Over the past decade, issues relating to community, society and social responsibility have moved firmly onto the management agenda of many leading companies in the UK and elsewhere. But how often do these issues make it to the realms of boardroom discussion? The answer is not often enough, but things are starting to change. As issues of corporate responsibility become entangled in corporate strategy, risk management and governance, they are becoming more integral to the board’s role in ensuring the compliance and performance of CEOs and their management teams. What does this mean in practice – for the board and for community affairs specialists?
The boardroom balancing act
A recent report, The Power to Change, by the International Business Leaders Forum and SustainAbility, looks at the emerging leadership role played by boards of directors in delivering sustainable value to markets and society. It highlights the commercial and societal challenges faced by company boards and the business case for them to be more pro-active in addressing social and environmental issues, as well as economic ones. The report recognises that boards of directors already face a daunting challenge. There is a danger that efforts to incorporate societal and stakeholder issues onto the boardroom agenda, if not managed properly, could overwhelm boards that already face massive and complex agendas, with limited ‘face time’ and short time horizons in which to make decisions. As such, it is probably unrealistic and impracticable to call for boards to take on additional functions or to fundamentally change their current structures. Rather, the key is for societal considerations to be integrated into their existing core functions and structures. Leading boards are doing just that.
Although there is wide variety across countries and industry sectors in terms of board structure and culture, most boards fulfil the following portfolio of functions:
• Setting general policies and strategic goals of the company and monitoring management’s performance against these;
• Shaping the company’s framework for accountability, control and risk management, and ensuring management’s conformance to this; and
• Selecting and remunerating the CEO and executives.
Examples of innovative practices that integrate societal considerations into these existing functions include the following:
• The Novo Group’s charter – endorsed and championed by its board – of triple bottom line management principles and basic values, prominently profiled in the company’s recent de-merger;
• The creation of board sub-committees dedicated to monitoring performance on social and environmental issues at companies such as 3M, Coca-Cola, Kellogg, Rio Tinto, BP, Shell and South African Breweries. A recent study by The Conference Board shows that 15% of the U.S. companies surveyed now have a citizenship-related board committee, compared to less than 10% in 1980;
• The establishment of external stakeholder advisory fora by companies such as Camelot, BT and Dow Chemical, which have various mechanisms for reporting to the board;
• The appointment of prominent human rights and environmental specialists to the boards of companies such as DuPont, Freeport McMoRan and Bovis Lend-Lease, bringing diversity and new perspectives into the boardroom; and
• The Executive Limitations Policy implemented by the BP board, which restricts the manner in which the CEO can meet short- and long-term performance targets, covering issues such as ethics, health and safety, the environment, treatment of employees and political considerations.
The sonorous tone of board leadership
These individual structures, processes and documents are important, as they cement board commitment to social responsibility. Just as important is the tone and overall approach taken by the board in everything it does. In this spirit, The Power to Change presents a set of principles for leadership at the board level.
These L.E.A.D.E.R. principles are:
• Leadership: taking ownership of the triple bottom line agenda (social, environmental and economic), by demonstrating individual leadership on these issues and ensuring appropriate succession planning and executive development;
• Engagement: bringing outside perspectives on these issues into the boardroom, through increased dialogue with stakeholders and peers;
• Alignment: achieving coherence between policy and practice, both externally and internally;
• Diversity: fostering creativity and independent thought by having a diverse board composition and by widening the pool of talent for future executive and non-executive directors;
• Evaluation: measuring and rewarding the triple bottom line performance of board and company;
• Responsibility: building accountability for the company’s societal impacts, through internal systems and external reporting.
The high performing boards of the future will be those that embrace these principles. They will play a critical role in ensuring that their companies create value for both shareholders and society. To date there are some impressive pioneers, but most corporate boards have a long distance to travel in addressing the triple bottom line agenda more systematically and comprehensively. How can community affairs specialists help to put society – and specifically community concerns – more firmly on the boardroom agenda?
Community Affairs specialists
Community affairs specialists can take the following steps to increase their board’s awareness of, and action on, social and environmental issues:
• L Encourage board members – both executive and non-executive – to champion specific corporate citizenship initiatives. Encourage the CEO and/or chairman to include the company’s community investment and wider corporate citizenship commitments in the annual report and letter to shareholders.
• E Invite board members to get involved in stakeholder dialogues and to speak more regularly to employees and community leaders about the company’s role in the community.
• A Develop internal mechanisms to report regularly to the board on plans, activities and performance on community investment and wider corporate citizenship issues, with a focus on how these issues relate to the company’s strategic goals and risk management needs.
• D Recommend the names of external experts who could make presentations to the board on strategically relevant social issues, and keep an eye open for community leaders who could become non-executive board directors or participate in stakeholder advisory panels.
• E Identify and encourage the use of key performance indicators to track community engagement activities and report these to the board regularly.
• R Does your board have a sub-committee to monitor societal issues or does your company have a company-wide senior management group that reports regularly to the board on these issues? If not, collect information on what other leading companies are doing in this area to share with your company secretary or chairman.
And perhaps the next time you see a major corporate social responsibility story breaking through the pages of the business press, pass it on to your company secretary’s office with a note on its implications for corporate strategy and risk management. There are clearly obstacles to engaging the board of directors on some of these issues. For most community affairs specialists, however, the time, effort and risk taken to engage your company secretary and board of directors will be a worthwhile investment. The potential benefits are great – both to the company and to society.
Corporate Citizenship Briefing, issue no: 57 – April, 2001
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