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Interview

with Maurice Laratro, Business Centre Manager – Australasia, Lloyd’s Register Quality Assurance

06.04.2011 / Energyboardroom

LRQA certainly leans on a rich and proud 250 year tradition which has built up a powerful, uniform name around the globe. Australia’s geographic isolation and the management of its developed, resource-driven economy engender a unique regulatory environment and industrial landscape. What is the Australian specific approach that distinguishes LRQA here in Australia?

The 250 year history of the organization is indeed very strong and is the reason why we exist in Australia. LRQA in Australia was first formed in the early 1980s to further support our multinational clients. Naturally, over time we have acquired our own client base in Australia which has come to form its own global reach. From Australia we manage key international global clients which in turn require support from other LRQA offices globally, that help with the management of these accounts.

Whilst we always fit in with the global paradigm of Lloyd’s Register operations and are an LRQA organization, we have the liberty to design our own assurance statements and schemes specifically for Australian business requirements. To give a recent example, a customer asked us to design an assurance statement for a product that no one else in the world has developed. Our task, therefore, is to develop a unique process assurance statement for this product which they can use to communicate to their customers.

Additionally, we have recently gone to market with a greenhouse gas emission reduction product and we chose to offer an alternative product than that currently available from LRQA corporate. CEMARS® is a New Zealand designed scheme which we are bringing to market in Australia. We operate under a global umbrella but have the flexibility to capitalize on local opportunities.

A lot of movements have been going on in the energy and resources sector over the past 12 months relating to fiscal, environmental, and political changes. Given the resource-intense industry in this country there can be a natural ripple effect to the wider economy. How have the changes in recent months affected the areas of focus for LRQA where you want to position yourself with particular excellence?

Industry is always looking to the future to attempt to understand what will affect them and their business and, in particular, what direction they can get from government. One very important area where industry is awaiting firm Government policy is with climate change and this has yet to be finalised. Meanwhile, while waiting for a clear national policy direction, individual sectors of industry have had to do what they think is best to address their immediate needs whilst also considering a long-term view with respect to future challenges. This has led to industry being a bit disseminated and we see that not everyone is heading in the same direction. Across the board however, industry is looking for a supplier who can: piece together policy; help with strategy; and manage a multitude of regulatory requirements rather than hire numerous suppliers. Companies are looking for an outsourced model which can bring strengths that they do not have themselves.

How does LRQA meet all of those needs and bring clarity to an uncertain policy and regulatory environment?

Globally we sit on many regulatory panels that develop international standards which are then adopted by global industry. We work with local government (including Australia) to develop globally accepted methodology. Presently our climate change manager is in Canberra talking with policymakers on how our certification services have been designed to align with the national greenhouse and energy reporting scheme. We are always working with decision makers – whether at a corporate or government level – to assist them in taking a direction that meets the community and market needs.

The management of greenhouse gas emissions is a case in point. As you can imagine there are many consulting houses and statuatory, legal and international bodies suggesting ways that things should be done. To use an Australian colloquialism, it is a “dog’s breakfast”. Although Government, the ACCC etc., have been seeking to bring direction and clarity, it can still be confusing to business. This is where LRQA’s global reach combined with our local understanding of our clients business can help.

Indeed, thousands of consulting houses and hundreds of certification bodies prescribe analysis and action. With so much competition, does the size and weight of the LRQA name ever preclude customers who are perhaps looking for more cost-competitive, but equally impactful, services?

The LRQA name is sufficiently strong that we gain a lot of respect for the work that we do, both locally and internationally. The fact that the greater Lloyd’s Register organization is a registered charity in the UK gives us a certain amount of integrity and independence. This is something that a lot of our competitors do not necessarily have.

Our challenge is to engage not only the senior engineers, risk managers, quality managers or environmental managers but also the CEOs and the main decision and policy makers. Traditionally the CEO has relied on their line managers to deal with organizational risk. However, with strong compliance legislation in Australia, CEOs are getting more engaged in the risk management of their organization and are understanding the benefits that LRQA can bring through a business assurance approach that helps them manage their organizational risk.

How recent has this trend been unfolding and is this related to LRQA’s agenda of strengthening the marketability of its business assurance model?

This trend has been going on for two to three-years, but the realization of the capability that we can bring to customers has probably only taken off in the last 12 months, particularly with customers with whom we have worked closely with over a long time. The recognition of the CEO’s engagement helped us refocus our brand, introduce the business assurance model, and proactively promote it rather than reactively deliver it.

