Good governance pays.
That’s the message an expert on corporate governance and sustainability relayed to representatives of some of the world’s largest companies at the COMMIT!Forum in New York City last week.
“Sound governance is a key element of sustainability," said Margie Flynn, principal of BrownFlynn, a responsible business strategy consultancy. "It correlates with stock value and contributes to a company’s reputation, which comprises a large percentage of the intangible assets of business value today." Her comments kicked off an in-depth look at governance and reporting practices.
Representatives from Lockheed Martin, Cocoa Cola, Monsanto, ING, State Street and other corporations learned the ins and outs of the current Global Reporting Initiative G3.1 governance-related guidelines and got a preview of proposed changes in the G4 Exposure draft.
Why Governance Matters
Flynn made two key points about the importance of sustainability to a business's bottom line.
First: A culture of sustainability (which includes an emphasis on strong governance) correlates closely with strong business performance.
Recent research supports this observation. High sustainability corporations -- those that voluntarily adopted environmental and social policies two decades ago -- "exhibit fundamentally different characteristics than firms that adopted almost none of these policies," according to research published by Harvard Business School.
The study found that the boards of directors of these companies were more likely to be responsible for sustainability, and incentives for top executives were more likely to be linked to sustainability metrics. Beyond that, these companies were "more likely to have organized procedures for stakeholder engagement, to be more long-term oriented, and to exhibit more measurement and disclosure of nonfinancial information."
Next page: What's the payoff?