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The Power to Change
Corporate governance and the triple bottom line
Mobilising board leadership todeliver sustainable value to markets and society
Over the past decade, the subjects of corporate governance, sustainabledevelopment, corporate socialresponsibility and corporate citizenshiphave entered the business and politicalmainstream. Are today’s boards wellequipped to deal with these rapidlyemerging issues and the changes theyrequire in an already complex and highlycompetitive business environment? Theevidence suggests not. The Power toChange reviews the issues and proposes aset of principles and practical actions forboards to consider in addressing the triplebottom line of economic, social andenvironmental value.
The report focuses on the leadership roleof corporate boards of directors in achallenging business environment:
• Increased societal expectations are beingplaced on business as well asunremitting competitive pressures.
• There are growing demands andopportunities for companies to minimiseany harm resulting from their activitiesand to deliver not only economic value,but also social and environmental value– across the triple bottom line.
• Boards need world class skills andgovernance standards to guide theircompanies in this new era. They need astrong sense of values and purpose andthey need to be connected, internallyand externally, to pick up and respond tosignals from markets and society.
Corporate boards face a dauntingchallenge. The complexity and timeconstraints are already enormous. The legalduties and liabilities associated with goodgovernance are already burdensome. Speakto the typical board director or companysecretary of a multinational corporationabout the need to add triple bottom lineissues to their ‘to-do list’ and you get anall-knowing smile. “Get real”, it seems tosay. This report does. It shows how boardsof leading companies are equippingthemselves to think about, and ‘take onboard’ the triple bottom line.
Pressure to deliver outstanding commercialperformance is being closely followed bypressure to demonstrate responsible socio-economic and environmental performance.Increasingly these pressures are comingfrom the same groups of people:consumers, talented employees andinstitutional shareholders, as well asgovernments and the general public.
The manner in which a company addressesthe triple bottom line agenda can eitherenhance or undermine its reputation,brand equity, risk profile, innovation,productivity, efficiency, access to capital,licence to operate and ability to attractand retain talent. Through these it canhave a material impact on the company’slong-term shareholder value and success.This makes the triple bottom line anunavoidable issue for the boardroom.
The board has critical functions toperform in ensuring the success andlongevity of the company. In today’sworld it cannot perform these functionswithout taking into account societalissues, as well as commercial andtechnological challenges.Some may arguethat the board’s role is to stay out of sightand make strategic decisions and trade-offs within the physical confines of theboardroom and the legal confines ofcompany law. Maintaining appropriatelevels of confidentiality and operatingwithin company law are critical. They arenot enough, however, in a world calling forgreater transparency and accountabilityfrom those who lead large companies.
Board directors must also understand andrespond to international conventions andvoluntary codes of conduct in areas suchas human rights, labour, corruption, theenvironment and corporate governance, as well as changing societal expectationsof business and the growing power ofpublic opinion. In being accountable toshareholder interests, they must alsounderstand and respond to those of other stakeholders.
Boards have to become more connectedand effective. This can be achieved in partby adhering to best practice in corporategovernance. In addition, we propose sixL.E.A.D.E.R. principles that integrate triplebottom line management with elements ofsuch best practice to help boards deliversustainable value. They are outlined on thepage opposite. Our focus is on processesand actions that boards can adopt withinthe scope of their existing mandate. Theprofiles describe world class boards thatare doing so in practice.
The framework for board leadership wepropose can be used as a diagnostic toolto help boards be more connected andeffective in integrating triple bottom linethinking into their core functions. Itproposes 15 areas under the followingfunctions against which boards can assesstheir current practice and where necessaryset goals for improvement:
• Setting policy and strategic direction for the company and monitoringmanagement’s performance againstthese;
• Shaping the company’s framework for accountability, control and riskmanagement and ensuring manage-ment’s conformance to this; and
• Selecting and remunerating the CEO and directors, based on their ability toachieve good results in the above areas.
The framework also includes steps that can be taken by organisations that interactwith and influence boards: auditors;executive search firms; strategicconsultants; shareholders and theirrepresentatives; and institutes of directors.
Despite the very real complexities andconstraints they face, the boards of some of the world’s most respected and successful companies demonstrate that they can do much to address theopportunities and risks of the triple bottom line.
The Power to Change2
II What’s the business case?
III Why bother with the board?
V A framework for board leadership
Executive summary
IV How can boards satisfy the triplebottom line?
I Who’s behind the Big Squeeze?
3The Power to Change
Why does evaluation matter?
Why does diversity matter?
Why does alignment matter?
What can boards do? Why does leadership matter? Individual business leaders – both executive andnon-executive – play a critical role aschampions of change, within their organisationsand externally. That role will become yet moreimportant because profound change is neededto address triple bottom line issues.