Can you explain to our readers the methodology behind LRQA’s business assurance and the strength of its system?

Business assurance is designed to help customers manage their systems and risks so they can improve and protect the current and future performance of their organization. Through business assurance, we can deliver a message to customer’s key stakeholders and engage with them in order to manage a range of financial and non financial risk. In the past, LRQA’s management systems reports were very technically focused allowing the quality manager or risk manager to interpret findings to their management board. Now, in order to bring risk management to the attention of the CEO, we focus on the critical organizational elements of a management system audit, which we call “business assurance.”

The first aspect to business assurance is developing a “themed surveillance.” We like to have an open conversation with the highest level of management to identify their top areas of perceived risk. Our audits are then themed to look at those critical risk factors in an organization. Instead of using technical jargon for our report, we use phraseology that resonates with the CEO. Sometimes the language may need to be brutal: “If you do not do this, then people may suffer.”

Second, after developing a theme we look at a risk-based methodology from an organizational, not operational, basis. If the organization recognizes that they have a labor issue, then the theme of the audit relates to human resource practices and compares benchmark industry standards. Subsequently we will introduce a risk concept to it: “If you continue doing X, then the risk that you face is Y.” Whenever possible, we quantify the assessment in either dollar values or opportunities for improvement.

Therein lies the third element of business assurance, continuous improvement. To sum up the process: “Here is what we have identified, here are the risks we see, when we come back later for a follow-up audit we would like to quantify what improvements have been made.” While a company might be fully compliant in its implementation of a standard, it might fall short of the continuous improvement required to remain abreast of newly evolving risks.

What are the main areas of organizational risk that you identify in the energy and resources sector as it stands today?

The oil and resources sector relies heavily on local and export markets. Clearly with any export market Australia faces the risk of currency movements and the demand from overseas markets.

I personally believe that we will end up with an emissions trading scheme in due course. In the meantime we need to see how a fixed price for carbon will work – and how it is to be applied to industry. The oil and gas industry will of course be exposed if a pricing mechanism is applied to the sector. Strategies will need to be developed and funds allocated to address emissions intensive areas. Clearly the balance between carbon pricing and complementary measures is an important one.

Tax related organizational risks include how, what, and how much companies invest bearing in mind the costs that they will have to face. What if the market demand overseas drops off and companies have suddenly made multibillion dollar investments?

Then there is research risk. All organizations are doing research into new exploration projects. Coal seam gas requires high market pricing in order for resources to be successfully commercialized. Exploration risks pertain to how companies invest billions of dollars into coal seam gas exploration knowing that market pricing must be at a minimum level to make it viable.

We invite our customers to open up in dialogue with us to express their concerns. Our business assurance processes allows us to theme our audits to address these concerns. Through a themed surveillance approach we audit our customers management systems to understand if their processes are robust. We help them identify risk from a financial, labor, technological, or supply chain perspective.

The discussion about carbon pricing and emissions trading has been seemingly endless. From your interaction with industry and government do you think Australia has the mettle and political will to go forth with it?

I think Australia has no choice. I think we have to do it. Australia is the developed country most exposed to climate change risk, yet the highest per capital contributor to that risk. We have much to contribute: Australia is a robust democracy with good institutions and has resourceful and entrepreneurial people and strong business leaders. If anything, the reason why we don’t have a carbon price yet is because Australia may have been trying too hard to achieve a “silver bullet” solution to this issue, when perhaps we should be rolling up our sleeves and getting on with it.

Clearly no one will like paying more as a result of carbon price. But it comes down to a relatively straightforward analysis of the risk. Whether you believe in climate change or not, there is too much at stake not to do something about it. We cannot sit back and wait any longer.

Enough corporations realize this and are prepared to accept a carbon price as the most efficient mechanism for addressing this issue. The problem is achieving enough certainty for business through a regulatory system so that business decisions can be made with confidence.

What do you see as the main drivers behind corporate emissions mitigation to date: corporate reputation, performance improvement, or competitive advantage positioning?

All three. For industries and companies such as banks, it can be about image, competitive positioning and being seen to do the ‘right thing’. That said, top-down executive leadership has also been a telling factor in Australia.

For high carbon emitters such as heavy manufacturing, it is about performance improvement and significant savings. As electricity prices increase, this will continue to be a driver irrespective of a carbon price.

Whatever the drivers, they will be intensified under a carbon pricing framework. Reputational risks will be greater, efficiencies will come under greater scrutiny and supply chains and customers will be increasingly focusing on companies’ greenhouse gas emissions and actions.

