Why Your Company Should Have a Board-Level CSR Committee

Jill Conway joined Nike’s board of directors in 1987 and exercised significant influence over the development of the company’s social responsibility commitments and programs through her leadership of the board’s corporate responsibility and sustainability (“CR&S”) committee, which was formed in 2001 with Conway serving as the initial chairperson of the committee.  Noting that most companies had still not formed a stand-alone committee focusing on sustainability as of 2014, Paine argued that the following insights gathered from her interview with Conway regarding Nike’s experience with using such a committee provided support for encouraging companies to include a CSR committee as part of their governance and sustainability structure:

• A CR&S committee provides a unique and novel source of knowledge and expertise. Creating a CR&S committee provides an opportunity and incentive to recruit new board members with domain-specific knowledge in corporate responsibility and sustainability issues and relationship to help the company address those issues as they arise in course of the company’s operational activities.  However, in order to realize the benefits of knowledge and expertise, care must be taken to mapping out the company’s principal responsibilities and identify the key issues that the company is likely to confront so that the criteria for candidates is aligned with the actual needs of the business.  Also important is making sure that all of the members of the CR&S committee, if not all of the board members, understand stakeholders’ expectations and the company’s governing standards and are open to new ideas.
• A CR&S committee serves as both a sounding board and a constructive critic. CR&S encompasses a broad range of environmental and social issues that can overwhelm a management team, particularly since many of the issues fall outside of the specific experiences of the CEO and other executives.  A diverse and experienced CSR committee can supplement the skills of the management team by serving as a sounding board and constructive critic, which means asking insightful questions, making suggestions, offering perspectives, raising counterpoints, proposing alternatives and otherwise challenging management’s thinking without trying to assume management’s roles and responsibilities.  The prospect of review of proposed sustainability programs by a dedicated board-level committee pushes management to design the programs rigorously and be prepared to defend metrics, assumptions and proposed strategies for communicating the details and results of the program to stakeholders.  The independence of committee members also ensures that they will bring a third-party perspective to sustainability issues while still acting as fiduciaries of the company who have duties of loyalty, care and confidentiality.
• A CR&S committee is a driver of accountability for sustainability-related commitments. In Nike’s case, the CR&S committee was assigned responsibility for overseeing the publication of the company’s stand-alone corporate responsibility report and as time went by the committee became a driver of accountability through other activities including reviewing the company’s progress toward its sustainability targets and reviewing the performance of supplier’s against the company’s health, safety, environmental, and other standards. In order to effectively conduct its oversight responsibilities, committee members will be proactive partners with management in developing appropriate measures of environmental and social performance and ensuring that the company’s information and reporting systems facilitate collection and analysis of all necessary data.  In addition, the committee must engage directly with key executives and managers from different business and functional areas to ensure that their strategies are aligned with the company’s overall strategies for sustainability and that alignment is reflected in accountability metrics for each of the company’s business groups and units.  Moreover, the prospect of regular meetings with the committee—Nike required that all key executive and managers meet with the committee at least once during an 18 month period—fosters a greater sense of accountability among the company’s leadership team.
• A CR&S committee can serve as a stimulus for innovation. While Nike’s CR&S committee spent most of its time during the first few years of its existence dealing with operational issues (i.e., “putting out fires”) and establishing the CR&S-related systems necessary for pursuing CR&S objectives and monitoring CR&S performance, as time went by the committee became more involved in identifying opportunities for innovation as a means for meeting opportunities and challenges embedded in the environmental and social issues confronting the company.  Eventually, the committee’s duties with respect to monitoring, oversight and problem solving were supplemented with supporting innovation and the company’s goals of using innovation to build a more sustainable business model.  Among other things, the committee continuously engaged with the company’s executive leadership on innovation processes and product development
• The CR&S committee is a valuable resource for the full board and the custodian of the long-view. While institutional investors and other stakeholders are demanding that all board members pay attention to sustainability, the reality is that directors are still inundated with short-term objectives and the need to address issues that require immediate attention.  As mentioned in the article, sustainability involves identifying and remaining mindful of “future conditions or parties who do not currently have a direct market relationship with the company but whose actions could have a powerful effect on its future health and functioning” including “factory workers in the supply chain and the millions of ordinary citizens affected by Nike’s activities … future generations of Nike managers, who may face shortages of critical resources; future generations of consumers and athletes who use Nike products; and beneficiaries of the company’s community investment activities, who may one day become influential members or leaders of their communities and countries”.  A focused CR&S committee creates a team of experts who can help the entire board fulfill its obligations with respect to sustainability and inject a long-term perspective into debate on any matter that comes before the board.

One other important lesson emerged from the interview with Conway: the need to be sure that the CR&S committee and its roles and responsibilities are not “marginalized”.  Conway reported that one of the conditions that she had for launching the CR&S committee for Nike was that Phil Knight, the chairman and iconic leader of the company, would attend every meeting of the committee.  This sent a strong message to all of the members of the executive team, as well as other managers called to make presentations before the committee, that candid dialogue and robust information sharing with the committee was necessary and expected.  The entire board can and should reinforce the influence of the CSR committee by making it clear that certain actions will not be taken by the board unless and until a report and recommendation has been received from the CR&S committee.
How is all this laid out in practice?  Nike’s published charter for its CR&S committee as of 2018 described the purpose of that committee as reviewing Nike’s significant strategies, activities and policies regarding sustainability (including labor practices), and community impact and charitable activities, and making recommendations to the board.  Specific responsibilities, which can also be embraced by other companies as they brainstorm about the scope of activities of their own board-level sustainability committee, included the following:

• Review and provide guidance to management on sustainability issues and impacts, and the integration of sustainability into Nike’s business, including innovation, product design, manufacturing and sourcing, and operations.
• Review, provide guidance to management, and report to the board on sustainability (including labor practices) within Nike’s supply chain, and review reports of Nike’s sustainability audits.
• Review and provide guidance to management regarding Nike’s work with industry organizations and non-governmental organizations concerning corporate responsibility.
• Annually review the activities of the Nike Foundation and Nike community impact initiatives.
• Review and make recommendations to management on reporting to shareholders and other communities regarding corporate responsibility activities.
• Review, provide guidance to management, and report to the board regarding the involvement of significant corporate responsibility issues in major business decisions, to protect Nike’s valuable goodwill, and human and intellectual capital.
• Review and make recommendations to the board with respect to any shareholder proposal that relates to the matters overseen by the committee.

Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business.  Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedIn, Twitter and Facebook.