Board

Overview

Sustainability as a key business management strategy is increasingly making its way into corporate boardrooms. Boards of directors face mounting pressure from investors, shareholders, NGOs and other stakeholders to address pressing environmental and social issues like climate change, water scarcity, and human rights. Boards, and the companies they oversee, are faced with a choice: take steps to address sustainability issues or risk getting left behind.

Institutional investors are one of the largest and most influential classes of shareholders today. They want companies to be well managed for long-term growth and resilience. To that end, these investors believe that integrating a sustainability management system into business operations is the most effective way to protect and create both financial and non-financial value over the long run.

As stewards of their companies, corporate boards have an important role to play in championing sustainability and guiding efforts across the organization. Directors can encourage (or require) management to adopt sensible sustainability practices. What matters most is that the company is steadily progressing toward better risk management and opportunity identification. Research demonstrates that sustainability performance improvements and innovation deliver superior financial results and value creation for the company.

From a sustainability perspective, boards should ensure that the organization does not succumb to short-termism and narrow perspectives. An independent board that is well diversified in expertise and other skills compliments and supports management, while requiring a high degree of accountability for management decisions. Board independence and diversity also helps avoid blind spots by bringing in new insights and perspectives that can highlight market trends or internal problems.

Given the litany of global challenges facing societies around the world, the business case for sustainability will become ever more salient. Some companies may find their business models under attack. As a result, board of directors will inevitably be expected to speak to those issues and take action to integrate sustainability more deeply into the governance structures and internal processes of the companies they serve.

Resources

• The Performance Frontier: Innovating for a Sustainable Strategy

Independence

Independent board members bring a balanced perspective to the boardroom. An independent board is an indicator of advanced governance. Truly independent directors are more objective, mitigate managerial opportunism, and promote shareholder value.

Resources

• A Diverse Board Is an Independent Board
• Independence as a Concept in Corporate Governance
• The Importance of Independence

Board sustainability governance

Raising oversight of sustainability to the board level by assignment to a standing board committee better ensures that a company will address its most significant sustainability risks and opportunities and integrate sustainability into the company’s strategic framework. Proper board oversight typically requires auditable management processes, such as a sustainability management system, and appropriate controls.

Resources

• CSR in the Boardroom: The Board’s Role in Advancing Sustainability
• How To Show Corporate Leadership In Sustainability
• Joining Forces: Collaboration and Leadership for Sustainability
• Lead from the Top
• Sustainability in the Boardroom
• Systems Rule: How Board Governance Can Drive Sustainability Performance

Diversity

Board diversity along multiple dimensions is critical to a high-functioning board. Studies have shown that companies lacking board diversity suffered more governance related controversies than average.

Resources

• A Diverse Board Is an Independent Board
• Different Is Better: Why Diversity Matters in the Boardroom
• How to accelerate gender diversity on boards
• Why Companies Need To Build More Diverse Boards
• Women on Boards and Corporate Social Responsibility

The Board function

A board of directors is a body of individuals who are the highest level of decision makers in an organization, subordinate only to the voting power of owners of the organization. A board of directors is elected by the owners of the organization and is accountable to the owners. It appoints and evaluates the chief executive and approves key business decisions.

Board structure is the composition of the board including the number, roles, and qualifications of its members. The structure of a board of directors should be an odd, but manageable, number of people. It should be diversified and independent.

Board diversity means that the board consists of people who have knowledge of the organization’s particular industry and bring needed expertise value to the business. An independent board is designed to provide more objective and well-rounded oversight over the management team, minimize opportunism, and protect shareholder value.

Together, the composition, diversity, and independence of the board are critical for the successful fulfillment of board tasks, including setting strategic direction, voting on key decisions, and protecting owners’ interests.