CR Leaders Corner: Doug Chia

doug-chia

Last summer at the Yale Governance Forum, Doug Chia received a Rising Star of Corporate Governance Award, the last year he would be eligible for the honor granted to “global corporate governance professionals under the age of 40 who are making their mark as outstanding analysts, experts, activists, or managers.” Indeed, Chia celebrated his 40th on the very day AccountAbility Senior Research Fellows Marcy Murninghan and Bill Baue caught up with him for an hour-long chat about his work as Corporate Secretary and Assistant General Counsel at Johnson & Johnson.

Chia is clearly breaking the mold for this role. As he quipped in the conversation, colleagues ask him, “Aren’t you supposed to be the person at the company who tells everybody to shut up?” To which he responds, “Yeah, you would think so. But somehow, I’m the lawyer who’s telling people that no, shutting up is not always the answer.” Quite the opposite, Chia sees value in the corporate world communicating more regularly, proactively, and in-depth on wide-ranging sustainability and accountability issues with stakeholders across the spectrum via multiple communications media. At the Yale Governance Forum, he spoke on a panel covering the use of social media for corporate accountability (along with Murninghan), and he communicates his personal views candidly on Twitter (@DougChia), debunking the stereotype of the tight-lipped corporate lawyer—as you can see for yourself from this interview.

Marcy Murninghan: Johnson & Johnson explicitly committed to social responsibility in its Credo, written by Robert Wood Johnson in the mid-1900s.  How has this commitment evolved since then, and in what ways has J&J expanded its definition to encompass broader areas such as corporate governance and sustainability?

Doug Chia: Yes, the Credo was written in 1943, and since then it’s been amended very few times—they shortened it to make it more concise, and added a couple of things, including specific reference to protecting the environment, fathers (in addition to mothers), and employee work-life balance.

But the way the document was set up, it really didn’t need to be expanded in that conscious a way—In many ways, you could say that the Credo was one of the earlier iterations of what sustainability is, in terms of taking into account different stakeholders that touch the company and rely on the company; the Credo just built that in.  The idea is that if you adhere to the Credo with all your decision-making, the business should be sustainable because you’re not just this one-dimensional money-making entity, but rather you’re looking at all these different factors. And so sustainability is something that’s built into our perspective at J&J. And that’s probably one of the reasons why we have been more on the leading edge of sustainability reporting and environmental conservation, because this has been part of our fabric for many years now.

Marcy Murninghan: Last October, Johnson & Johnson expressed concerns to the SEC about the cost burden and quality impact associated with mandatory XBRL tagging of financial data.   And Ethical Performance recently expressed concerns about the slow pace of the Global Reporting Initiative in creating a taxonomy covering environmental, social, and governance (ESG) data. What’s your take of the pros and cons of XBRL, and the promise for tagging ESG data?

Doug Chia: My issue with tagging and XBRL is that I want to be convinced that it is really going to be used, because in theory it’s got a lot of utility, but at this point there’s one side that’s bearing most of the cost. I don’t know whether service providers are really passing on the cost savings to the end user, so I think the cost/benefit analysis has to be looked at again: are the costs greater than originally anticipated, and the benefits really a lot less than originally anticipated? Or is it too soon to tell? Maybe in a number of years, we’ll all be convinced that, okay, it was worth all the upfront expense. So it’s a tough policy issue.

There are some out there who say, “Okay, let’s just tag everything. More tagging is better.” But I think we need to think through it more than that. It’s like disclosure: more disclosure isn’t always better. Sometimes there is significant cost to more disclosure where you’re only doing it for the sake of a few people, or you’re creating information overload and don’t have the systems to even process or analyze it.  Is this really the direction we want to go? If so, are the costs put on the right parties? And are we even using the right technology? I don’t know if XBRL is the right technology or not. In five years, will it still be the right technology, or are we going to be redoing the tagging to a different standard at that point?

