Corporate governance: A need for fresh perspectives

Over the past six years, Business in the Community’s CR Index has tracked attention by boards to sustainability and corporate responsibility. However, while progress is being made in getting discussions of issues such as climate change and ethical sourcing on to the agenda, BITC and others argue that it is also important to distribute responsibility for these issues across the board rather than relying on one or two individuals.

Executive discussions might even bring in external partners. “It takes enlightened leaderships and part of that is talking to a very broad range of people who monitor what’s happening in an external operating environment,” says Sophia Tickell, executive director of SustainAbility, the consultancy. “Companies need to bring in perspectives that are not necessarily all from inside, where they tend to be focused on the daily running of the business.”

At the same time, for many companies, sustainability is becoming part of daily business – whether that is cutting their energy bills or shoring up ethical sourcing guidelines – and therefore has a variety of implications for the management teams.

“As with any part of the responsible business agenda, we have to be able to explain this in terms of what it means for different business functions,” says David Grayson, head of Cranfield School of Management’s Doughty Centre for Corporate Responsibility. “So for a financial director, this is going to have some different dimensions from a logistics director or marketing director.”

And as companies start to see corporate responsibility not only as a case of simply introducing community investment programmes but also as part of how they operate their supply chains or manage their energy efficiency, a wider group of executives are participating in senior-level discussions.

“There is evidence that sustainability issues are being incorporated into strategy, research and development and other functions that already have strong board representation,” says Ms Tickell.

Nevertheless, for many companies, it remains important to have dedicated corporate responsibility teams with senior officers that report to the board. In a report conducted by Ipsos MORI released in October 2008, BITC found that the percentage of companies with corporate responsibility committees reporting to the board rose from 13 per cent in 2002 to 60 per cent in 2007.

The CR Index also reveals a connection between better performance and the number of individuals on the board with responsibility. For this reason perhaps, recent years have seen the emergence at large companies such as Google, AT&T and SAP of a new C-level position – the CSO or corporate sustainability officer.

Moreover, what is discussed at board meetings is changing. BITC found that in the past year, nine out of 10 companies participating in the CR Index had board-level discussions of sufficient depth to merit inclusion in the minutes, and the number of board members with responsibility for specific aspects of corporate responsibility has increased.

This activity is likely to intensify. “One of the consequences of the crises – financial, economic and in the long-term more severe sustainability crises in terms of water and climate change – is that these demand an improvement in governance,” says Prof Grayson.

Board-level engagement in corporate responsibility allows companies to manage these issues more strategically and to set standards and values and measure performance against targets. It also helps companies to look outward as well as inward, providing impetus for efforts to improve regulation in their sector.

And having an individual on the board with an overview of sustainability strategy can help advance sustainability strategies. An enlightened corporate responsibility officer can, for example, play an important convening role, bringing issues to the attention of the board and explaining their significance to the business.

“That person can play a very key role in enhancing the agenda and helping the board to understand it,” says Ms Tickell. “Because there’s no guarantee that the average board member is necessarily on top of these issues, they need someone to explain them and justify why they’re being addressed in this particular way.”

Companies also need to prevent corporate responsibility from becoming locked into an executive suite silo. “If that’s the case, everything tends to get diluted,” says Ms Tickell. “And it’s not looked at as a genuine threat and opportunity for the business.”

The opportunities look promising at a time when profit margins are under pressure. In its research with Ipsos MORI, BITC revealed that companies consistently participating in the CR Index outperformed their FTSE 350 peers on total shareholder return between 2002 and 2007 by between 3.2 per cent and 7.7 per cent a year.

However, to reap these business benefits, companies need to ensure employees throughout the organisation are aware of the need to improve performance in areas such as ethical sourcing and carbon reduction, says Prof Grayson.

“Leadership from the top is essential,” he says. “You need the top-down messages – but you also need an empowered workforce from which innovation and ideas can bubble up. It’s not a case of ‘either, or’, the genius is getting both.”
source: http://www.ft.com/cms/s/b992d6d4-548d-11de-a58d-00144feabdc0.html