2015 Corporate Responsibility Report

Download PDF

2015 Corporate Responsibility Report

External Review Panel

Betsy Bosak

Betsy Bosak

Vice President • Spectrum Knowledge, Inc.
Betsy Bosak is vice president of diversity and inclusion at Spectrum Knowledge, Inc. Prior to this post, she spent 26 years with Northrop Grumman. Her nationally recognized work includes expertise on racial attitudes, work-family balance, women in non-traditional careers and sex role stereotyping. She has published 25 articles in professional journals including Journal of Social Psychology, Journal of Gerontology, Psychology of Women Quarterly and Contemporary Educational Psychology. She also testified at a meeting of the Equal Employment Opportunity Commission regarding post-9/11 issues in the workplace. She received her bachelor of arts, master of arts and doctorate in educational psychology at University of California Los Angeles.

Nancy Gillis

Nancy Gillis

CEO • Green Electronics Council
Nancy Gillis is the CEO of the Green Electronics Council, a mission-driven, non-profit organization with the goal to achieve a world in which only sustainable electronics are designed, manufactured, bought, used and recycled. The organization stewards the definitive global rating system for greener electronics, called the EPEAT program, and collaborates with stakeholders to facilitate the adoption of sustainable manufacturing and procurement behaviors. Previously, Nancy served as global lead for resilient and responsible supply chains at Ernst & Young (EY).  She also served, under the Obama Administration, as director of the Federal Supply Chain PMO at the General Services Administration. Nancy received her graduate degree in information technology from Georgetown University.

James Haddow

James Haddow

Director • Howard University School of Business
James Haddow is director of the Center for Excellence in Supply Chain Management at Howard University School of Business in Washington D.C. Along with teaching a range of supply chain management courses to both undergraduate and graduate students, he is also a faculty advisor to students during supply chain case competitions. Jim has 30 years of industry experience with specialties including strategic sourcing, supply chain assessment, project management, global security, expense management systems, performance measurement, strategic planning and financial analysis. He received a bachelor of science in business and management, as well as an MBA with a concentration in logistics, from the University of Maryland.

Dean Krehmeyer

Dean Krehmeyer

Executive Director • University of Virginia
Dean Krehmeyer is executive director of the University of Virginia Darden School’s Institute for Business in Society, which serves as a leading global catalyst of thought, information, and action on business. He facilitates executive seminars in corporate governance and business ethics and is the co-author of “Breaking the Short-Term Cycle: Discussion and Recommendations on How Corporate Leaders, Asset Managers, Investors, and Analysts Can Refocus on Long-Term Value.” He received all of his degrees from the University of Virginia including a B.S. in commerce, M.S. in accounting, and an MBA.

Mark A. Shamley

Mark W. Shamley

President and CEO • ACCP
Mark W. Shamley is president and CEO of ACCP and has more than 20 years of experience in corporate and public affairs, corporate social responsibility, business development, and marketing. Prior to joining ACCP, he oversaw community relations and government affairs for the National Basketball Association Orlando Magic. He received his B.S. in marketing from Marist College in Poughkeepsie, New York, and has a MBA in international business from the Crummer Graduate School of Business at Rollins College, in Winter Park, Florida.

Background

For the fifth consecutive year, Northrop Grumman leaders convened an External Review Panel as part of the annual corporate responsibility report formulation process. The mission of the five-member group was to review the 2015 Northrop Grumman Corporate Responsibility Report (hereafter the “Report”) for readability, clarity of goals and activities, transparency and year-on-year comparability.

Panelists are selected for their professional acumen, knowledge and experience in specific topics related to sustainability and corporate responsibility. To ensure unbiased assessment and fresh perspectives, the panel membership rotates. For the 2015 External Review Panel, two new members, Betsy Bosak and James Haddow, joined three current panel members: Nancy Gillis, Dean Krehmeyer and Mark Shamley. For each panel member shown, you will find an individual biography linked to each image.

