The CEO and Sustainability

The main member of the executive team, and the person with the most responsibility for, and control over, the organizational design of the company, is the chief executive officer, or “CEO.”  While the CEO “reports” to the board of directors and the board of directors is vested with more legal authority than any officer of the company, including the CEO, it is the CEO to whom the directors turn for leadership in setting strategy and putting the company’s assets and other resources to work in order to achieve the stated goals and objectives of the company.  The CEO is almost always a member of the board of directors and, until recently, the common practice among larger corporations was for the CEO to also serve as the chairperson of the board of directors.  While it is now the general rule that public companies, as well as many larger privately-held companies, will fill a majority of the seats on the board of directors with outsiders (i.e., non-employees and persons who do not represent a large shareholder block), it is nonetheless still true that the CEO exerts significant influence over the board even in those circumstances.

CEO Duties, Responsibilities and Roles

Regardless of the stage of evolution of a company, CEO has a broad, if not overwhelming, set of duties and responsibilities.  Some of these duties are formal and prescribed by corporate law and the governing documents of the company or other applicable regulations (e.g., accounting and financial reporting requirements imposed by securities and capital markets regulators); however, most of the expectations imposed on the CEO are often vague and are left to the CEO to define and execute.  A CEO is confronted with challenges in a number of different areas and from various stakeholders and he or she must be able to balance and prioritize the demands on his or her time and intellectual resources.   

CEOs are expected to play an active role in the sustainability and corporate social responsibility (CSR) activities of their companies and act as a spokesperson for those activities.^[1]  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.  CEOs must also develop the soft skills necessary to communicate and engage with multiple stakeholders, each of which has different values and attitudes about how society should function and the role that the firm should play.  CEOs must be able to engage in civil dialogue, approach the problems and challenges that are raised by stakeholders with an open mind and a focus on identifying and implementing innovative solutions and developing tools that will help measure and demonstrate the effectiveness and value of the company’s CSR initiatives.

The CEO needs to have the right capabilities to drive exemplary environmental, social and governance performance.  He or she should have the ability to think strategically about the issues, communicate clearly and persuasively, and possess sound business knowledge and judgment.  The CEO should also have various interdisciplinary and cross-functional competencies including the ability to develop trusting relationships with a variety of company constituents before an issue becomes a problem; a solid grounding in a wide range of environmental processes, procedures, and technologies; social issues; and governance requirements at the local, state, regional, federal, and international levels; a knowledge of financial operations that extends beyond budgeting to an understanding of how finance intersects with sustainability and the ability to make a business case for a new direction; and familiarity with technological and process advances and an understanding of the trends in sustainability and their influences on the company and the industry segment.[2]

Operationalizing Sustainability and CSR

Operationalizing sustainability and CSR is crucial for the CEO.  At a minimum, the CEO should establish, in consultation with board members, other members of the senior management team and a representative group of employees from throughout the organization, a mission statement that explicitly incorporates ethical and socially responsible behavior and a concise code of ethics or conduct that can be used by everyone as guiding principles for their decisions and as an agenda for training and orienting new employees about the organizational culture.  Environmental and social responsibility should also be explicitly woven into strategic planning and performance metrics and the CEO should make sure that the company’s sustainability initiatives are tracked formally and reported on regularly to all of the company’s stakeholders, even if the company is not yet ready to adopt one of the sophisticated reporting frameworks that have emerged and are now being regularly used by larger businesses.  Performance relating to environmental and social responsibility should be formally incorporated into compensation arrangements for the CEO and other senior executives from the very beginning since research shows that CEOs who are compensated based only on economic factors are less motivated to push CSR initiatives.  Finally, a compliance program to satisfy specific formal legal requirements should be established, not only for its own sake but as a good first step in implementing one or more of the voluntary certification standards that may be applicable to the business (e.g., ISO 9001 for quality management; ISO 14001 for environmental management; OHSAS 18001 for occupational health and safety and ISO 26000 for social responsibility).

