CSR Governance and Management

While certainly part of the broader project of CSR implementation and integration, governance and management issues are often separated for deeper consideration.  The foundation of effective CSR activities is strong governance and management systems and clear, predictable and transparent processes that allow companies to identify early on, potential risks arising from operations and respond strategically to minimize or manage negative impacts, and optimize potential positive benefits.[1]  It is essential for companies to adopt governance and management policies and processes that are aligned with sustainable development principles, actions that must begin at the very top of the organizational hierarchy.  Support for CSR programs by the board of directors are an important element of the requisite “tone at the top” for increasing the chances of success for CSR.  Board members must understand that CSR programs are consistent with their traditional role and duty to effectively manage the legal, financial and reputational risks to the company that arise from the environmental and social impacts of the company’s activities.  According to studies conducted by the Conference Board and the Boston Consulting Group board oversight is one of the top drivers of a company’s attention to sustainability, a result that is not surprising given that the board is uniquely situation within the organizational hierarchy to ensure that sustainability is integrated into the long-term business strategy and that due consideration is given to social and environmental trends that will impact the company’s operations and the markets in which it operates.[2]

One of the most significant drivers of enhanced board oversight of sustainability has been the changing expectations of institutional investors.  In addition, directors have become keenly aware of the expectations of other stakeholders regarding the role and purpose of corporations in society and the need for corporations, through their boards and senior executives, to forge a strategy that takes into account the environmental and social impact of operations as well as traditional financial performance objectives.  Consumers are demanding that companies integrate sustainability into their products and services and employees are seeking to work for companies that aim to “make a difference” as well as profits.  Lawmakers are imposing additional sustainability-related legal and regulatory compliance requirements on corporations, thus causing directors to make appropriate changes to their enterprise risk management processes.  Finally, traditional notions of directors’ fiduciary duties, which assumed primacy of shareholders’ interests and maximizing shareholder value, are giving way to a model of directors’ duties that gives due weight to the interests of stakeholders.

Among the issues and activities that will need to be considered in establishing and maintaining effective governance and management processes for CSR and corporate sustainability implementation are the following:

• Understanding the drivers of enhanced board oversight of sustainability including investors’ expectations as to the role and responsibilities of directors and changing societal beliefs regarding the political and social roles of corporations
• Understanding how CSR and corporate sustainability is changing the traditional fiduciary duties of directors and officers including the ascendance of the stakeholder-focused model and the introduction of alternative legal architectures for sustainability-oriented businesses
• Working with the board of directors to integrate environmental and social responsibility into the governance structure and the traditional roles and responsibilities of directors
• Assisting the board of directors on the design and implementation of an effective framework for board oversight of CSR and corporate sustainability
• Counseling the board of directors and senior management on the development and implementation of CSR and corporate sustainability commitments and instruments
• Incorporating reports on CSR corporate sustainability initiatives into board meetings and understanding how to create effective environmental and social responsibility committees and integrate sustainability into the activities of other board committees
• Developing job responsibilities for the senior social responsibility officer and designing effective internal organizational structures and systems for managing CSR and corporate sustainability initiatives and programs and supporting CSR and corporate sustainability commitments and expectations such as preparation and distribution of sustainability reports and stakeholder engagement
• Implementing formal management systems relating to sustainability-related issues and topics based appropriate standards issued by the International Organization for Standardization (e.g., ISO 14001 (environment); ISO 26000 (social responsibility) and ISO 28000 (supply chain security))
• Reviewing and modifying job responsibilities and compensation arrangements of executive team members, particularly the chief executive officer, to incorporate CSR and corporate sustainability commitments and attainment of CSR- and sustainability-related performance goals
• Providing education and training to directors and executive team members on sustainability issues including the creation and management of stakeholder advisor groups and teams of external experts
• Assisting directors, executive team members and managers and employees within the internal sustainability group with key CSR- and sustainability-related activities such as transparency and disclosure and stakeholder engagement
• Identifying and counseling directors and officers on ethical issues that will arise as they discharge their duties and responsibilities with respect to CSR and sustainability

While CSR needs to have an important place on the agenda for full board meetings, larger companies have been establishing a CSR committee of the board of directors with responsibility for setting corporate policies on sustainable development and monitoring their implementation and for dealing with issues such as health and safety, personnel policies, environmental protection, and codes of business conduct.  Establishing a standalone committee at the board level focusing on sustainability significantly increases the amount of time that board members can dedicate to these discussions and increases the visibility of the board’s commitment, thus sending an important signal to both internal and external stakeholders; however, boards need to be careful that relying on a separate committee reduces the uptake of sustainability by all of the directors and hampers integration into other functional committees.  As time goes by the role of the committee will evolve to that of a “coordinator”, with strategies, commitments and targets being set by the entire board and the committee providing support with the assistance of an internal sustainability office.[3]

