Corporate Social Responsibility – What Is Wrong with This Picture?

Published by

On January 31, the New York Stock Exchange will host “Focal Point USA,” the first official event of the Global Reporting Initiative (GRI) on U.S. soil. NACD will no doubt cover this event, since we champion the inclusion of nonfinancial metrics in performance measurement—see our recent Blue Ribbon Commission report on Performance Metrics.

But back to GRI: More than 1,300 companies worldwide use GRI standards for corporate reporting on environmental, social and economic performance (we’ll call these “social” issues for short).  Most of the companies are located outside the U.S., however, hence the “Focal Point USA” campaign. The New York kickoff will be the first point in a tri-city tour. On February 3, The World Bank will host a breakfast meeting to gather the local sustainability community and discuss latest trends in social disclosure and sustainability reporting.  On February 4, Ceres, the longtime sustainability initiative that launched GRI, will host a roundtable event in Boston for sustainability reporters.  Will there be a dramatic surge in the number of companies adopting GRI and embracing social issues? The answer is yes—but only if corporate social responsibility can correct its image. Let me explain…

When yours truly was at Chesterbrook Elementary School in Falls Church, VA (later renamed as McLean), having gained a reputation as a writer for my stories on heroic figures such as “Slowpoke the Snail” (painstakingly handwritten on many pages of regulation line paper and usually circulated for only a few days before being ripped up by the school’s top bully) my peers elected me to become the editor of the school newspaper, produced with pungent purple ink on a mimeograph machine. Well, being a writer was one thing and being an editor was another. The deadline for the newspaper was fast approaching, and I had gathered no copy—not even from the boy who had taken the trouble to dance with me at Cotillion before revealing his true motives (“Will you make me a sports editor?” he asked, dashing my first hopes of unconditional love). So I had a bright idea. An artistically inclined pal of mine could draw a picture with as much incompetence as she could muster, and title it, What is wrong with this picture? The arrival of this first official submission to the school paper broke the logjam. Soon other articles appeared and I had enough copy to make a newspaper.

Alex's early ventures in editing

But when it comes to corporate social responsibility, something really IS wrong with the picture and I think I know what it is.  But like the tale of “Slowpoke,” it will take me a while to tell, and I recount it in an environment—our current business world—that tends to overpower nuance.

Here is the two-part dilemma.

1. By their very existence, corporations are based in fundamentally moral principles such as meeting needs, setting viable prices, paying wages and so forth. There are of course, outlier exceptions like monopoly, fraud and other ills but these are already combated by government with taxpayer dollars. We need to shout that business really does do good day in and day out.

2. At the same time, however, there is overwhelming proof that companies making additional investments in social issues do better financially than peer companies that ignore such issues. Don’t just take my word for it. Read the extensive writing of Steven Jordan of the Business Civic Leadership Council of the U.S. Chamber of Commerce or of Stephen Young, Executive Director of the Caux Roundtable.  Or consider the fact that a leading social/governance issues expert at the World Bank and International Finance Corporation, Mike Lubrano, cofounded the Cartica Capital and left a secure government job to invest his career by investing in companies that “get it right.”  The fund is doing quite well.

Are these additional investments optional, like giving to a favorite charity, or necessary like paying insurance premiums? In my view, they are necessary, but not because corporations have or should have a “responsibility” to contribute to society.  Any red-blooded company would rebel at such a guilt trip.  It’s because corporations are woven into the social fabric, and if they harm that fabric, they themselves are harmed.  If they help that fabric, they themselves are helped. So the problem is the picture. We need not envision a magnanimous corporation giving to society. But rather society giving to a corporation…employees give their time, customers give their treasure, and the public gives its trust. The real question is, will corporations receive or reject this wealth that is available to them in return for a modest and necessary premium?

In conclusion, what is wrong with the current picture of corporate social responsibility?  The problem is that corporate responsibility is a confusing misnomer. Social investments are not merely a “responsibility.”  They are economic necessities.  As for me, yes, there was something wrong with my picture when, out of desperation, I had to commission that illustration. I was promoted beyond my level of competency. I needed to stick to writing. The same goes for corporations. They are not there to do good. They are there to do business—making good products and services, sold in free markets, and voluntarily investing in the social infrastructure that makes those markets possible.

Now that picture is worth a thousand words—and untold returns on investment.

Is Dodd-Frank on Life Support?

Published by

The landmark Dodd-Frank Wall Street Reform and Consumer Protection Act arrived into the world on July 21, 2010. Hailed as the new model for our economic system, it contained many new changes for corporate boardrooms. These changes were long sought by the shareholder community. Although this new law is still in its infancy, I can’t help but think that some of its corporate governance provisions are already in critical condition.

