Corporate governance and corporate social responsibility experts rarely have occasion to speak with one another. But the time is nigh for the two to talk, argues Rob Lake, and where better to start than inviting CSR specialists into the boardroom.
Good corporate citizenship is concerning investors more and more in our post Enron world, where ticking all the corporate governance boxes is no longer a guarantee against emerging risks or corporate misdemeanour.
Corporate citizens don’t emerge, however, without the full commitment of the board. This automatically makes it a governance issue. It also means that the non-executive directors (NEDs), as much as the executive team, need to be fully involved.
Companies and investors devote increasing attention to ensuring that NEDs provide the full range of experience needed to advise and challenge the business. For example, the new version of the Combined Code will recommend that at least one member of the Audit Committee has ‘recent and relevant financial experience’. Some companies are now applying the same thinking to corporate citizenship.
Corporate governance is about board structures and processes, brought to life by people. So how do these apply to corporate citizenship? A small number of companies now have a specialist board committee on this area – Shell, Cadbury Schweppes, BAA, Boots are among them. One company, AstraZeneca, has an NED with specific responsibility for corporate citizenship. But the right kind of expertise is not always found within the small group of people from which NEDs tend to be drawn. So some companies are seeking to ‘widen the gene pool’. Bringing in NEDs from outside business can expose the board to fresh thinking and help the company see itself as others see it. This doesn’t just mean recruiting the token retired politician – or taking people at random from NGOs.
But the right people from the public or voluntary sectors, who combine understanding of key issues with experience of large and complex organisations, have much to offer. More people are also needed from business specialisms that do not usually rise to the boardroom – such as the environment, health and safety, or customer relations.
Having more people like this in the boardroom might also help companies deal with another big challenge – weaving corporate citizenship into pay. Investors are increasingly voting against pay packages they view as excessive. Linking pay clearly to performance is in itself a matter of corporate responsibility. Corporate reputation and staff morale suffer if pay differentials widen without clear justification. A handful of companies now also link areas like safety or emission reduction to pay. We need to see more of this. Sir Adrian Cadbury’s proposal that companies publish an annual ‘pay pyramid’ showing the distribution of pay across different levels of seniority would help develop trust among employees and enable investors and others to see how the company is developing its human capital.
The corporate governance and corporate citizenship debates have long been running in parallel. The issues of NEDs and pay represent a timely invitation for the two to come together.
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