Best Green Strategy 2010 Transcript

From Treasury & Risk's 15th Annual Alexander Hamilton Best Practices Awards

GREGORY LONG:  Okay. So like the presenters and moderators before me, I want to thank Tom Duggan and Donna Miskin and all the Treasury & Risk team for all their help and support and the privilege and honor for the second year in a row being asked to moderate and host the Best Green Strategy. In fact, I think it’s in its second year, so we’ve done both of them, and we’re very honored to do that, especially the panel, who I’ll get to introduce really shortly. I feel very, again, honored to be here.

I do have a special reason to thank them above and beyond some of my predecessors, so if you can bear with me for a quick short story. I inherited a new manager in March who wanted to learn a little about what our go-green strategy and what my team was all about, and so I was real excited to talk about my team and promote us. And before I even got a word out, she held up her hand and said, ‘Now, I know you’ve had a lot of success, and I know that this environmental treasury strategy has been very well received, but it’s been a couple of years: Do you think it’s mature?’ So now anyone who’s ever run a line of business or a project, hearing the word, ‘mature,’ my mind immediately went to how many zeros do I have in my bank account, and can my parents’ basement be retrofitted to fit my wife and three kids? So luckily, I only had to hedge for a couple of seconds there, because like the three gentlemen beside me, I had a great go-green story to tell, and you’re going to hear a little bit about it. I promise to keep it quick ’cause I certainly want to get to these presentations. So Tom and Donna, thank you for not making me move to my parents’ house, I appreciate that.

Okay. Some of the themes that you’ll hear in my colleagues’ presentations, obviously the cost reductions and efficiencies. One of the things that I found is that just because you’re a little electronic doesn’t mean you’re paperless. All right? So as treasury officers and professionals, we may buy the newest platform or take on the bank’s newest system, and yet the paper, the DDA statements, the advices, all the photocopies are still going to another part of the firm. Now, I’ve gotten some of the feedback, ‘Well I’m not paying for it. The vendor or the banker or the financial institution has zero-priced those.’ But trust me, you are paying for it. You’re paying for it in storage fees, you’re paying for it in the shredding relationships, or the people dedicated to disseminating that information on an on-going basis. Trust me, you are paying for that business. I think risk mitigation is an obvious benefit to go-green. Electronic information much more easily controlled and monitored than paper. One of my favorite stories is a gentleman in a company we were trying to help who was so proud of the fact he was able to build a cubicle out the boxes of paper the bank sent to him. Literally had a wall of it until I reminded him that his checking information and all his clients’ information was sitting in there, and the look of horror on his face was very telling.

Enhanced workflow efficiencies; you’ve seen some of the earlier presentations talk about how it’s so important to have a system that can access critical data, whether it’s cash flow, things along those lines, and getting it into the right hands so that you can make decisions quicker.

And then on top of those three things, you get all these extra benefits, right? So if you have to talk to your risk guy, you can tell him about disaster recovery and business continuity programs that are enhanced or mitigate client data risk. If you have a finance person, you’re talking about elimination of banking fees and other ancillary charges. And then in the service world, better access to information and better retrieval.

The challenges we see? Legal and compliance still seems to be a little bit of an obstacle, and we have conversations with our clients, though I think we’re starting to see that break. One of Treasury & Risk’s sister magazines, Inside Counsel -- one of the older issues, I think it was actually within the last 12 months -- featured on the cover the legal counsel for Hewlett-Packard who lead their go-green program. And that was a first for me because usually I run into the issue of, ‘Well we’d love to do it, but we need legal’s approval.’ And then the conversation kind of stalls there a little bit. So I think that’s changing. What I would recommend is that you just keep pushing the conversation with them. Sometimes what the legal requirements for -- I always use my old industry, broker-dealer, which always required the original document. I think over the last 10 or 15 years, it’s now the best available copy, not the original copy. So there are changes like that that you just need to be aware of.

It started about four years ago, where we started with the objective of figuring out how we remove all the waste that we create within our business.  And it became simple at first, on things like just reducing packaging size, and with the volume that we do, if you take a toy and cut out 30% of the packaging side, you’d save millions of pounds of carbon and gas and all the things that are bad that are happening out there today.  And as we started looking at Wal-Mart and getting better, we’ve made our fleets 15% to 20% more efficient today then what they’ve been running in the past.  And we started looking at, well that would be great, but that’s just dropping the stone in the water.  And we started talking about how do you make the ripple effect? 

So two years ago, we announced what we call the sustainability index, and it’s a project we’ve been working on with all of our suppliers where on all the packaging or all the products you’re buying, just like the nutritional information, we want to have a sustainable information on there as well to help customers make decisions that fit their lifestyle, so they understand what the gives and the takes are on buying the products, to just recently last month, where we announced our agricultural sustainable initiative. What we realize is that if we buy or produce that is closer to our store, we get fresher produce, and we reduce our cost of transportation, and that’s now applied to every part of our business.  Mike Duke, at our last annual shareholder meeting said that sustainability is now sustainable at Wal-Mart because it fits into our brand promise of saving people money so they can live better. 