Stakeholder Engagement

Gone are the days that the CEO can simply hunker down and spend all of his or her time on internal issues and activities such as product development, manufacturing and human resources issues.  It is clear that a substantial slice of its earnings and opportunities are dependent on the relationships of the company, and its CEO in particular, with external stakeholders.  As such, stakeholder engagement has become a top priority for CEOs and he and she must understand how to do engagement efficiently and successfully.  The CEO must prioritize his or her CSR activities, and the associated engagement, around the issues that are most important for the long-term success and sustainability of the company.  For some companies, this may mean getting involved in developing new solutions for environmental problems, which means that the CEO will need to become engaged in industry-wide discussions and work with customers on ideas for new products and employees on how to help them develop the skills necessary to work with new technologies.  Many companies have focused on diversity and ensuring that everyone has better opportunities for employment with the company and advancement to higher levels of the organization.  The CEO should advocate and demand respect, diversity and inclusion in the workforce and support each employee’s capability and desire to be an honest, knowledgeable ambassador to customers, friends, shareholders and public officials.  Whatever the issue might be, the CEO needs to be clear about the purposes and goals of the company with respect to CSR, set the proper “tone at the top” and be able to explain to everyone involved with the company, inside and outside, why pursuit and attainment of those goals will be in the best interests of all of the stakeholders.  This is particular true for employees since motivated and engaged employees will be more productive and loyal and help the company deliver better results for customers and shareholders.

Investor Relations

While discussions of CSR engagement are typically focused on how companies can develop and maintain relationships with stakeholders beyond shareholders, investors still remain first among equals in the stakeholder universe and CEOs need to be particularly careful in how they engage with investors on CSR initiatives.  For a long time, caution was needed because many investors were skeptical of their portfolio companies deviating too much from a focus on financial performance, which meant that the CEO needs to spend time helping investors understand how the company practice of environmental and social responsibility would ultimately enhance the long-term value of the company and their ownership stake therein.  However, the pendulum has swung dramatically among institutional investors that now expect CEOs to develop and lead appropriate CSR initiatives and establish CSR reporting mechanisms.  CEOs are not expected to be experts on a particular environmental or social issue, but they do need to have a plan and be able to demonstrate to investors that they have invested adequate resources for the company to fulfill its public commitments on environmental and social topics.  Another important role of the CEO in the eyes of investors is oversight of the company’s organizational culture and human capital.  The CEO should be able to explain to investors how much time and effort he or she spends in talking with employees from all levels of the organization and disseminating a strong message regarding the company’s commitments to environmental and social goals.  Investors also want evidence that the CEO is creating and maintaining a diverse group of senior managers and other key decision makers and is implementing compensation and performance measurement systems that give due weight to contributions to CSR.  Finally, CEOs should be prepared to share with large investors the results of the company’s own assessment of its CSR initiatives and processes and the steps that the CEO is taking to make necessary improvements in the way in which the company conducts its business.

Personal Values and Risks

While most of what a CEO does with respect to CSR occurs in the public domain, there are very personal issues and risks that the CEO also needs to consider.  First of all, there is no such thing as privacy for the CEO when a crisis occurs with respect to whether or not his or her company has failed to fulfill expectations with respect to ethics and social responsibility.  The CEO’s official actions will be scrutinized and more likely than not someone will pry into personal matters such as whether the CEO’s lifestyle is inconsistent with concerns about income inequality.  While hopefully any such allegations will have no merit, the spotlight can be stressful for the CEO and his or her family.  If there are issues, the CEO’s credibility is almost immediately undermined in a way that makes it difficult for him or her to continue and there are surveys that provide support for the proposition that materialistic CEO practices leader to lower CSR and sustainability performance scores.  Second, high profile CEOs may be expected to take positions in social and political controversies, even getting involved is not directly related to a specific CSR initiative or goal of the company.  Many CEOs, while comfortable with certain social issues, prefer not to become regular participants in the marketplace of opinions; however, it has been argued that CEOs are in a unique position to frame the dialogue on certain issues and that CEOs that take a position on a controversial issue can actually bring more new business to the company.  Finally, while CEOs that champion CSR initiatives are generally praised for such work when things are going well, research shows that if a CEO has invested in CSR and the firm performs poorly, he or she is much more likely to be dismissed.

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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] 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 (accessed April 25, 2020)

[2] Boards and Sustainability: Three Best Practices (Heidrick & Struggles, 2017), 4.