Sustainability in the Boardroom: Ideas for Sustainable Entrepreneurs

Sandra Taylor, who consulted with major brands include Starbucks and Eastman Kodak on the development and implementation of global corporate social responsibility (“CSR”) strategies, laid out seven steps that companies preparing for listing on public securities exchanges should take when implementing board oversight of corporate sustainability efforts.  Using her framework and recommendations as a foundation, the following ideas should be used by sustainable entrepreneurs as they assemble their boards of directors and advisors and build out their management team:

• Start at the beginning and determine materiality. One of the most important decisions that any sustainable entrepreneur has to make is “what sustainability means for my company”. Sustainability has many definitions and can reasonably be associated with a wide range of environmental, social and governance issues, each of which has its own unique set of risks and opportunities.  In order to make the right decision, sustainable entrepreneurs should reach out to qualified and experienced directors and advisors to thoughtfully and truthfully determine what issues will be material to the company’s operations, the environment and communities.  In this way, the sustainable entrepreneur can not only identify risks to his or her business model, but also uncover opportunities for creating and maintaining a competitive advantage.  The goal of the assessment process should be to develop the company’s long-term strategy and integrate sustainability into all aspects of that strategy, identify the risks that need to be addressed and monitored, determine the stakeholder relationships necessary for success and the means for effectively communicating with stakeholders and identifying features that need to be embedded in the design of the company’s products and services.  While the sustainable entrepreneur may believe that he or she has sufficient knowledge and breadth of perspective to reach conclusions on these topics on his or her own, it is imperative for him or her to bring together a group of directors and advisors at the very outset to test assumptions and prevent the sustainable entrepreneur from failing to see the forest for the trees and wasting time and other resources on immaterial matters.
• Focus on the supply chain. Entrepreneurs are often so focused on the design and development of their initial products, and making sure that development occurs quickly, that they fail to pay close attention to the long-term impact of supply chain decisions on the sustainability of their businesses.  Sustainable entrepreneurs must practice “ethical sourcing” from the outset, which means ensuring that the inputs for their products, including intangible inputs such as the code in software used to operate the products, are, in Taylor’s words, “created in safe facilities or under safe conditions where workers who are treated well and paid fair wages to work legal hours” and in a manner that “respects the environment during the production and manufacture of the products”.  Ethical sourcing is often the centerpiece of a sustainable entrepreneur’s business model and he or she needs to develop personal relationships with all key suppliers to verify the way in which they conduct their businesses.  Board members and advisors should also be proactively involved in vetting of potential suppliers.  Supply chain management for the sustainable entrepreneur should be defined broadly and he or she should also seek out service providers, including attorneys and other consultants, that will provide inputs into decision making that are based on an understanding of the entrepreneur’s sustainability focus.
• Be innovative. Sustainable entrepreneurs should seek out directors who have experience in product design and development and who can assist the entrepreneur in creating and integrating a “sustainability lens” into all aspects of product development and other key decisions during the important launch phase.  As Taylor explained: “Rather than approving projects and then asking how the product, feature or service can be developed and delivered more sustainably, the board should add a sustainability lens (through scorecards, lifecycle analysis and indices) at decision-making points, ensuring sustainability is factored in before any go/no-go decision”.  Just as important is making sure that the values and goals of the company with respect to environmental sustainability and social responsibility are explicitly discussed during every major decision making process spanning senior hiring decisions establishing the enterprise risk management and approving capital projects, new business lines, mergers and acquisitions, new product launches and expansion into new geographic markets.
• Be the impetus.  Sustainable entrepreneurs need to recruit board members who understand and embrace the important role of directors in setting the appropriate “tone at the top” and ensuring that environmental sustainability and social responsibility are embedded into every part of the business, including planning, strategy, operations, marketing and human resources. One of the direct steps that board members can take include ensuring the company’s sustainability goals and priorities are taken into account when recruiting members of the executive team and setting their remuneration arrangements.  Board members should also allocate resources to developing the infrastructure necessary to monitor the company’s sustainability initiatives including the appointment of a chief sustainability officer who would be part of the executive team and work with board members to ensure that they have the information necessary to fulfill their oversight responsibilities with respect to sustainability.  When interviewing and/or receiving presentations from members of the executive team overseeing different functional areas, the directors should probe to determine the level and quality of collaboration across the organizational structure on sustainability initiatives.
• Measure outcomes. One of the key traditional roles for the board is measuring the company’s progress toward its stated financial goals and building a sustainable business means that the board must apply this same discipline to identifying major performance aspects of short- and long-term sustainability goals and then establish relevant objectives, select specific indicators and metrics, and commit to achieving specific targets.  Taylor recommended that boards establish internal performance, communication, incentive and measurement systems for all sustainability goals; conduct quarterly business reviews; and ensure that the company’s sustainability strategy and performance is communicated at annual meetings and presentations to existing and prospective investors.
• Be transparent. Many sustainable entrepreneurs fret about how to fulfill the financial and non-financial reporting requirements that will accompany the launch and expansion of their business, generally due to concerns about the costs associated with engaging outside auditors and collecting and verifying operational and performance information.  While the details relating to reporting are important, sustainable entrepreneurs and their directors should start by committing the company to “transparency”, which Taylor described as “reliable indicators of sustainability progress and honest communication with various stakeholders about policies, practices and progress, including formal external reporting”.  Reporting is an essential communications tool in the company’s relationships with its key stakeholders and while startups may not have the resources and expertise to implement full-blown CSR reporting in line with the guidelines of the Global Reporting Initiative or similar standard-setting organizations, the sustainable entrepreneur and his or her directors can and should commit to creating and issuing reports that satisfy the initial expectations of the company’s stakeholders.  Taylor mentioned that companies can choose from among a variety of formats for presentation such as delivering a CSR report directed at consumers and community groups, or simply communicating progress on its website.  Whatever approach is taken, the goal is to establish trust and support ongoing dialogue with stakeholders that are central to the success of the company.   Directors should be actively involved in the reporting and disclosure process and should prepare for expanding reporting as the scope and reach of the company’s business expands.
• Align board structure and composition. At the very beginning of the company’s existence, oversight of sustainability should be the responsibility of all of the board members, not only because the board is generally not large enough for committees but also because it is so important to get the basics right from the outset and to ensure that each board member has the requisite “sustainability mindset”.  As time goes by, consideration can be given to delegating oversight of some of the CSR-related issues and activities to a committee of the board, be it the governance committee or a separate CSR committee; however, the full board must nonetheless maintain responsibility for overall oversight of issues such as climate change, human rights, sustainable supply chain management, health and safety, as well as sustainable products and services, and all directors should be provided with ongoing sustainability training and education.  Taylor also recommended that recruiting efforts for new directors focus on candidates with relevant knowledge and expertise, including executives from corporations with a sustainability track record or topical experts coming from specialized positions in business.  In addition, the composition of the board should reflect gender balance and diversity and members who can objectively contribute to discussion of issues by providing stakeholder perspectives.

Source: S. Taylor, Seven Steps to Implementing Board Oversight of Sustainability (February 21, 2017), https://listingcenter.nasdaq.com/ClearinghouseArticle/Seven-Steps-to-Implementing-Board-Oversight-of-Sustainability-by-Sandra-E-Taylor-1324.  At the time the article was written, Ms. Taylor was the CEO of Sustainable Business International LLC.

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Sustainability and Corporate Governance. and an excerpt from Board Oversight of Sustainability by Alan S. Gutterman, which is available for purchase at various online booksellers.  Readers may also enjoy the author’s book on Sustainability and Corporate Governance.