Sustainability in the Boardroom

Corporate social responsibility (CSR) and corporate sustainability initiatives are most effective when CSR principles have been integrated into the company’s governance and management processes and organizational culture.  CSR governance begins at the top of the organization with the board of directors, which has been charged by emerging corporate governance guidelines and stakeholder expectations with responsibility for oversight of the environmental and social impacts of the company’s operations.  Support for CSR programs by the board of directors is 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.  Board members must insist that CSR be integrated into the company’s strategic decision making and performance management and assessment systems, a priority which includes allocating sufficient resources to ensure that personnel are able to efficiently engage with the company’s stakeholders.  In addition, board members must push for creating and maintaining systems that provide them with information they need to understand and evaluate the company’s CSR programs.

The focus on sustainability has extended the traditional roles and responsibilities of directors and created new ones.[1]  Many agree that CSR principles are typically embedded into governance practices such as disclosure and reporting, risk management oversight, board composition and diversity and compensation.  Disclosure and reporting on social, environmental and ethical issues has become commonplace among larger companies and has expanded to include specific details on policy implementation and stakeholder engagement.  In addition, the main standards developed for non-financial reporting, such as the Global Reporting Initiative, have incorporated several disclosure items relating to the internal governance framework including the independence and expertise of directors; board-level processes for overseeing the identification and management of economic, environmental and social risks and opportunities, and the linkage between executive compensation and achievement of financial and non-financial goals. 

CSR and corporate sustainability are broad and challenging topics and the directors must carefully consider how the board’s duties and responsibilities will be discharged and allocated among board members.  The structure and processes a board creates to oversee CSR and corporate sustainability will vary based on a number of factors, such as the size and complexity of the company’s operations (including its supply chain and whether operations are international), its industry, the magnitude of the company’s CSR risks and opportunities, the degree to which CSR issues are central to the company’s strategy, and the level of director expertise regarding relevant CSR issues.[2]  While this means that each situation will be different, reference should be made to certain widely accepted best practices such as the following[3]:

• Create a standing board committee devoted to sustainability-related issues with a portfolio that includes reviewing and monitoring the sustainable development, environmental, health and safety and community development policies and activities of the company on behalf of the board
• Integrate periodic review of the company’s environmental, sustainability and safety policies and reports into the board’s formal duties and responsibilities along with ensuring effective communication with stakeholders through transparent disclosures
• Include adherence to sustainability standards and values in the company’s Corporate Code of Conduct, which should be reviewed and endorsed annually by the board following consideration of emerging issues and best practices, and include sustainability in applicable policies and procedures and in the company’s corporate performance scorecard in a manner that is specific to the company’s sector and operational characteristics
• Include sustainability initiatives in the company’s long-term strategy and provide for regular and continuous monitoring of the performance of such initiatives
• Define stakeholder engagement, transparency, integrity and ethical relationships with stakeholders as core values of the company and embed stakeholder engagement in the company’s overall governance framework 
• Include sustainability in the formal job descriptions of the CEO and other members of the executive team, executive compensation policies and executive performance objectives and provide that the lead sustainability executive has a direct reporting relationship to the board
• Require that directors become generally knowledgeable of the company’s stakeholder interests and sustainability impacts and risks and formalize procedures for ensuring that the legitimate interests of stakeholders are considered in board decisions and that the overall quality of stakeholders relations is monitored
• Provide that the board’s governance and nominating committee recruit directors with the appropriate sustainability mindset and the skills required to execute on sustainability commitments and implement board diversity policies and maintain oversight responsibility of diversity policy implementation (e.g., sustainability should be included as a skill within the director skills matrix and sustainability topics and opportunities should be included in director continuing education)
• Ensure that sustainability information is proactively provided to institutional and socially responsible investors and other stakeholders and that information is provided to all stakeholders on how to contact the board directly with questions, concerns and ideas regarding the company’s sustainability initiatives and performance
• Provide that a specific board committee (e.g., the audit committee) will monitor compliance with the Code of Conduct by ensuring all directors become thoroughly familiar with the Code and acknowledge their support and understanding of the Code
• Ensure that all members of the board receive quarterly updates of the company’s ethics and compliance program and sustainability-related initiatives
• Develop, implement and enforce polices relating to fair operating practices (i.e., ethical conduct, anti-bribery and anti-corruption), environmental and sustainability, CSR, human rights, occupational health and safety, governmental relations and lobbying, and philanthropy and donations

While CSR and corporate sustainability need to have an important place on the agenda for full board meetings, many companies rely on one or more board committees when it comes to allocating specific tasks and tapping into specialized resources and expertise.[4]  One approach that is growing in popularity is the creation of public policy/CSR, social and cultural responsibility and/or environmental responsibility, health, safety and technology committees composed of a sub-group of the entire board that is charged with focusing more time and effort on sustainability generally and important topics within sustainability.  In addition, other committees may be asked to provide support relating to specific CSR and corporate sustainability topics that are closely related to their regular activities (e.g., The nominating committee should ensure that the board is diverse and represents all the company’s key constituencies and that members have skills and experience necessary to engage effectively with stakeholders regarding CSR, corporate sustainability and identify and manage risks; the governance committee should ensure that all directors are adequately versed in the sustainability-related topics of most interest to investors and other stakeholders; the audit committee should monitor research and development on sustainability and ensure compliance with new regulations and non-binding standards on sustainability along with other committees formed to focus specifically on compliance activities; and the compensation committee should be proactively engaged in dialogue with the company’s investors regarding sustainability and executive compensation).[5] 

