Sustainable Corporate Governance: First Steps

I f sustainab i l i t y is the corporate buzzword for today, why is it that corporates are slow in moving towards it? The shop floor finds sustainability attractive and would like to make the world safer and cleaner for their children; the management wants to drive it – they want to be part of what makes industry good - good for all, and to be challenged in their daily life to strive towards it apart from making money for their employers and themselves. It helps with compliance practices and to s c o re points in competitions. Investors appear to be excited by it, and yes, the top of the hierarchy may have issued policy or other statements with the s-word in it. Yet inertia reigns, and it may be due to the need for leadership that understands why it matters, how it could profit the organisation on the triple fronts, and critically, how it could be brought about. This last requires more than a change of mind or a declaration of aspiration.

Businesses need to innovate in order to provide solutions to the problem of sustainability. A few exemplary organisations are demonstrating that sustainability can be a driver of innovation, efficiency and lasting business value – but corporate leaders in sustainability remain in a minority. In an 8- year study undertaken by the MIT Sloan Management Review and the Boston Consulting Group on the problem of integrating sustainability into business strategy, insights were gained on how progress could be made. Even though the eight l essons described therein will not be expounded here, a key take out is that the board has an integral role to play, and without commitment and action at this level, the probab i l i t y o f success in achieving sustainable business is extremely low.

Engagement of the board on embodying corporate sustainability is often hindered because of fear and lack of clarity regarding the financial impact of embarking on sustainable business practices and implementing policies that have the earth and its people in mind when it may appear that the shareholder could lose out on financial dividends on account of it. Board members often desire to display evidence of their performance over the short term and are reluctant to commit to a longer term agenda such as is needed and is often the norm when wanting to make the world a better place through industry and commerce. A further unrecognised or unadmitted factor is simply the lack of sustainability expertise among board members.

Governance

Each enterprise needs to begin its journey of sustainabilitydriven innovation be it of products processes or business models. If the industry currently causes resource depletion, pollution, water quality deterioration or even a lower standard of family life for its employees or neighbours, these ecolo gical or sociolo gi c a l problems have to be initially recognized - and then seen not as the unavoidable consequences of business activ i t y, but as opportunities for developing novel solutions that could not merely mitigate the problem but even reverse the situation into a benefit. In order to gain such a perspective, one may need to soar up and obtain a bird’s eye view to review and re- envision corporate purpose - and to ask what, fundamentally, does value creation mean to the company. One needs, in the face of these challenges, to discern opportunity for profit while also enriching communities and the environment.

Opportunity thus sought and formulated consequently propels substantial transformation. Such shifts to familiar and established patterns need to be derived from a bold corporate strategy and its execution needs to be strongly backed by a board that demands from the CEO far more than the financial results for the next quarter. Herein lies the problem. Actions that would enable an organisation to take a step in the new direction could be to audit board members sustainability expertise and mindset; enhancing or providing directors’ expertise can be accomplished to some extent through training; new competent appointments to the board will help, recognising that years of experience in other companies in the C- suite does not equip the individual to govern or transform an enterprise from red to green, from risk mitigation to community enriching, from driving efficiencies to resource creating, nor to realise that restore and improve has to replace maintain and palliate. Expertise through external or independent advisory boards could also be accessed. Corporate sustainability considerations need to be i n t e g rated with dire c t o r responsibilities, while ensuring that these aren’t the mere review of run of the mill sustainability activities that are divorced from an embedded corporate strategy.

Conclusion

Many companies have no authentic sustainability strategy at all. They have instead projects, anecdotes, and examples for shareholders, regulators, and consumers in glossy sustainability reports. Driving sustainability without strategy l eads to HR depar tments presenting data on double- sided photocopying and displaying how many of its printouts were shredded rather than disposed in the conventional garbage; the engineering team measuring electricity consumption in the offices of the procurement team; and the R&D changing a chemical used in effluent treatment that is less harmful when the sludge is sent aw a y. Corporate sustainability needs no longer to be a necessary budgeted cost set aside for unprofitable activities. The way to start is to define what sustainable value creation means to the organisation; to articulate a vision for sustainable business, to declare the ambition to strive toward it, and to build and embed a strategy connected to that vision - ideally one that is unique and difficult to imitate, on which future business activity may be founded and driven forward with i n for med, intelligent and passionate board oversight.

(The writer is a Chartered Scientist, Chartered Engineer, and a leading industrialist experienced in sectors as diverse as chemicals, agriculture, food, cosmetics, advanced materials, apparel, and home care. He can be reached at Dias@Cantab.net) .