Corporate Sustainability – Board, Management, Market, and Stakeholders
I am carrying out research on the adoption of Triple Bottom Line Sustainability (TBLS) in business companies, and I am pondering the question “Is it all about financial return?” In this regard I am interested in tapping into the wisdom of readers of this Blog.
I define TBLS as the outcome of the activities of an organization, voluntary or governed by law, that demonstrate the ability of the organization to ethically maintain its business operations (including financial viability) whilst not negatively impacting any social or ecological systems.
As I understand it, the Board of Directors of a company is responsible to the shareholders for optimizing shareholder value, making sure profit compares favorably with businesses in comparable industries, being competitive relative to challengers, and guiding the company’s strategic management by controlling and monitoring the activities of the company’s management. The CEO and management team in theory only design and run the company to satisfy the Board. This looks to me like a directive tailored for ‘Financial’ not ‘TBL’ Sustainability.
The Board and/or the CEO and the management team may be wise enough to envisage enhanced profits and market position by taking advantage of the uniqueness of products and services tailored to TBLS; however, this approach is still financially, rather than ethically, motivated.
It would be encouraging to see large numbers of companies embracing TBLS for ethical reasons, but that may not be realistic given the Board mandate highlighted above. It seems to me that the ethically driven leverage for introduction of TBLS comes from the marketplace, the shareholders and the stakeholders – we the people!! In other words, if enough consumers, shareholders and stakeholders are sensitive to ethical concerns and place pressure on companies to operate in a TBLS manner or else risk earning lower company profits and reducing shareholder value, then the relevant Boards have a responsibility to make appropriate changes to introduce and sustain TBLS, and must ensure the changes take place (or risk the corporate consequences). Indeed under these circumstances the CEOs and management strategists ought also to be pressing for change based on strategic imperatives. However, even if corporate action is based on the ethical concerns of “we the people”, the outcome is still based on a Board’s financial obligations.
The only other option for introduction of TBLS that I see is by Government intervention through a change in Corporation law – not likely to happen I think.
Your thoughts and comments on the general thrust of this Bog would be most welcome and thanks in advance for taking time to consider the thoughts expressed here …
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PETER A.C. SMITH is President, The Leadership Alliance Inc. (TLA), a wholly “complex adaptive systems” based consortium of Associates. As a TLA Associate, Peter maintains a worldwide consulting practice assisting leading public and private sector organizations enhance performance and profitability. Peter has proven expertise in the development of innovation and leadership in traditional business environments as well as in currently emerging networked contexts. He has unique understanding of the fundamentals of knowledge sharing, social learning, and informal leadership, including methods for the identification of informal Opinion &/or Innovation Leaders &/or Sustainability Champions – “the people who really get things done” – in order to facilitate the exploration and utilization of their ideas and influence.
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My penny’s worth…
Actually Peter, the Board’s responsibility is to all stakeholders, not just shareholders. In fact the responsibility of the Board is to the company, and all stakeholders including shareholders but not just shareholders.
I personally don’t quite like the TBL concept because it tends to suggest and either/or situation, and it also invites to do less bad on the social and environmental aspects, instead of doing good.
These may be small differences, but it makes a marked difference in the mindset of those entrusted with power.
How can we convince Board members to direct/to steer the organisation they have been entrusted with towards a sustainable, or even restorative (let’s dream for a minute), business model if they are almost “ignorant” in these matters. They need to raise their Sustainability or ESG literacy level to begin to be able to fulfil their duties as directors, towards the company and its stakeholders.
Board should assess their performance not just in terms of Corporate Governance (mere compliance to the code) but also in terms of Environmental and Social Governance. Have the got the knowledge, competence, structures, feedback, measurement systems, etc… in place for them to fulfil their duties of strategy and policy setting? to enable the organisation to fulfil its Mission. Is Sustainability/ESG indeed embedded in its Vision, Mission, Values and Purpose? Many questions that many Boards and their members would seriously struggle to answer with any sort of confidence and credibility.
Cyrille
Thanks for the insightful comments Cyrille. I too used to understand that a Board had a broader responsibility than simply to shareholders interests, but I am told that this is not necessarily so. It will be interesting to see the consensus of blog comments on this. I certainly agree that whether Board members have the insight and experience to deal with current complexity is a big question mark – hence CEOs are assuming more and more control, although the same question applies to their capabilities .. best for the week Cyrille, cheers, Peter
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Hello Peter,
following Cyrille’s comment, I’m, for instance, very focus on TBL’s and Sustainability issues. I think that an organization can do good, earning money. It’s possible. The TBL agenda is mainly organizations, or business if you prefer, include in their business models, beside their economic axis, the social and environment axis also. This means that companies need to focus not only on their returns and profits, but also on their impact on social and environment factors. Better said, this means that a company, in a TBL perspective, will start to get to know what is their position, their space, their role, where their are in “a big picture”.
TBL’s perspective is an integrated vision of a business model, an integrated strategy, and need the involvement of everyone related to the company. For example, the social aspect doesn’t mean simply initiatives of that company on community or social surroundings, it means also internal social initiatives, as a special attention to employees, knowing their needs, what they value, etc. In a short version, TBL’s perspective is a business making money but not focus only on money, integrating on their strategy the social and environment aspects.
If it’s common sense that, in business it’s important to create value, Sustainability makes that value creation multiply by 3.
From your question about the Board responsibility, TBL’s can only be implemented with top management involvement, and if possible, from top to bottom. The Boards that don’t don’t follow this kind of concepts, will do it later but because the competition has already done it.
The importance of businesses, companies and organizations in Sustainability issues, is that more than keep up with the changes, they need to lead the transformation through what they do best, creating solutions that are needed and wanted. But be sure that big changes will only occur when the society, globally, adopts that kind of behaviour. This said, companies have a key role on changing society in a good way.
More and more can be said. Thanks