Boards may also supplement formal “hard governance” mechanisms for sustainability (i.e., board committees) with external advisory panels that are comprised of experts either on sustainability in general, or on specific topics relevant to the company’s industry or otherwise of particular interest to the company such as health, nutrition or renewal energy.[6]  When these panels have a direct line to the entire board they can enhance the efforts of directors to understand sustainability issues and help the board with the collection and assessment of stakeholder opinions regarding the company’s sustainability strategy and performance.  Another type of external advisory panel is a “stakeholder advisory group”, which includes representatives of one or more stakeholder groups who are available for consultation on specific topics or a variety of sustainability issues.  External panels generally meet as a full group two to four times a year and panel members should be available between meetings for ad-hoc consultations with the board and/or senior management.[7]

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This article is an excerpt from the author’s forthcoming book on Sustainability Management, which will be published by Routledge in late 2020.  For further information, visit the following page on the author’s Sustainable Entrepreneurship Project website: https://alangutterman.com/topics/governance-management/

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About the Author

This article was written by Alan S. Gutterman, whose prolific output of practical guidance and tools for legal and financial professionals, managers, entrepreneurs and investors has made him one of the best-selling individual authors in the global legal publishing marketplace.  His cornerstone work, Business Transactions Solution, is an online-only product available and featured on Thomson Reuters’ Westlaw, the world’s largest legal content platform, which includes almost 200 book-length modules covering the entire lifecycle of a business.  Alan has also authored or edited over 90 books on sustainable entrepreneurship, leadership and management, business law and transactions, international law and business and technology management for a number of publishers including Thomson Reuters, Practical Law, Kluwer, Aspatore, Oxford, Quorum, ABA Press, Aspen, Sweet & Maxwell, Euromoney, Business Expert Press, Harvard Business Publishing, CCH and BNA.  Alan is currently a partner of GCA Law Partners LLP in Mountain View CA (www.gcalaw.com) and has extensive experience as a partner and senior counsel with internationally recognized law firms counseling small and large business enterprises in the areas of general corporate and securities matters, venture capital, mergers and acquisitions, international law and transactions, strategic business alliances, technology transfers and intellectual property, and has also held senior management positions with several technology-based businesses including service as the chief legal officer of a leading international distributor of IT products headquartered in Silicon Valley and as the chief operating officer of an emerging broadband media company.  He has been an adjunct faculty member at several colleges and universities, including Berkeley Law, Golden Gate University, Hastings College of Law, Santa Clara University and the University of San Francisco, teaching classes on corporate finance, venture capital, corporate governance, Japanese business law and law and economic development.  He has also launched and oversees projects relating to sustainable entrepreneurship and ageism.  He received his A.B., M.B.A., and J.D. from the University of California at Berkeley, a D.B.A. from Golden Gate University, and a Ph. D. from the University of Cambridge.  For more information about Alan and his activities, and the services he provides through GCA Law Partners LLP, please contact him directly at alangutterman@gmail.com, follow him on LinkedIn (https://www.linkedin.com/in/alangutterman/) and visit his website at alangutterman.com.

About the Project

The Sustainable Entrepreneurship Project (www.seproject.org) was launched by Alan Gutterman to teach and support individuals and companies, both startups and mature firms, seeking to create and build sustainable businesses based on purpose, innovation, shared value and respect for people and planet.  The Project is a California nonprofit public benefit corporation with tax exempt status under section 501(c)(3) of the Internal Revenue Code dedicated to furthering and promoting sustainable entrepreneurship through education and awareness and supporting entrepreneurs in their efforts to launch and scale innovative sustainable enterprises that will have a material positive environmental or social impact on society as a whole. 

Copyright Matters and Permitted Uses of Work

Copyright © 2020 by Alan S. Gutterman.  All the rights of a copyright owner in this Work are reserved and retained by Alan S. Gutterman; however, the copyright owner grants the public the non-exclusive right to copy, distribute, or display the Work under a Creative Commons Attribution-NonCommercial-ShareAlike (CC BY-NC-SA) 4.0 License, as more fully described at http://creativecommons.org/licenses/by-nc-sa/4.0/legalcode. 

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[1] For further discussion of roles and responsibilities of directors, see A. Gutterman, Corporate Governance: An Introduction to Theory and Practice (Oakland CA: Sustainable Entrepreneurship Project, 2019) available at www.seproject.org.

[2] ESG, Strategy and the Long View: A Framework for Board Oversight (KPMG LLP, 2017), 18.

[3] The Essential Role of the Corporate Secretary to Enhance Board Sustainability Oversight: A Best Practices Guide (United Nations Global Compact, September 2016).

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

[5] For further discussion of the activities and operations of board committees, see A. Gutterman, Sustainability and Corporate Governance (New York: Routledge, 2020).  See also R. Sainty, “Engaging boards of directors at the interface of corporate sustainability and corporate governance”, Governance Directions (March 2016), 85, 87.

[6] The Global Compact LEAD, Discussion Paper: Board Adoption and Oversight of Corporate Sustainability.

[7] D. Grayson and A. Kakabadse, Towards a Sustainability Mindset: How Boards Organize Oversight and Governance of Corporate Responsibility (London: Business in the Community, 2012), 10-11 (also including feedback from a group of experienced members of experts’ panels and corporate advisory groups with respect to sustainability on “critical success factors” for ensuring the effectiveness and value-added contribution of such panels for companies).