Underlying NACD’s Directorship 2020 initiative is a single observation: capitalism—and the role of the director—is changing. There are the more obvious forces behind this shift: vocal shareholder activists, a steady stream of regulation impacting the boardroom, emerging technologies, and the increasingly global marketplace; however, a quieter influence is also taking hold of capitalism: looking beyond the bottom line.
Since their formation, the ultimate goal of corporations has been to generate profit, and therefore shareholder return. As such, total shareholder return has served as a universal metric for investors when analyzing a company’s performance. Recently, several companies have been profiled for their use of “capitalism with conscience.” Panera Bread, for example, has established a number of locations which allow the customer to “pay what you can”; Intel not only links compensation to sustainability but ties employee bonuses to environmental metrics; and Office Depot announced this week the second round of its national “Green Business Challenge”— a public-private partnership launched in 2010 with ICLEI USA. These companies represent just a fraction of those embracing this “softer” side of capitalism. The list of companies upping the ante with respect to sustainability efforts is rapidly growing to include General Electric, Nordstrom, Microsoft, Starbucks, and more.
Observing this trend, Northwestern University Professor and former CEO and Chair of Bell & Howell Bill White posed this question at the recent NACD Directorship 2020 symposium in New York City: should we rename “total shareholder return” to “total stakeholder return”? Although attendees did not commit to a change in nomenclature, they generally agreed that stakeholder return was a necessary consideration in the boardroom. In fact, a key takeaway from the event was a recommendation that the board encourage metrics that foster stakeholder engagement as a strategy for risk mitigation.
Establishing a metric tied to sustainability is not entirely new. In 2010, NACD’s Blue Ribbon Commission on Performance Metrics recommended boards consider non-financial metrics in addition to the more traditional financial metrics, including categories such as community engagement, environment, health and safety, and corporate social responsibility. Additionally, earlier this year NACD Directorship magazine featured a comprehensive primer to sustainability in the boardroom.
Yet many still view sustainability and shareholder return as an “either/or” situation: attention to the former detracts from the latter. At the Bricks and Sticks Sustainability Symposium—an event produced by the U.S. Chamber of Commerce’s Business Civic Leadership Center—panelists representing the various stakeholders involved in public-private partnerships observed that today it is instead a “both/and” scenario. Sustainable long-term economic growth is dependent upon continuing environmental and stakeholder health, and vice versa. Directors play a critical role, according to Yalmaz Siddiqui, senior director of environmental strategy for Office Depot. The organization’s successful Green Business Challenge was in part driven by a strong message from the boardroom encouraging increased focus on sustainability.
Innovative and sustainable solutions for economic growth often require far-reaching and long-term thinking, which can pose a challenge for boards hindered by a more immediate, short-term focus on the bottom line. At upcoming symposiums in Chicago and Los Angeles, NACD Directorship 2020 will continue to explore how—and with which metrics—the board can oversee this changing facet of capitalism.