If you want to spark a lively debate in board, just ask about directors’ fiduciary duties of care and loyalty.
- One director may say, “We owe our duties to our shareowners. Period.”
- Another director may add, “Yes, but we need to pay special heed to the interests of long-term shareowners. Some shareholders are speculators and not truly owners; they are more like renters.”
- And yet a third director may say “Why the focus on shareholders alone? As directors, we in fact owe our duties to the corporate entity, and as such, to all its stakeholders.”
If you have a sense of déjà vu it’s because you’ve heard all this before—including the pages of NACD Directorship. It’s a perennial debate.
But no matter which position you take, you must agree that over the long term, the interests of shareholders and other stakeholders all converge. And furthermore, you must agree that to serve those interests requires that a company be sustainable—that is, able to stay in business over the long term, and not crash due to some unforeseen and/or managed risk—including an environmental or social risk.
So how can investors and other stakeholders gain confidence on that score? Enter the Global Reporting Initiative (GRI), the globally accepted standard for reporting nonfinancial information about a company. In a series of recent chapter programs, NACD has been introducing the topic of GRI to our membership in a show affectionately nicknamed the “Why GRI?” show.
When the Global Reporting Initiative first opened an office in the United States in October 2010, its acronym – GRI – drew mostly blank stares in U.S. boardrooms. Although a majority of the largest global companies were using this template for reporting nonfinancial data, American reporters were relatively few in number and low in profile. Today, after a mere 18 months of promotional efforts by a US-based director, GRI is becoming a familiar name. Indeed, as of February 2012, nearly 250 U.S. organizations now report on their sustainability using the GRI template—almost double the number that reported prior to the US office launch. And even more important, there is a growing awareness that GRI is not merely about reporting: this reporting initiative seeks to improve the quality of corporate strategy and risk oversight—and therefore corporate value itself.
One catalyst for the new and deeper GRI awareness has been a series of NACD chapter programs being generated at the grass roots level. Combined attendance at the first two events topped 100—a decent number for a topic that is relatively new to U.S. boardrooms.
The Kansas City Program
I’m going to Kansas City. Kansas City here I come! Appropriately for a dynamic start, the inaugural program started when Laura McKnight, co-chair of the chapter with Charles Peffer, invited GRI’s US Director Mike Wallace to address the Heartland Chapter in November 2011, along with EMC’s chief sustainability officer Kathrin Winkler. As chair of the Greater Kansas City Community Foundation, McKnight understands the importance of corporate social impact.
During a breakfast panel on “The Board of Directors and Corporate Sustainability,” Winkler explained how her board oversees her corporation’s social and environmental presence. At EMC, management regularly reports on sustainability matters to the EMC governance committee and the full board.
At least twice a year, the chief sustainability officer provides an update to the EMC governance committee on sustainability initiatives and progress. Topics discussed on the EMC board to date include stakeholder engagement—including feedback from customers and relations with employees. Furthermore, sustainability discussions play a major role in board discussions of the company’s strategic plans and the board’s related oversight of risk. More details on EMC’s program will be forthcoming in the March-April 2012 issue of NACD Directorship.
The LA Program
From this pioneering start in the Heartland came an even more ambitious program in the City of Angels, focusing on “Corporate Strategy and Reporting in a Global Economy: the Board’s Converging Roles.” Held at the historic California Club in January 2012, the Southern California Chapter event attracted the leaders of the LA business community, including Dann Angeloff, Chairman Emeritus of the chapter, and a Lifetime Member of NACD, in recognition for his 35 continual years of membership. Dann was the seventh person to join NACD—back in 1977, and he looks as young as ever (good governance is good for your health). But not all attendees were local. Richard Crespin, executive director of the Corporate Responsibility Officers Association attended as well—traveling all the way from Washington,DC.
Program chair Fay Feeney, CEO of Risk for Good, a governance consultancy that supports GRI as an Organization Stakeholder, moderated a panel featuring GRI’s Wallace plus three others: Mary O’Malley, Chief Sustainability Officer, Prudential; Chad Spitler, Director Corporate Governance and Responsible Investment, BlackRock; and Mary Ann Cloyd, Partner, Center for Board Governance, PwC.