The Act’s prognosis was good; the bill had a strong supporter in the SEC and two branches of the Federal government backing its provisions. But, as always, things change. Within weeks, the U.S. Chamber of Commerce filed a lawsuit challenging proxy access.  Then in November, the Republicans won control of the House of Representatives for the next two years. And finally, the SEC recently announced that they will not be able to fund the whistleblower office, thus hindering the rule. These three incidents amount to a broadside against the Act and could potentially halt its implementation in Corporate America.

On the other hand, the Act is not completely dead. Though the law has strong forces acting against it, all are in flux. The Chamber’s legal challenge is no guarantee and may likely fail in the courts. The House Republicans have made it clear that they plan to attack the Dodd-Frank Act but they have only promised “a significant amount of oversight.” Their attention will mostly be directed at minimizing the health care law. Additionally, amendments and any legislative changes to the bill will almost certainly face Senate rejection and/or a veto by President Obama. As for the SEC, their budget shortfall may only be temporary, and responsibilities for the whistleblower’s office will be carried out by the current SEC staff.

Will some provisions of Dodd-Frank ultimately meet their doom? Short answer: maybe. Two of the most important provisions of the Act—proxy access and whistleblower protections—are in question, but others, such as say-on-pay, will be in place for 2011. Sadly, the lack of certainty on some provisions will directly affect the governance of our public companies and the director community.

Corporate directors cannot relax as they wait and see what provisions will actually become reality. Even if some of these provisions ultimately fail, shareholders will surely not give up on them. Shareholders will still pursue proxy access and the SEC will surely concoct new disclosures for your board to prepare. The only option a board has is to prepare. Preparation means speaking with large shareholders, examining board composition, and reviewing executive compensation structures.

As we wait for the SEC to implement more key provisions of Dodd-Frank, many factors are at play. Whether the provisions thrive or their plugs get pulled, the coming year promises much drama.

Straighten Up and Fly Right: IT Risk Governance for Non-Techie Directors

Published by

 

Virginia Gambale

Jet Blue Director Virginia Gambale heard the news about the airline’s fed-up flight attendant—the one who exited the plane via the emergency slide, cursing passengers as he touched down on the tarmac—well before some of the company’s senior executives. Social media savvy Virginia uses a web tool to track all mention of companies on whose boards she sits, and as soon as someone tweeted news of the incident, she was on it.

 Virginia, a former CIO with Merrill Lynch and Bankers Trust, shared the story at NACD’s Director Professionalism®—The Master Class, held this week in Clearwater, FL. She was one of a number of dedicated NACD members honing her board leadership skills and using peer expertise to identify and explore innovative solutions to persistent and emerging challenges.

Virginia urged her peers with non-IT backgrounds to become more involved in oversight of the company’s technology strategy. “Ask questions,” she said. “If people tell you that deadlines are being missed, that delivery of services isn’t possible, or that it’s just too complicated to get something done, then you don’t have the right strategy and you may need to change your CIO. Ask the CIO to talk about allocation of resources and find out how the dollars are spent between maintenance and innovation. You can make the same judgments as you would on any other area of the business.”

 “Ask ‘What is our model for technology leadership?’” advises Virginia, and ask to be walked through the governance model and strategy for partners and communications with customers. “Read the company culture: Is IT a partner or service provider? How closely integrated is it with your lines of business? What, why and where are you outsourcing, and what effect is that having on your risk? Virtual roads and highways need to be maintained, but you can outsource a lot of this and pay only for what you use,” she said.

Virginia urges boards to make sure they have at least one person charged with asking these and other questions. “It can be helpful to have a technology and operations
sub-committee sitting under audit or risk,” she recommends, especially if the company needs to find a new CIO. Failing this, the board should consider hiring an outside consultant.

“Security breaches, brand tarnish, information leaks or, at worst, a death can do your company real harm,” said the director who joined the Jet Blue board around the time of the Valentine’s Day “Ice Incident.” And, she added, “You can’t risk disintermediation—the business boneyard is filled with companies where the strategists at board and C-suite level failed to ask the right questions and fooled themselves for too long.”

“Today, every man, woman and child has access to instant information,” she reminded the group. “Use social media intelligently—it can supply you with useful information about what your customers think. And remember, if a mind created it, a mind can break it. Be mindful of the need for ongoing vigilance and sound practice in information security.”

Other directors sharing their expertise with peers attending NACD’s Master Class included Office Depot Compensation Rear Admiral (Retired) Chairman Marty Evans, Winn Dixie Director Charlie Garcia, who discussed the implications of America’s growing Hispanic population for board composition, and Major General (Retired) Hawthorne “Peet” Proctor, who spoke about the characteristics of exemplary board leadership.

To learn more about NACD’s Director Professionalism-The Master Class in 2011, click here. Already attended the Master Class? Contact fellowships@NACDonline.org to find out how you can become a 2011 NACD Board Leadership Fellow.