These five professionals reviewed a final draft of the Report. Panelists’ observations reflect their individual points of view and not those of their respective organizations. The process began by sending the 2015 report to each panel member. The panel then met virtually, culminating in an in-person meeting at Northrop Grumman corporate headquarters in Falls Church, Virginia, for discussions with key Northrop Grumman senior managers and other personnel on the various approaches and resulting content of the Report.

The panel did not review underlying data or relevant process documents, and therefore the review process does not represent independent verification of the performance data within the Report. In recognition of the respective time, expertise and contribution of each panelist, Northrop Grumman representatives offered to make a grant in each panelist’s name to a designated, qualified 501(c)(3) organization. Additionally, Northrop Grumman provided reimbursement for each panel member’s related travel and lodging expenses.

2015 Report Card: External Review Panel Recommendations for Improvement

The external review panel concluded that future Northrop Grumman reports could be improved through a number of recommended changes:

Consider Expanding Report The overall compactness of the Report, as compared to previous years, leads certain sections to become very dense with content. Expanding the Report would allow the opportunity to utilize more graphs, charts and imagery to support the narrative and information being communicated.

Inform Key Stakeholder Topics The narrative could be clearer regarding specific actions used to address these topics in 2015. For example, there is no reference to evaluating current strategies or developing new approaches to source diverse talent. With these as key areas of interest to stakeholders, their omission should be addressed going forward. Also, there is an opportunity to better communicate about the stakeholder engagement process using a timeline chart versus a bullet-point list.

Define Metrics The Report identifies financial performance metrics and non-financial metrics. It would be insightful to include a graph, perhaps a year-on-year comparison, of the quantitative numbers for those metrics. Since these are noted as featured metrics, it would be helpful to have them summarized for context.

Provide Comparative Data Specifically, the narrative is missing comparative data in some areas so the reader can compare progress over time including:
• Year-on-year data across the various content areas
• Key employee demographics, such as race and gender breakdown for total workforce, professionals, managers and executives
• Agency complaints
• Engagement and inclusion survey data including how the company compares to others in the defense industry
• Retention data

Include Information on Sustainable Procurement Practices For further credibility, the narrative should include information about supply chain sustainability even if just indirect procurement. This information could include what Northrop Grumman employees demand of suppliers and how the supply chain process mitigates environmental impacts and increases organizational competitiveness.

Highlight Third-Party Recognition The Report should feature more examples of third-party recognitions of Northrop Grumman corporate responsibility. Examples include leadership in ethics associations (e.g., DII, ERC) and the large number of Nunn-Perry Awards, etc. These are terrific affirmations to be more fully touted.

General Overview

The overall framework of the Report is very effective. Starting with “Our Values” helps reinforce the importance of what is central to company executives and employees. From there, the narrative resonates with Northrop Grumman being a values-driven company and continually frames the company’s stakeholder engagement practices and successes.

Likewise, the opening Leadership section is an effective overview of key stakeholders, which establishes the way Northrop Grumman employees think and act in creating broad value across those groups. Further, the inclusion of narrative regarding “Systems Thinking” not only helped delineate this document as a Northrop Grumman Report, but also distinguishes the company from competitors by providing an innovative explanation.

Other overall observations of the Report:
• Communicates effectively in a concise and focused package.
• Uses a design layout that is visually pleasing, communicates clear messages and allows for a structured reading of the content. Although largely consistent, there are still minor areas of layout synchronization that could be improved.
• Demonstrates a significant improvement in the use and relevance of imagery. Likewise, the clear and appropriate captions are a nice addition and solid improvement.
• Utilizes web links effectively to direct readers to other relevant documents.
• Documents awareness of varied interests of relevant audiences, especially the U.S. federal government, by highlighting key activities.
• Highlights the composition, diversity and skill levels of the Board of Directors.

