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August 25, 2008
Getting on Board with Corporate Social Responsibility
by Anne Moore Odell
Corporate boards can and should influence their companies' social and environmental performances
finds a new report.
SocialFunds.com --
Institutional investors are helping push the importance of social and environmental issues on
companies' bottom lines. Corporate boards now need to figure how to respond to investors' and other
stakeholders' demands concerning social, environmental, and governance (ESG) issues finds the report
"The Role of the Board of Directors in Corporate Social Responsibility." The report was published
by the Conference Board of Canada, a
non-profit that researches business and economic trends.
 "Long term investors are realizing that how the firm
manages its social and environmental impacts and responds to social and environmental trends can
affect long term firm performance," said Coro Strandberg, author of the report and principal of
Strandberg Consulting, based in Burnaby, British Columbia.
The report finds that the
Canadian companies concentrate more on their corporate social responsibility (CSR) as it relates to
operations than on CSR from a governance perspective. However, this trend is changing as more
boards are starting to consider CSR issues.
Strandberg told SocialFunds.com, "As I show in
my study, increasingly boards of directors are starting to integrate social and environmental
considerations (CSR) into their strategy and risk management. CSR is moving into the boardroom
with the growing realization of the business case for CSR. Once CSR moves into the boardroom, it
becomes a factor in board governance."
The report creates a 12-step road map for boards to
include social and environmental considerations in their oversight, reporting, and planning. The
first part of the map focuses on businesses just starting to add CSR governance as part of their
company's mission. The second stage of the map focuses on companies looking to increase and deepen
their CSR procedures.
In the US, for the year 2005, 11% of the 100 largest publicly traded
companies had committees that focus on social or public policies. In Canada, 44% of the largest 142
Canadian companies had committees that focused on CSR issues, although the report notes less than
1% of these Canadian committees actually had CSR or sustainability in their titles.
The
move toward boards adopting CSR mandates is slow but sure: "Analysts, thought leaders, and board
directors themselves perceive a definite (albeit modest) trend toward greater integration of CSR
considerations into business strategy and boardrooms" the report states.
Strandberg
explained to SocialFunds.com, "Increasingly directors are coming to understand the CSR business
case - there is a growing awareness that pro-active management of a firm's social and environmental
risks and opportunities can result in sustainable value creation."
If a corporate board
doesn't understand the material case for having CSR policies or the risks involved in not
considering CSR, the board will play less of a role in CSR matters the report finds. Therefore, it
becomes imperative for a culture of CSR awareness, lead by the CEO and chair, to be created at the
board level.
"The role of the chair is key to setting the tone and creating a culture of
openness amongst the board of directors to facilitate consideration of CSR issues," said
Strandberg. "Group think can often get in the way of CSR consideration. To overcome this, the
business case for CSR must be made very clear. Director orientation and training on CSR can help.
"
Strandberg continued, "Stakeholders seeking to affect a firm's approach to CSR
increasingly come to understand that boards of directors set the tone at the top and are
responsible for the overall direction of the firm in that they have oversight over the firm's
values and sustainability performance, the CEO's incentive program, and the firm's business
strategy."
The report predicts that CSR will become an important part of good corporate
governance with two best practice models of CSR board control. In the embedded CSR model, CSR
becomes just another part of the board's responsibilities, as it looks at the long-term affects of
CSR issues. With the embedded model, CSR is part of the company at a fundamental level, with no
separate CSR committees or officers. With the second best practice model, focused CSR, boards also
adopted CSR into the companies' foundations and missions. However, with this model CSR issues are
addressed separately.
"For successful management of a firm's sustainability performance
the board needs to demonstrate its commitment and oversight of CSR," said Strandberg. "These are
key to successful CSR integration and embedment. The board must show its active ownership of this
issue and its awareness of its role, in the absence of which a firm's commitment to effective
social and environmental performance management could be suspect."
There are still gaps
the report concludes between what many boards think about CSR issues and what they actually do to
act on their theories. Unless CSR is actively considered during board selection and training, and
during long-term strategic planning, then the gaps will continue. The gaps will start to close as
CEOs and directors lead their companies to seeing social, environmental, and governance issues as
impacting profits.
©
SRI World Group, Inc. All Rights Reserved.
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