Demonstrate leadership by:• Providing a framework for checks and
balances• Showing individual leadership in action• Ensuring appropriate succession planning and
leadership development
Support a culture of engagement by:• Defining engagement as a core value• Integrating triple bottom line issues into
shareholder meetings• Undertaking peer group learning• Convening stakeholder forums• Supporting experiential learning• Investing in e-engagement
To support engagement as a core corporatevalue and to become more transparent andoutward looking as a board, withoutundermining commercial confidentiality orfacing the threat of legal liability or reputationdamage if outsiders have greater access to theboardroom.
Alignment of the triple bottom line policies andperformance goals that the board sets, withoperational practices and incentives, is criticallyimportant for building consistency and ‘buy-in’within the company, and for creating trust andconfidence externally.
Assure alignment by:• Monitoring policy implementation via KPIs• Addressing difficult public policy issues• Linking CEO pay and other incentives to triple
bottom line targets and performance
To establish appropriate policies and incentiveframeworks and to ensure that the company’sactivities, incentive systems and values arealigned with these, without getting engaged inmanagement.
Access to a diversity of nationalities, skills,professional experiences, genders, ethnicitiesand ages can enable a board to have betterradar, better decision-making and bettergovernance.
Encourage greater diversity by:• Widening the pool of talent for executive
and non-executive directors• Engaging with outside perspectives in
other ways
To achieve diversity without underminingaccountability or creating over-sized boards andto identify and develop world class directorswho understand business and the triple bottomline.
Evaluation of the board’s own performanceagainst corporate governance criteria and thecompany’s performance against triple bottomline criteria is a critical process in setting goalsand progressing towards operational excellence.It is also an important element of externalaccountability.
Ensure better evaluation by:• Committing to regular and systematic board
appraisals• Helping to identify and then monitor a set of
key performance indicators for the triplebottom line
To identify and apply the most appropriateindicators and methodologies for carrying outthese two types of evaluation given thecomplexity and subjective dimensions of manykey governance and triple bottom line issues.
Have a clear policy on the board’s – and thecompany’s – responsibility or accountability todifferent stakeholders and reinforce this policyby:• Internal monitoring and control• External reporting and disclosure
To agree on and monitor responsibility andaccountability to different stakeholders, forexample, how to respond to the variety of laws,conventions, voluntary codes of conduct andsocial norms that shape the businessenvironment.
Why does engagement matter? Dialogue and consultation with stakeholders is acritical element of corporate accountability. It isalso a useful learning and information tool forcompanies and their boards, enabling them tobenefit from outside views and enablingstakeholders to improve their knowledge of andtrust in the company.
Why does responsibility matter? A company’s legitimacy or ‘licence to operate’ isbased on responsibility and legal accountabilityand on its ability to maintain the trust andconfidence of its customers, shareholders,employees, business partners, host governmentsand communities.
LEADERSHIP: Taking ownership of the triple bottom line agendaWhat is the challenge?To balance the power and potential of individualleadership with the need for organisationalleadership capacity and continuity. To identifyand build new leadership skills capable ofaddressing triple bottom line issues.
What can boards do? What is the challenge?ENGAGEMENT: Bringing the outside in
What can boards do? What is the challenge?
What can boards do? What is the challenge?DIVERSITY: Fostering creativity and independent thought
ALIGNMENT: Achieving coherence between policy and practice
What can boards do? What is the challenge?
What can boards do? What is the challenge?RESPONSIBILITY: Ensuring that the buck stops at the board
EVALUATION: Measuring and rewarding triple bottom line performance
L.E.A.D.E.R. principles
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Authors: Jane Nelson;Alok Singh; PeterZollinger
ISBN: 1899159 02 9
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© InternationalBusiness LeadersForum andSustainAbility Ltd.
International Business Leaders Forum is a not-for-profit organisationestablished in 1990 to promote international leadership in responsiblebusiness practices, primarily through working with over 50 membercompanies and their CEOs. We are based in the UK but operateinternationally with a focus on developing and transition economies.The Forum’s Values in Leadership programme aims to encourage boardlevel leadership in corporate responsibility and also to develop a newgeneration of business leaders who see corporate responsibility as acritical aspect of business success.For further details see: www.iblf.org or contact [email protected].
Sustainability is an award winning strategic management consultancyand think-tank. Founded in 1987, it is the longest establishedinternational consultancy dedicated to promoting the business case for sustainable development. Our three main areas of operation areforesight, agenda setting and change management.Trimaran is SustainAbility’s action research programme focusing on thelinks between sustainable development, corporate governance, financialmarkets and board-level decision making.For further details see: www.sustainability.co.uk or [email protected].
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The Power to Change
Corporate governance and the triple bottom line
Mobilising board leadership todeliver sustainable value to markets and society
order formThe Power to Change Mobilising board leadership to deliver sustainable value to markets and society
