Just as CEO involvement is a key to the success to your corporate sustainability program, I want to highlight the importance of corporate governance in sustainability success. Our surveys found that 86% of respondents thought that boards needed to play a strong role in their company’s sustainability efforts, but that only 48% found their CEOs were engaged, and even fewer (30%) agreed that their sustainability efforts had strong board-level oversight. As stewards of the company, the boards of directors need to step up their role in supporting sustainability strategies.
While directors say they are driven by fiduciary duty, many make problematic assumptions about that duty. The biggest assumption is that fiduciary duty is about maximizing shareholder value and that short-term profits are the way to do so. While a growing number of academics and legal scholars have repudiated the primacy of shareholder value for board directors, the assumption persists. However, our work last year showed that if boards of directors are going to represent stockholder interests, then they need to get up to speed. In 2016, we found that an overwhelming 75% of executives in investment companies think sustainability performance is important in investment decisions.
Swedish industrial products company Atlas Copco is an example of a business whose board of directors has been explicit about the connection between its business goals and the well-being of stakeholders beyond its shareholders. Like most fiduciary rules, Swedish law requires the board ensure the company is profitable and that it creates value for its shareholders. But Atlas Copco claims that integrating sustainability into its business creates long-term value for all stakeholders and is in the best interest of the company. Their board explicitly takes into account employees, customers, business partners, shareholders, and larger social representatives in a statement that is signed by the chairman of the board.
Considering additional stakeholders beyond your shareholders and how your sustainability efforts are benefitting them is quickly becoming standard practice for leading global companies.
This post is the third in a series of eight, representing key findings from a collaborative research report between MIT Sloan Management Review and the Boston Consulting Group.