As companies emerge from the recession, shifting away from frantic short-termism to long-term strategic thinking will separate the survivors from the thrivers.
A management trend of the past decade, corporate social responsibility (CSR) is moving increasingly into boardrooms as the strategic value of considering social and environmental factors in business becomes better understood. Stakeholder relations, customer preferences, declining resources, carbon pricing, government regulation, and other business issues under the rubric of CSR will surface as key corporate priorities.
Take NIKE, for example. Its brand came under attack in the 90s for human rights issues in its supply chain, sending a wake-up call to the board of directors. They realized they had not been overseeing critical social and environmental practices of their suppliers. They had recruited a female director with a background in global women’s rights and she made CSR a special interest, sponsoring discussions on the global supply chain, worker interests, and the environment. The board established a CSR committee to devote time to strategic social and environmental issues and began to see CSR not as a risk management exercise, but an innovation driver. The committee made recommendations to the board regarding labour and environmental practices, community affairs, and diversity. The board included non-financial metrics in executive bonuses and now considers social and environmental performance as part of overall business performance—and part of their overall fiduciary responsibility.
This foretells the next tectonic shift in corporate governance reform. The 90s witnessed isolated tremors affecting individual companies like NIKE. The damage to corporate reputation arising from governance failures at Enron and Worldcom in the 2000s triggered a massive overhaul of corporate governance practices through government and securities reform on a global scale. The recent collapse of Lehman Brothers and Bear Sterns has only accelerated this trend.
Increasingly, boards are looking for guidance and insight into their CSR role. The NIKE CSR governance approach provides some insights: gender diversity on the board; recruitment of sustainability-savvy directors; a board-level CSR committee; engaged and active directorships; incorporation of non-financial metrics into executive compensation; and integration of sustainability into overall business strategy.
But we can do better than this. I analyzed the board’s role in CSR / sustainability for the Conference Board of Canada in 2008 by interviewing directors of CSR-oriented firms in Canada and abroad and CSR governance thought leaders around the world. The research revealed a CSR template for company boards, which has evolved to become a set of CSR Governance Guidelines, produced in collaboration with Canadian Business for Social Responsibility—guidelines to help boards of directors integrate CSR into their governance mandate.
The main conclusions of the 2008 research are that some boards adopt a CSR governance mandate because of the business case, and others because it is “the right thing to do.” Boards need to define and commit to CSR, and understand its business value, in order to move forward constructively. Once this has been achieved, common steps include communicating the board’s commitment to management and staff to “set the tone at the top,” building CSR into risk management and the business strategy, and reporting to stakeholders on environmental and social progress. Boards should also recruit directors with CSR competencies, train directors on CSR trends in the industry, recruit CSR-aligned CEOs, and further incorporate CSR into the firm’s executive compensation incentives.
The research also discerned three types of board CSR cultures: stakeholder-centric boards which take stakeholder views and priorities into account in business strategy and decision-making; integrative boards which focus on integrating CSR throughout the business; and system-change-oriented boards which perceive the firm and its products and services as instruments of social change. CSR-oriented directors and thought leaders debate over whether boards should directly engage with stakeholders to receive unfiltered input, or whether this should remain a management responsibility.
The guidelines leave room for the board to tailor its approach to its unique priorities. That said, there is more evidence than ever of the merits—and fiduciary responsibility—of the board bringing CSR into its deliberations to inform business strategy and culture. NIKE learned its lesson and is profiting from it. So should others. Just do it.