The CEMARS “Certified Emissions Management And Reduction Scheme” is all about measuring, managing and reducing carbon emissions. It will assist our customers to develop their own emission reduction strategies and targets. Customers see this as having a four-pronged benefit:
1. it measures their carbon emissions against government requirements and global standards;
2. it provides a clear identification of where the highest cost emissions areas are so that they can tackle and reduce it;
3. it provides assurance to stakeholders that emissions reporting is accurate and that there is a commitment to reduce emissions; and
4. it gives them a credible “brand” that is internationally recognised by their clients and supply chain alike .

Many companies have developed their own internal methodology for carbon measurement and reduction and there are a lot of consulting houses offering ways of accomplishing this. But at the moment there is a lack of a credible, marketable brand or logo recognising these achievements.

Customers that we are talking to are excited about three things: independent, credible certification; image (and therefore market positioning); and genuine productivity improvement.

Many new products in emissions management certainly indicate a strong growth market for LRQA. What other areas will provide robust growth LRQA Australia in the future?

Clearly emissions management and reduction is one of our top growth areas. We will keep a close watch on emerging emissions trading frameworks were we can bring our global expertise gained in the EU, Japan and under the UNFCCC, in both compliance and voluntary markets. Environmental management in its broader sense continues to grow showing its ongoing importance to both the public, the market and to Governments. There are a whole range of emerging issues, from water and food security to the environmental and safety frameworks around carbon capture and storage for example.

General quality standards are more mature in Australia and growth is at a slower pace. That said, many of the certified organizations are looking for what next in terms of identifying and managing risk and market positioning. Occupational health and safety is expanding because of strong regulations in this country and the recognition that everyone has the right to work in a safe workplace environment.

Whereas people may see some standards as more of compliance requirement, environmental management (including carbon emission management) is increasingly being viewed as an essential feature of an organization’s business strategy. Because of this, many responsible companies are acting by taking a leadership position or a long-term view, even though they are not regulated to do so at this time.

What makes for a good candidate and a successful assessor here at LRQA?

In the time that I have been at LRQA, I have found that the high standards we set and demand from the people we hire can be quite overwhelming. We impose those standards in order to ensure we deliver the highest possible service to our clients no matter what service or what country they are delivered in. Beside strong academic requirements we seek significant experience in related industries so that they can be comfortable, knowledgeable and listened to – whether they speak to a CEO, lead environmental engineer or an inspector on the shop floor. The development of our staff is an ongoing process as we demand continual professional development and it is not unusual for our staff to use post-graduate development to enhance their technical and communication skills at a high level. All of our assessors are qualified, experienced, industry recognized and are strong communicators capable of delivering the service our clients deserve.

Permeating Australian industry is a larger cultural characteristic, attitude, and mindset of “let’s get on with it, let’s get it done.” How is that reflected here in LRQA?

With our 250 year history we are bound by the rules and regulations of LRQA globally. Our integrity and our quality cannot be compromised.. But, we are still Australians and still have the “can-do” attitude. When looking for a product to take to the Australian market for greenhouse gas emissions we compared various international standards. We saw that many certification bodies can measure carbon emissions to international standards but they do not have a turnkey product that gives them an approach to measurement, verification, reduction, validation, and then certification. That is when we found the New Zealand-developed product CEMARS and pushed very hard to get approval to launch it in Australia. Perhaps we saw similarities in the scientists in NZ that developed the product and the clients that have used that product both there and internationally. Like them, our attitude was very much “can-do”: we did not see an alternative product globally; we knew that we needed it here in Australia; we said that we were going to do it; and we did it.

Are there any final messages that you would like to convey to our readers about LRQA and its “can-do” abilities in Australia?

Any industry – oil and gas in particular – will face challenges over the next few years especially in political, public and environmental areas. Whether or not there is global agreement on any one policy I believe there will be Government requirements sooner rather than later. Industry will have to understand, embrace and change to meet these requirements as they always do. The flagged introduction of a fixed carbon price is the first step to the full introduction of an emissions trading scheme. There are many challenges facing industry in this country but that is nothing new. As the world develops so we all need to adapt.

Clearly world class organizations will hire the right people, employ the right strategies, and implement the right processes and plans. My message to them is we are here to work with you. Our independence and services can challenge their management systems approach; challenge their risk approach; challenge their strategies; and challenge their objectives. They can use us to strengthen their own organizational goals and continue to meet the needs of this ever changing world.

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