In addition, other board committees may be asked to provide support relating to specific CSR and corporate sustainability topics that are closely related to their regular activities, although it is important to avoid too much dilution of effort by making sure that the actions and activities of all committees are coordinated and the results reported upward to the entire board during the portion of the board meetings allocated to the consideration of CSR and corporate sustainability.  For example, in discharging its responsibilities with respect to identifying and recruiting new directors who can broaden the range of experience and expertise available to the full board and its committees, the nominating committee should pay specific attention to identifying candidates with experience in evaluating and overseeing CSR and corporate sustainability initiatives, such as CEOs of other companies that have achieved positive recognition for their sustainability efforts.  The audit committee, which is generally the committee responsible for risk assessment and management, should include CSR and corporate sustainability on its agenda and work with the company’s external and internal auditors to ensure that the sustainability topics are covered in audit activities and internal controls and that financial reporting procedures take into account emerging requirements for sustainability-related reporting.

While the directors must set and monitor CSR-related commitments and strategies, the day-to-day responsibilities, including continuous interactions with stakeholders, must be assumed by the officers of the company and will require design and implementation of effective internal organizational structures and systems for managing CSR initiatives and programs.  Surveys, such as one completed by Boyden in 2017 among adults in the U.K., repeatedly confirm that the public strongly believes that the CEO must play an active role in the CSR activities of his or her company and act as a spokesperson for those activities.^[4] Participation and engagement by employees throughout the organization is essential for effective human capital management and CSR implementation and the CEO is the only person in a position to communicate and demonstrate the values associated with CSR in a way that will integrate CSR into the corporate culture and the way that employees work on a day-to-day basis.

As discussed above, companies need a CSR strategy and accompanying goals and priorities, and in order for the strategy to be effective and successful it must align with the structure, competencies and culture of the company.  Companies that are relatively new to CSR often begin with a fairly simple “stand-alone” structure based on treating the CSR program as a separate function like finance, operations or marketing.  A high level executive, often given the title “chief sustainability officer” (“CSO”) will oversee the function and reports directly to the CEO from the same level in the organizational hierarchy as other C-level executives.  The job of the CSO, who will be supported by various sustainability directors worked primarily inside the sustainability function, is to begin the difficult process of engaging the business units that are overseen by other C-level executives.  Such a structure might have a vice president of sustainability reporting to the CSO and overseeing operations of the sustainability group and directors who report to the vice president and are charged with various sustainability-related activities such as communications, philanthropy, procurement strategy and environmental issues.

The advantages of this type of structure is that it creates a group that is solely focused on and responsible for initiating and implementing sustainability-related activities and serves as a magnet for recruiting the specialized skills necessary for sustainable programs to be successful.  The structure also provides clear control and coordination of the portfolio of sustainability-related activities and associated budgets.  However, a stand-alone approach has several critical drawbacks: sustainability is not integrated into the rest of the organization; limited buy-in from employees because they are not accountable to the sustainability function; and funding challenges since the function is typically focused on reducing costs as opposed to business development.  Companies often attempt to address and resolve some of the key shortcomings of the stand-alone structure by designing an “integrated structure” that recognizes and promotes reporting relationships between the sustainability directors, still sitting primarily in the sustainability function, and the business units.  Advantages of this approach include enablement of organization-wide integration and the creation of direct ties between the sustainability experts and the business units, thereby allowing the sustainability expertise to be available for supporting sustainability programs in the business units.

Other changes to management processes in connection with implementation and integration of CSR should include developing and adopting appropriate measures and standards of performance taking into account the company’s sustainable development objectives and standards that have been established by government and other public agencies.  In addition, companies will need to enhance their internal monitoring processes to help directors and senior managers ensure that the sustainable development policies are being implemented.  Monitoring can take many forms, such as reviewing reports submitted by middle managers, touring operating sites and observing employees performing their duties, holding regular meetings with subordinates to review reports and to seek input on how the procedures and reporting systems might be improved, and implementing environmental and social auditing programs.

For more information on the topic of this article, see the author’s book Responsible Business: A Guide to Corporate Social Responsibility for Sustainable Entrepreneurs, which is available here , and materials distributed through the Sustainable Entrepreneurship Project. 

[1] Corporate Social Responsibility Processes and Practices Manual: Operating Guidelines (Africa Oil Kenya B.V., July 2015).

[2] A New Agenda for the Board of Directors: Adoption and Oversight of Corporate Sustainability (Global Compact LEAD, 2012), 6.

[3] Id. at 14.

[4] CEOs and the New CSR Priority (Boyden Executive Monitor, September 2017), https://www.boyden.com/media/ceos-and-the-new-csr-priority-2909935/index.html

For more information on the topic of this article, see the author’s book Responsible Business: A Guide to Corporate Social Responsibility for Sustainable Entrepreneurs, which is available here , and materials distributed through the Sustainable Entrepreneurship Project.