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[Editor's note: This article originally appeared in the BSR Insight and is reprinted with permission. It is the second installment of a two-part series examining the role of corporate social responsibility in the boardroom.]
In the first installment of this series, I touched on various aspects of the growing debate about board governance of sustainability. In this week’s article, I look at how board engagement is likely to evolve in the years ahead.
Before returning to the specific sustainability issues shaping this discussion, it is worth looking at “secular” trends that impact directors’ perspectives on their responsibilities. Sustainability is but one development that directors are now factoring into their thinking and actions. It is essential to understand the overall landscape to gauge how sustainability fits into the picture. With that in mind, we can examine three key trends (apart from the traditional roles boards assume) that are likely to influence how boards think about sustainability.
Agenda overload: At this month’s Fortune Brainstorm Green conference, two public company directors lamented the rising tide of requirements placed on boards. This development began with Sarbanes-Oxley in the United States and has proceeded to require more oversight by most boards. The more compliance-related activities increase, the less time there is for “new” areas like sustainability to take their place on the board agenda.
Director diversity: Boards are facing increased attention to their composition as it relates to diversity, with a particularly healthy debate taking place in Europe. Whether quotas or other mechanisms take hold, it is nearly certain that board lineups will look different a decade from now. This will result not only in new demographics, but also new perspectives.
Executive compensation: Boards continue to deal with public disapproval of executive compensation, particularly in the United States and the U.K. This has given rise to the “say on pay” movement, as well as more “no” votes on executive compensation at some companies.
As described in the previous article, most companies now believe that certain sustainability questions demand their boards’ attention. How that gets implemented requires a careful look at the intersection of sustainability considerations and the broader governance trends described above.
In my view, the path forward should include both “hard” and “soft” governance mechanisms, i.e. formal and informal structures. While it’s certainly a positive development that boards are increasing their attention to and knowledge of sustainability matters, not all such questions can or should rise to the level of formal governance mechanisms.
A well-considered article -
A well-considered article - thank you.
I would add one further reponsibility for every board:
4. To ensure that material sustainability factors are reported to shareholders and that their feedback is used to guide future strategic development
You bring up some good points
You bring up some good points about how board members are too busy meeting other responsibilities to focus on sustainability issues and opportunities. However I would point out that as it realtes to:
Agenda Overload: The two directors complaining about the amount of time required for oversight of Sarbox compliance should avail themselves of the the wide offerings of quality outside services in this area to survey, summarize and distill performance and compliance so it will take up less of their time. The amount of time spent on risk management issues like Sarbox needs to be commensurate with the value at risk.
Director Diversity: This should not be taking up too much time, even if it is a trend. There are lots of outside experts to help them with this.
Executive Compensation: See above. Get some expert outside opinion and take a stand, and move on to more important matters.
This should free up their time to focus on what could be the single most important strategic issue that the company faces. Your article correctly points out that Boards have become all about defense (managing non-compliance risks, succession planning, administrative matters, etc.) and have no time left for helping to direct the offense (Strategy and Tactics). Before the board can do a proper and time-efficient job of evaluating alternative sustainability initiatives, it needs to put management on notice that they need to present sustainability initiatives to them within the context of a thorough Aspects and Impacts Analysis, and value-based estimates of the impacts of sustainability initiatives, so that board members can have a better idea if a) They are focusing on things that really matter and b) They are representing the interests of their prime constituency (shareholders) when they make these decisions. Using the right contextual analysis, addressing sustainability need not be overly time consuming.
Most business models are built upon technologies and industry practices formed over years of competitive use of available resources (and externalized costs) which have created the situation which now gives rise to sustainability concerns.Customers want their quality and convenience and do not want to pay more. And shareholders want their cash flow. This is unlikely to be changed by small incremental adjustments to business as normal. Boards need to be ready to consider plans to put legacy business models out of business, while fulfilling your customers in new ways. If they can't make time for that, then they (and their management teams) are indeed over-paid.