2017 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.

Dr. Alfred H. Guy, Jr.

Dr. Alfred H. Guy, Jr.

Professor • Yale University
Dr. Fred Guy teaches courses in ethics and philosophy at Yale University Gordon College of Arts and Sciences, where he also serves as coordinator of the university core curriculum on ethical issues in business and society. He has served as director for the Hoffberger Center for Professional Ethics from 1994 to present. He received his Ph.D. and M.A. from University of Georgia and B.A. from Auburn 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.

Marget Hanley

Marget Hanley

Co-founder and Principal • The Isosceles Group
Margret Hanley is an expert in the management of environmental issues affecting the development and use of real estate. She has more than 28 years of experience in the integration of environmental management programs and the sale, redevelopment and use of industrial properties. At the Isoceles Group, she leads due diligence evaluation and asset management services. She is a licensed site professional (LSP) in Massachusetts and has a B.S. in geology and geophysics from Boston College.

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 seventh 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 2017 Northrop Grumman Corporate Responsibility Report for readability, clarity of goals and activities, transparency and year-on-year comparability.

Northrop Grumman contributor teams nominate stakeholder panelists with significant professional background, knowledge and experience in key topics related to sustainability and corporate responsibility. To promote continuous improvement and fresh perspectives, panelist terms are staggered. For the 2017 External Review Panel, two new members Alfred Guy and Margret Hanley join Betsy Bosak, James Haddow, and Mark Shamley. For each panel member shown, readers can find an individual biography linked to that image.

Panelists’ observations reflect individual points of view and not those of their respective organizations. The process began by providing each panel member an executive review draft of the 2017 Corporate Responsibility Report (hereafter “Report”). The panel then met virtually, culminating in an in-person meeting at Northrop Grumman corporate headquarters in Falls Church, Virginia. During this meeting, panelists were able to have discussions with key Northrop Grumman senior managers and content providers, related to 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 panelists reimbursement for related travel and lodging expenses.

General Overview

Overall, the Report is consistently concise, clear and as comprehensive as possible within the allotted space. The language strikes the right tone that will appeal to external readers and provides a good overview and specific details in each section. The “Appendix B Performance Data Matrix” is a great addition. Also helpful is the use of links to microsites for more detailed presentations of objective evidence. The “Speak Up” initiative is a very appealing aspect of the Report for both employees and outside readers.

The Report provides a robust demonstration of the prescribed values at Northrop Grumman. To that end, the “Strengthening Communities Around the World” map is an excellent way to depict the company’s commitment to extending its sustainability goals to global stakeholders.

Other overall observations of the Report:

  • Appropriate attention paid to key focus areas based on topic materiality to the organization and stakeholders.
  • Increased attention on systems engineering and thinking, which are key differentiators for Northrop Grumman. All of the innovative technology efforts shown on page 28 highlight the focus on innovation.
  • Solid financial and non-financial goals as described on page 8, which shows attention focused on key parameters for success.
Leadership

This section provides a concise description of ongoing efforts at Northrop Grumman to identify material issues to both internal and external stakeholders. Page 1 provides clear performance highlights within the CEO message. The list of “Partners and Professional Associations” on page 3 includes the addition of the Institute for Supply Management, which supports the importance of the global supply chain in the Report.

Under the “Our Values” page, it may be helpful to combine QUALITY and CUSTOMER SATISFACTION to make room for adding a value WE RESPECT THE ENVIROMMENT. This approach would align with the commitment to the environment as demonstrated in the Report. Also, this section could include more narrative about challenges that occurred and how those challenges were addressed in 2017 by the leadership at Northrop Grumman.

Our Business

This section highlights the mission, commitments, goals and performance critical to demonstrating Northrop Grumman is a proactive corporation globally. Highlighting the strategic importance of the global supply chain to corporate operations is well presented. The design layout of the goal/performance data makes it easy for readers to quickly assess performance against goals.

The page 7 overview stressing “Global Security and Data Privacy” is a great highlight given increasing cyber security and data breach events. Additional supply chain information and highlights added to the 2017 report is positive and also identifies the global challenges to Northrop Grumman. Specifically mentioning “Human Rights” and “Conflict Minerals” is strategically important. There has been an impressive year-to-year increase in diverse supplier spending as shown in the chart on page 11.

The narrative could include information on how Northrop Grumman is addressing and complying with the new EU General Data Protection Regulation (GDPR). It would also be helpful to share peer data, ideally in graphic form, so readers can compare how efforts at Northrop Grumman compare with others in the defense industry.

Governance

This section is well designed and demonstrates a true corporate commitment to regulatory and legal compliance programs. Pages 17 and 18 provide a solid and succinct overview of the practices of the Board of Directors and the impressive diversity of membership. The narrative should include details about how the Board and Northrop Grumman are delivering on governance goals (pages 16 and 17). The section titled “2017 Governance Goal and Performance Summary” does not provide data, or links to data, that could be used to measure performance. Metrics to evaluate governance performance in key areas should be presented or at least accessible through links provided in the Report.