The invitation to the event framed the issue precisely:
Boards are increasingly involved in helping to develop and monitor sustainable corporate strategies. At the same time, board oversight of corporate reporting has grown as well. So what is a board to do? How will you provide oversight as a Director?
When it comes to strategy, boards are faced with tradeoffs between short term and long-term gains, and differing interests of stakeholder groups. When it comes to reporting, we have the SEC, FASB, IFRS, GRI, ISO, Carbon Disclosure Project and IIRC–all of which are providing guidance and/or standards to companies about reporting.
Add the fact that there are an increasing number of shareholder proposals seeking disclosure on a wide variety of environmental and social issues, and shareholders with strong views on both sides of these issues … what is a company to do?
After an introduction from Chapter President Chris Mitchell, Feeney set the stage by pointing out that today a major percentage of any company’s value lies in intangibles rather than tangible assets. How right she is! In a very real sense, reputation is worth more than money. As Shakespeare wrote, “Who steals my purse, steals trash… but he that filches from me my good name …makes me poor indeed.” (It so happens that a villain said this in a tragedy but it is still true!) Feeney also pointed out the many names that sustainability may take on: corporate social responsibility, corporate citizenship, sustainable development, and so forth. It’s all about having a “meaningful conversation around value,” said Feeney.
Wallace explained the GRI reporting system as a highly adaptable model for reporting nonfinancial information in a variety of organizational types—in most cases on a voluntary basis. In the U.S., company managers report sustainability on a voluntary basis as a way of informing the board, stockholders, and others about their companies’ social imprint. But Wallace noted that some governments and stock exchanges outside the U.S. are making GRI reporting mandatory for companies and their suppliers, and these mandates are touching U.S. companies as foreign and domestic buyers ask U.S. companies to disclose sustainability information. In fact, Microsoft and Apple are both asking their key suppliers to produce sustainability reports according to GRI. Being a GRI reporter prepares companies for these unfolding compliance demands.
In his remarks about investment styles, BlackRock’s Spitler hammered home a key point. Investors may have differing expectations, including social expectations, but Blackrock favors GRI reports for financial, rather than moral, reasons. BlackRock wants to make sure the company is a good financial bet for the long term and GRI reports make it easier to compare companies’ non-financial performance. Spitler explained that while there may be some very good information about a company in these SEC reports, much may be missing. And when companies put out their own reports on their activities in the world, it is not always easy for shareholders and others to compare one company to another as they may use different terms and categories. For many years, to compare sustainability across firms was like comparing apples to oranges to aardvarks, one might say. GRI makes the comparisons easier or shareholders—a point emphasized by Spitler.
Bringing in a high-level corporate perspective, O’Malley described the history of the reporting program at Prudential, making a very useful point for beginners. The purpose of sustainability reporting, she said, is not to brag about how sustainable we are. Its aim is set sustainability goals, disclose the goals, and reveal how far along the company is in achieving them. In short, sustainability is not a destination; it is a journey.
Rounding out the discussion from a boardroom perspective, Cloyd of PWC underscored the need for director attention to information about various stakeholder issues, as a matter of risk oversight as well as strategic opportunity.
Summarizing comments and T-ing up the peer discussions, Feeney sees this panel as the beginning of a long-term dialogue about matters of strategy and sustainability. Watch this website for an upcoming blog by Feeney on her ongoing peer-to peer discussion program.
And there’s more. The next NACD event to feature GRI will be the March 12-13 Master Class in Scottsdale Arizona, where Wallace is slated to copresent with Suzanne Fallender, Director of the Global Corporate Responsibility Office at Intel, a GRI reporter.
And later this year, the Why GRI traveling show will visit new cities. On the horizon: possible events at the New York Stock Exchange and NASDAQ in conjunction with the New York Chapter.
As this road tour makes clear, corporations are more than their revenues minus expenses; more than their cash flow; more than their reportable assets. Corporations are actors on the world stage, interacting with not only investors but also customers, vendors, employees, communities, regulators, and others, and all of these constituencies want to know information about the company that goes beyond financial statements and the 10-K and proxy reports that supplement them. GRI makes this possible. So stay tuned—and stay sustainable!