Does Governance Matter?
Governance in the traditional view no longer reflects today’s business reality. External factors such as policy environments, advocacy pressures, and environmental and social costs are increasingly relevant and impactful on business operations. The question of how best to mitigate potential risks and capitalize on external opportunities is a central concern to senior managers, and the strategic response they demand drives the need for a well-conceived Corporate Responsibility (CR) program.
As the external business environment changes, so too must a company’s CR governance structure. It must change and adapt to ensure a responsive, relevant and robust organization, even in the midst of pressures from a constantly evolving business landscape. The goals for new governance programs are to enable an accountable, informed and engaged firm, able to leverage the innovation and ideas inside or outside its walls. But how can a firm change to meet the new demands of today’s market place? What new governance rules exist? The AccountAbility Institute has identified four critical components of a successful, value-driven CR governance structure:
1. Ensure High-Level and Centralized Control: Promoting CR governance to the highest levels of the organization ensures the active engagement of all those required to transform sustainability into innovation. In 2001, Nike assigned CR oversight directly to its Board of Directors, and in 2006 it created a governance framework to ensure accountability at the executive-level across business groups. These initiatives greatly expanded the scope of governance, and spread responsibility far beyond the ‘siloed’ role of a CR group.
2. Align Strategy with Important Business and Stakeholder Issues: Aligning CR with corporate strategy is one thing, but ensuring the right managers are making the best decisions for the firm as a whole requires that the proper governance structures are in place. Canon’s CR strategy is built upon five materiality themes, chosen by considering the company’s business strategies and policies in light of themes based on stakeholder interests. The themes (or “pillars”) reflect both the strategic business agenda and top stakeholder concerns. With this in place, governance structures can be designed to leverage the necessary skills and resources most relevant for each of the pillars.
3. Implementing Cross-Functional Management and Participation: A strategically aligned CR program requires the inclusion of cross-functional participation and governance. Volkswagen’s CR Steering Group includes representatives from Procurement, Finance, Human Resources, IT, Sales and Marketing and Investor Relations. This multi-functional composition ensures a diversity of perspectives and skills, and equitable representation and access across the company’s different departments. Only by leveraging the diverse skills available within the organization can CR successfully drive value-enhancing initiatives.
4. Utilize a Diverse Portfolio of Skills: Governance structures must consider the required skillset of the managers it empowers, especially for those who are required to interface across the organization. The Global Sustainability Practice of Executive Search firm Egon Zehnder International has defined competencies required for CR as follows: Change Leadership, Collaboration and Influencing, Strategic Orientation, Commercial Orientation, Results Delivery and Team Leadership. CR Executives are unmistakably business managers, and they must have the skillset to match.
CEOs must consider how their governance structures and resources enable CR to drive value and innovation, rather than be relegated to a cost-center. Ignoring governance may be synonymous with leaving innovation and value untapped.
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