Overall, the Ethics section is a strong point of the Report. Highlighting the Business Conduct Officers on page 23 demonstrates commitment to ethics globally. The new Supplier Standards of Business Conduct translated in multiple languages highlights the importance of supplier conduct when working with Northrop Grumman. Also noteworthy is the leadership role that the company has taken relative to peers in the DII is noteworthy.

The disclosure of “Openline Contacts” recorded in 2016 and 2017 reflects a welcome degree of transparency. However, it would be informative to see how Northrop Grumman inquiries and allegations compare to others in the defense industry on a per-1000 employee basis. Also, when due diligence is performed to verify regulatory and legal compliance at Northrop Grumman facilities, the coverage and findings of that due diligence should be included in the Report.

Innovation

Having a separate section for Innovation demonstrates the emphasis on a strong Systems Thinking culture at Northrop Grumman. This narrative gives the reader a focus point regarding the process of innovative thinking and its results. The “2017 Highlights” on page 28 are informative while the Global Grand Challenge Summit, Techfest 2017 and Innovation Ecosystem are certainly notable and worth emphasizing to external audiences.

This narrative could be expanded considerably to more fully demonstrate efforts at Northrop Grumman to provide defense/security systems to help defend American interests and the free world. Describing how “Systems Thinking” has been incorporated into ongoing sustainability programs would also be helpful. Also, measuring and reporting innovation initiatives compared to defense industry peers would provide greater context.

Environment

This section comprehensively covers environmental performance categories that are important to Northrop Grumman stakeholders. Establishing and reporting target 2020 environmental sustainability goals is one such activity important to stakeholders. The “Environmental Remediation” section on page 36 is a powerful narrative that highlights an environmental activity not frequently mentioned in corporate filings.

The narrative could include more information about audits such as percentage of sites with problems identified, types of problems and percentage of problems resolved in a given time frame. Also, page 43 references benchmarking with industry peers. It would be beneficial to display the actual benchmark data on key environmental, health and safety statistics.

People and Culture

This section presents an excellent array of programs to build a corporate culture that enhances employee engagement and engages outside communities. The evidence presented includes employee engagement and inclusion scores that are top in class. The narrative documents diversity and inclusion efforts as an ongoing focus rather than a periodic activity. The 84 percent employee participation in the annual employee survey is impressive and demonstrates employees who are engaged.

The narrative highlights corporate community investment very well including the “Investment Through Philanthropy “graphic on page 44 highlighting. It is also a strong point to show how Northrop Grumman employees are proactive in volunteering, which recognizes their importance to external communities.

The section could include graphics that display employee engagement and inclusion data including a comparison of Northrop Grumman versus other aerospace and defense company norms. Also, as with other sections, there is a lack of attention paid to areas requiring improvement or comparability, which would provide greater context to readers.

2017 Report Card:
External Review Panel Recommendations

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

EXPAND METRICS:

Additional key metrics would be helpful including quality management performance against Northrop Grumman expectations, supply chain management improvements, “Openline” contacts details, and percentage of employees who completed anti-corruption training annually along with percentage of suppliers signed to the Supplier Standards of Business Conduct document to date.

DISPLAY MULTI-YEAR DATA CONSISTENTLY:

Throughout the report and in Appendix B graphics should show consistent multi-year results for better comparisons. This would enhance the reader’s ability to quickly assess performance on key dimensions.

USE NORMALIZATION FACTORS:

To better reflect Northrop Grumman performance, use normalized figures. For example, rather than reporting total tons of hazardous waste, reporting tons of hazardous waste per unit produced would provide a better representation of efforts at Northrop Grumman efforts to minimize hazardous waste generation over time.

COMPARE TO PEERS:

For greater context and comparison, include data throughout showing Northrop Grumman performance against other aerospace and defense companies.

ADD GRAPHICS:

Recommend adding graphics including how Systems Thinking leads to innovation across the corporation globally and supplier compliance performance related to human rights and conflict minerals around Northrop Grumman’s “Supplier Standards of Business Conduct.”

HIGHLIGHT ACHIEVEMENTS:

Accomplishments in 2017 are often under-stated, such as in “Innovation.” This section could be a shining examples of the work being done within Northrop Grumman.

FOCUS ON AREAS NEEDING IMPROVEMENT:

Many sections had little, if any, attention on areas needing improvement. The narrative should include more balance of positive performance and challenges that occurred and how they are being addressed by the Northrop Grumman leadership.

FOCUS ON STAKEHOLDERS:

Consider how the report is, or could be, used by stakeholders and provide additional content and links to information that is material to those stakeholders.

EXPAND DISCUSSION:

It is not clear how Northrop Grumman employees engage with contingent workers. Consider expanding the overall discussion regarding engagement and training to include not just employees, but all workers.

Conclusions

Overall, the Report is well-written and well-designed with images and graphics to enhance reader focus. Appendix B is an excellent addition. In total, the Report narrative clearly communicates the numerous goals, efforts and performance of Northrop Grumman employees. A major key refinement would be expanding and restructuring the presentation of metrics throughout including normalized figures and a consistent format of multi-year data for each graphic.