On the question of tagging ESG data, obviously, it should ease comparability between companies, and it should have some utility for companies using tagging for internal purposes.
I’m on the supply side of the data as opposed to the consumption side.

Bill Baue: Integrated Reporting, which blends financial and sustainability data, is a very hot topic. What are your thoughts on Integrated Reporting—both its benefits and burdens?

Doug Chia: The logic behind integrated reporting makes a lot of sense—all of this data should interrelate somehow.  And so, to the extent you’re just creating separate reports with no linkages, there’s so much you’re missing right there. But integrated reporting is more than just having all the reports housed in the same book, which is easy enough to do.  It’s also about doing holistic analysis of how it all fits together—it’s the analysis portion that really matters.

In terms of the cost, from what I’m hearing when I talk to people, most companies don’t have systems in place to gather all of the data on a global basis and aggregate it. And part of the problem is the lack of a standard set of definitions—there are no generally accepted accounting principles for sustainability. Right now, GRI is the leading candidate for that.  And so I think it’s important for people to be involved in the process of shaping the standards to make sure that they are done right—that we’re getting the right type of data, referring to it in a standard way, and collecting it for the right purposes so that it’s actually relevant and useful for people.

Bill Baue: J&J has done well on sustainability rankings, but the ratings field has come under fire as its numbers swell.  What do you see as the value of ratings and rankings in advancing sustainability, and what are the limitations of this mode of pushing progress?

Doug Chia: You pointed out that J&J actually ranked pretty high in the governance category. I was on Twitter criticizing some of the governance metrics of a ranking that was recently released. As I looked closer at the metrics they were using, I said to myself, “These don’t look like metrics that translate into good corporate governance to me. Anytime you start ranking things and calibrate so finely that there’s a number one company versus number two and people start competing over that, it seems a little bit silly to me at a certain point—I just don’t think it’s that simple. So that’s what I see as the limitations.

On the other hand, rankings do foster aspiration for companies to be better. We just need to make sure we’re creating the right incentives by what we’re measuring. I think J&J is generally not a company that tries to figure out how to get to the top of these lists. But there are companies that do. And so there’s a ratings industry out there in the business of profiting from these. These rating entities all have to have a different value proposition, so they’re not the same as the next rating group. So you tweak it; you have your own proprietary categories that other groups can’t copy. And so, I get a little bit suspicious when they’re too many different rankers out there.  Nonetheless, it’s important for companies to pay attention to all of them and weigh their value.

Marcy Murninghan: You were recently appointed to the Advisory Panel for the Diverse Director DataSource (3D) project recently launched by California pension funds and managed by GovernanceMetrics International (GMI).  Why is director diversity important, and what do you hope to contribute to 3D?

Doug Chia: I think diversity is important from a strategic perspective for businesses that go beyond a homogeneous marketplace—who understand where the demographics of the world are today, and where they’ll be twenty years from now. Many companies understand the business case for diversity and apply it when they hire sales reps as they expand into new countries, but for some reason, they haven’t applied it to the board.  It just doesn’t make sense to me—why would you have a business strategy that embraces diversity and shut it down when it comes to board members? The common excuses come out for why the board is not diverse, but look, it’s 2011, it’s not 1980 anymore, when a company could say, “There are no women or African Americans who are qualified, so we have to wait.” Well, we did wait. They’re out there, you’re just not looking hard enough—or simply don’t care.

Some companies already have diverse boards. And I sincerely think those companies have a competitive advantage going forward. If you look at the companies that are really successful on multiple fronts, they’re likely to have diversity at the top.  So part of it is a mindset that looks beyond the traditional circles for board members. And that’s not just saying that we need more women or need more African Americans in the boardroom—it’s going beyond corporate CEOs and Harvard MBAs and looking at people with backgrounds and experiences that don’t fit the traditional mode of what a corporate director has been up until this point, like people in academia, in the consulting world, the entrepreneurial world.  I mean, we have a President of the United States who was a “community organizer,” which people made fun of at one point—but not anymore.

