on the Bren course site). The questions on page 9-10 require technical accounting knowledge and should not be attempted.

In the top section of the table use the certainty/probability ranking described at the bottom of the page. In the middle section use the codes described at the bottom of the page to rate the amount of information available. Finally, in the bottom section of the table, use a check mark to identify the level of disclosure that in your judgment is appropriate for each year.

Provide annotations to each section of the table explaining your initial rankings/ratings and any changes to those rankings over the years. Please attach a half page justification of your choices on the grid.

The class will be divided into two groups for discussion of this case. One group will have a bias for early/increased disclosure (similar to the Securities and Exchange Commission) and the other group will have a bias against early/increased disclosure (corporate controller (not always)). The groups will debate the merits of the degree of disclosure at each stage of Chevron’s involvement.