On our side about it, it was all about efficiency. When we first met with our executive team and talked about what we were going to do with the product, the first objective they gave us is this can never be a profit generator from Wal-Mart. The goal of the card is not to get our associates to give money back to us unless they’re buying products. So that freed us up to do some creative things on the card and make sure that we held our suppliers to close to the same amount of not make any money. They do have to get return on the investment that they have into the products, but we made sure that it was very advantageous to our associate. 

Where Wal-Mart saw the saving is, imagine mailing out 1.4 million checks to over 4,500 locations every other week. The expense that is attached to that -- we have our own check-printing house, we run our own printing facility just to be able to print all of those checks and mail them out. FedEx loves us. They carry about three trailers on our lots at all time to take those checks and have them delivered on a timely basis to the store. And the temporary associates who spend three days stuffing envelopes with checks or making sure they’re in the right packages loved it as well cause it gave them temporary employment on how they went and did that. 

So when we started the program, 55% of our associates were receiving their pay electronically through direct deposit. Within a matter of one month, we moved into -- we moved to a 90% acceptance of electronic pay.  Now remember, Wal-Mart’s goal was not to get everybody signed up to a pay card or a pay card solution. Wal-Mart’s goal was to move everybody to electronic pay. So about a third of the people actually took the card solution. The other two-thirds, because of the renewed communication and the renewed focus in the company, came in and gave us their bank accounts. 

So where do we take it from here? We’re working on the systems that will allow us to get our associates signed up on the same day they join Wal-Mart. We’re working on the communication processes in adding more benefits like bill pay to make the cards more functional for our associates. And our goal by the end of this next year is to be able to show a graph that shows 100% of Wal-Mart associates now receive their pay electronically. Thank you.

Now, we had already had a plan, and Lewis had talked about it. In fact, when you stand back, we have four key strategies for the company. All of our products have four key strategies as well: quality, green, safe and smart. Under the green pillar, it’s our commitment that every new vehicle we introduce will be the leader in its segment in fuel economy. So we had already apportioned $14 billion of our plan to be able to deliver this. Now as you know, every loan requires an equity portion, so we submitted an application for $11 billion of that $14 billion to fund 13 projects. Now, the Department of Energy had to decide who are they going to pick first, and they had two key criteria. Criteria 1 is they needed to pick technologies that they felt comfortable with that could fundamentally improve America in where we were going. So the technology aspect was critical. Secondly, they needed to pick a company that they knew they could negotiate with to be able to set a precedent for all the other OEMs that were going to come after us to be able to fund this, the total $25 billion to add up.

From the Department of Energy’s perspective, just like any lender, they had a couple key criteria: you’ve got to pay your bills, anything that I give you money for, I want to lien on; this isn’t a grant, it’s not a giveaway, so I expect all normal loan terms that you’re going to have, and I want very detailed reviews. Unlike a normal loan, they wanted to be able to go through and review our technologies and our fuel economy every point in time because that’s what they were investing in.

Competitive terms: Now, the other thing that we had in our secured agreement was a most-favored-nations clause. Basically we couldn’t agree to anything more restrictive than what we had in that agreement. So it came upon us to have to negotiate with the Department of Energy that all the guarantees, affirmative and negative covenants, events of default that our 50 banks had negotiated with us were reasonable for their needs and would set a solid precedent for everybody else behind us. And use of a lot of, you know, our external lawyers, our internal lawyers, the whole Department of Energy legal team was able to convince them that, and it set them a good blueprint for everybody else. So that worked well.

The other thing we had to do is work with our secured creditors and the UAW VEBA to basically expand our second lien capacity by over $10 billion to be able to fully fund the loan, because this loan was covering not just capital expenses but also noncapital expenses, and so you think about the capital stuff, they put a haircut on the assets, how are you going to cover the rest of that collateral? You need a second lien to do that, and we were able to negotiate that with our other partners.

A few years back our CEO, John Chambers, challenged every organization to reduce their travel by 20% on a one-time basis. The treasury group actually upped that and have reduced our travel by 40% each year over the past three years, and we have no plans to go back to doing the travel that we previously have done. So treasury was able to reduce travel while maintaining a high performance, forming strong relationships with our banking insurance partners by using technologies such as Cisco TelePresence and Cisco WebEx. TelePresence is high-definition video conferencing which allows face-to-face meetings from anywhere at any time. People thousands of miles away appear to be in the same room as you. It’s truly an amazing technology, and you actually have to see it to believe it. WebEx is conferencing in collaboration over the Web. It includes audio and video and presentation and document sharing.

 

And if I can be selfish, I’d like to lead with the first question because, of course, I am always trying to learn a little bit. And I’m going to put this out to all three of you gentlemen, if you don’t mind. As you been taking this journey and working your particular unique deals, what has been the one ancillary benefit you didn’t know going in that you were going to get out of it? And if we can start with you, Sean?

 

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