Section Overview

I. Leadership

The CEO message is clear, concise, credible and, overall, much improved. Wes Bush’s message strongly states the importance of corporate responsibility to the business and then cites concrete examples on how that commitment is driving business results. The message could include a more transparent discussion of other key topics such as U.S. security, how the company stays innovative and competitive, sustainable growth and valuing the environment.

The narrative for key stakeholders and the materiality process provide an excellent summary of how executives establish the Report direction and priorities. The “Our Key Stakeholders” graphic is easy to read and understand. However, it would aid the reader if the stakeholder input were more obviously included within the materiality discussion instead of standing separately.

II. Our Business

This section is a very effective description of Northrop Grumman performance goals that correlates the business operations and corporate responsibility components that occur throughout the Report. In order for corporate responsibility to be connected to the business operations, and not just a “bolt-on,” this has to be executed explicitly, as it is in this section. The narrative highlights Mission, Commitments and Performance, which are critical to demonstrating Northrop Grumman as a proactive corporation globally. The content explaining the major business units is well done, but could be more fully realized with a highlight of an innovative project within each of the four areas.

Highlighting the strategic importance of the supply chain to the corporation is very important to all stakeholders. Including some quality measures would be helpful. For example, a chart with some comparative data spanning previous years would add context. Enhancing the goals and performance summary would also be beneficial. This expanded narrative could include metrics that demonstrate specific results to Northrop Grumman, customers, suppliers, government entities and other stakeholders (e.g., specific supplier performance improvements, customer cost reductions, etc.).

III. Governance

The Report provides useful links to certain governance and other information in the annual report, proxy statement and publicly filed documents, which results in effective focus points. In particular, highlights of governance practices and the Board attributes table are excellent.

The narrative provides a good, succinct overview of the Board of Directors. However, vague statements such as “…our interests are aligned with those of leadership in governance…” need more clarity to specify how alignment is measured.

The large 2015 Highlights section demonstrates the wide range of ethics achievements such as training platforms, branding and external partnerships, which are all indicative of longer-term foundations within the company. This correctly suggests that the ethics and values elements are embedded at Northrop Grumman, not just sporadic activities.

Similar to previous editions, the “OpenLine Contacts” graph is notable for its transparency: it contains tangible items in the inquiries/allegations reporting identified via the ethics processes. This graphic could be further strengthened if accompanied by an additional description on data interpretations including insights and actions taken.

IV. Innovation

This is a new section and great addition to the Report. Because innovation is so critical, the narrative could expand to further highlight Northrop Grumman employee efforts. Specific examples of innovation, or even some of the best proposal submissions, might be highlighted. Instead of listing “Partners and Professional Associations” consider showing the funded innovation projects and include a link for more detailed information.

V. Environmental

This is a very powerful section with a good combination of descriptive text, supporting quantitative and qualitative metrics and effective charts. The effective narrative flow allows readers to understand the overarching company strategy and specific information on actions against that strategy. The visuals provide credible “year-on-year” data. Stressing the link between environmental sustainability and executive compensation is very important to all stakeholders because it demonstrates a positive level of commitment by corporate management. Likewise, establishing target environmental sustainability goals is critical in demonstrating the management commitment to deliver actual beneficial results.

VI. People & Culture

This section is a real highlight for Northrop Grumman. The first sentence declares employees as the most vital asset for the company. The section narrative then reinforces this statement by detailing many highlighted programs including talent acquisition, diversity and inclusion. The content demonstrates these as an ongoing focus at the company, not just as periodic activities.

Overall this section addresses a broad array of exceptional programs including highlights of various industry-best veterans programs. The commitment to employee development is well demonstrated. Highlighting the importance of proactively managing and working to improve current employee talent is key to Northrop Grumman’s brand image and comes through in the narrative.

Conclusions

Overall, the Report shows an awareness of interests of relevant audiences— especially the U.S. federal government— by highlighting key activities including engagement with small businesses, focus on greenhouse gas reductions and addressing myriad community and social issues. The Report could also include supply chain environmental performance, and sustainable procurement, to further improve relevance to the government audience.