The 3D is an attempt to expand beyond a traditional pool.  There have been efforts to expand the pool in the past, but they clearly haven’t been successful enough or they’re just not coming at it from the right approach. The 3D is an opportunity for people outside the corporate recruiter community to take a stab at this.  And what I like about the 3D is that this was very much created by investors with the presence of mind to invite people from the corporate community and the academic community to join together to think about this, as opposed to the “us-versus-them” approach.  One misconception out there is that the 3D is intended to be a proxy access vehicle, when it’s really not.  If it were, they wouldn’t have invited me to be part of it, and I certainly wouldn’t stick around if it were.

Bill Baue: There’s a lot of buzz about social media and corporate accountability these days, and you are very active on social media. What are the benefits and burdens of social media for senior managers and boards? How can companies leverage the interactivity of social media to engage with their stakeholders?

Doug Chia: The utility of social media for stakeholder engagement is obvious as a new way of reaching people in all different segments, particularly the younger generation—because that’s where they’re “hanging out.” So to me, it’s a no-brainer.  For a consumer-focused company like J&J, we need to hear feedback – good and bad – from our actual and prospective customers about our products so we can make them better. We can talk to users over social media in a way that’s comfortable for everybody. For certain sectors, having your CEO out there on social media carries a certain caché. But for a mining or exploration company, the case for using social media might be completely different—maybe it’s less about Facebook, and more about reaching your suppliers and other constituent groups and where they’re hanging out.  It’s exciting to watch the whole thing unfold.

Bill Baue: With heightened public distrust, companies are under greater scrutiny from all sides – including regulators, shareholders, and other stakeholders calling for greater transparency and accountability. The US Department of Justice recently announced a settlement with Johnson & Johnson resolving bribery issues that also praised the firm for communicating proactively and  cooperating with the DOJ.  How do companies like JNJ work to regain and maintain public trust?

Doug Chia: At the end of the day, trust is really about authentic communication between the company and the public. You can talk all you want about the fundamentals of crisis management and how you need to be out there communicating right away and very openly and very often. But you see it so rarely executed. Even the companies that really understand it, it’s hard to execute that flawlessly—and I think it’s getting harder because the Internet has added complexity.  There are so many different streams of information out there that are not controllable—there is no “news cycle” anymore.  You might have better access to media these days, but so do your critics and so do the people who have an interest in seeing you fail. So it’s just a lot more complex these days. And I think some companies probably are not up to speed with how it works. In some cases, they have gotten into trouble trying to respond in a way they thought was authentic, timely and transparent, but it just it blew up in their faces because they may have miscalculated what it was going to take to communicate the message in the Internet era—they were playing by rules that were in place ten years ago, but have changed a lot just within the last few years. The future is going to be about over-communicating—you’re going to have to err on the side of communicating too much. And there are clearly dangers involved with that, which is why people hesitate and end up under-communicating. But I think under-communicating could leave you in a worse spot; over communicating can be very difficult, and there’s a certain amount of luck involved.

I’ve said this in a number of forums and some people point out, “Wait a second—you’re a lawyer.  Aren’t you supposed to be the person at the company who tells everybody to shut up?” And I’m like, “Yeah, you would think so. But somehow, I’m the lawyer who’s telling people that no, shutting up is not always the answer.”

Marcy Murninghan: Last year Yale’s Millstein Center for Corporate Governance and Performance honored you with a “Rising Star of Corporate Governance” award. What do you consider the most important rising issues in corporate governance, and how are other “rising stars” changing the face of governance?

Doug Chia: The people of my generation entering this profession are coming in at a much earlier stage in our careers than the people who came before us.  The corporate secretary role in particular has traditionally been a position reserved for people later in their careers. We in the younger generation tend to be more attuned to these types of communication and technology issues—we’re more cognizant of the convergence of a number of corporate disciplines. On the one hand, there’s the corporate secretarial lawyering practice, which is what people like me were trained to do. But then, a lot what I do is investor relations, particularly with ESG investors. And then a lot of what I also do could be kind of seen as PR.

And so the traditional corporate structure of having separate law, investor relations, and communications departments and having them work together only when they need to–I think that’s getting broken down. I envision a day when essentially the communications, investor relations, and corporate secretarial team are one and the same. They’re basically all smashed into the same department, working together arm-in-arm on a daily basis—because that’s basically what it’s becoming now.

At J&J, we’ve formed this internal sustainability working group—it’s a cross-functional team that’s made up of a number of disciplines. At some point, we’re going to have to just meet on a daily basis, sitting in the same room every day with each other, because there’s just so much that’s coming together. A lot of the same questions are being raised in a number of different areas that are forcing people to work together more, which is a good thing.

Bill Baue: How do you work beyond the boundaries of your own company, collaborating with other companies, NGOs, government, and others in collective action to promote broader systemic change toward a more sustainable economy?

Doug Chia: I’m very involved in external efforts— I speak with quite a few of my counterparts at other companies on a very regular basis, constantly exchanging ideas and keeping each other up to date on what’s going on in areas of mutual concern. I’m fortunate in that what I do is not really competitive. Companies that are governed well want other companies to have good governance as well. So there’s a lot of opportunity for sharing information without the threat that this is going to advantage a competitor to your disadvantage. Today, I was on the phone with the corporate secretary at Pfizer trading ideas—we talk regularly.

And going beyond the immediate circle, at J&J, we’re talking a lot with other stakeholder groups – on the investment side, in the NGO world – We’re always trying to develop relationships and look for opportunities for those sides to come together to accomplish things that are in everybody’s best interest. Too many times, people approach things from a very adversarial stance. They approach you with something they want from you or something they want you to stop doing—as opposed asking, what’s the problem? What’s the solution? And how does everyone fit together to be part of the solution, which might involve trade-offs for some people? That’s what we aim for—when it can become a discussion about how we can work together to make something happen, as opposed to a battle where one side’s going to win over the other side.

Unfortunately, US culture tends to lean toward the adversarial setup—and our political system clearly doesn’t help. I think the political system nowadays just feels a lot more adversarial than it used to and you don’t see as much opportunity for bipartisan collaboration. Or if you do, it tends to be very short-lived. And it can devolve into finger-pointing and name-calling very quickly. And so watching that play out can be very frustrating. Personally, having had high hopes for someone like Barack Obama to come in and change the climate was really exciting. But it doesn’t appear to be panning out the way I had thought it would. And that’s not to say it’s his fault. It’s just saying that the problem is a lot tougher than anticipated to overcome. And there are a lot of people with a vested interest in keeping it that way. So weaning people off that is difficult.

Marcy Murninghan: On a closing note, could you please share a glimpse into J&Js’ future plans to continue its tradition of innovation in sustainability, accountability, transparency, and/or stakeholder engagement?

Doug Chia: J&J’s future and mindset is very much aligned with all of these concepts. But how do we get there? How do we balance all the different demands and pressures and allocate the resources in proper ways? That’s the more difficult part for any company. The business case for sustainability, accountability, transparency, and stakeholder engagement is clearly there, it’s now a question of how do we get there while satisfying the stakeholders who have ideas of how we should be doing things?

Obviously, profitability is a driver, and people want to see instant results—this culture of investor impatience and short termism hinders the sustainability movement from really catching on, because for a lot of the sustainability ideas there’s some patience involved, and not everyone wants to wait and see how it pans out. And you know, maybe that’s kind of like me with XBRL: “Hey, maybe in the long run this could turn out to be great. But right now, I just don’t know.” I appreciate the fact that patience is difficult. And if you’re living in a world where people reward instantaneous results more than they do long-term results, then you know what the outcome is going to be.