Ever since the rise of capitalism in post-feudal Europe, people have predicted its self-destruction. Private creation and ownership of wealth carries risks, and these risks have been spotted by advocates and enemies alike. Free-market proponent Adam Smith in Wealth of Nations warned against the dangers of separating ownership and liability in joint-stock companies. A century later, in Das Kapital, Karl Marx, a foe of capitalism, said capitalism would fail due in part to the inevitable decline of profits over time. And at the turn of this past century, capitalist icon and financier George Soros wrote of the “capitalist threat” in the Atlantic Monthly magazine, predicting that uninhibited pursuit of self-interest without concern for the common good would lead to a breakdown of the free-market economy.
In more recent times, however, we have not needed books or articles to sound the alarm. The current realitiesof persistent recession and excessive regulation say it all. Clearly, capitalism is under siege and we, its practitioners, are its only hope.
Fortunately, there are several existing communities devoted to this noble cause. One is NACD itself. At our national headquarters and in our chapters, we at NACD believe the organization is helping directors do their jobs well, which, in turn, strengthens companies and the economy.
But NACD is not alone in its dedication. A number of movements have emerged with the express purpose of saving capitalism from both itself and overregulation. One of the newest and fastest-growing is “conscious capitalism”—a movement that challenges business leaders and indeed all stakeholders to rediscover and live their companies’ true purpose—even while creating long-term wealth for owners.
The phrase was coined by Muhammad Yunus, who received a 2006 Nobel Peace Prize for founding the Grameen Bank, a provider of micro-loans. The term caught on quickly. Kip Tindell, CEO of the Container Store, and John Mackey, co-CEO of Whole Foods Market, co-founded Conscious Capitalism Alliance in 2007, which would join with an institute to become Conscious Capitalism Inc.(CCI).
The Conscious Capitalism movement, via CCI, has grown in less than half a decade to become a convening force—one strong enough to tear me away from my office! Last month I served on a panel at the Fourth Annual Conscious Capitalism Conference at Bentley University in Waltham, Massachusetts. The event focused on the importance of “love and care” in the workplace, along with similar topics, including the board’s role in corporate culture, the theme of my panel.
The conference brochure advised me that “conscious businesses have distinctive cultures that help to sustain their adherence to their higher purpose and their orientation towards maintaining a harmony of interests across stakeholders. Conscious cultures are self-sustaining, self-healing and evolutionary.” So far so good!
I assumed my purpose was to suit up, show up, and “carry the flag” for corporate directors. I could just picture myself as being the only “suit” among a sea of social activists and rising-star millennials, being a lone voice explaining that directors do care. In preparation for the panel, I had come up with what I call the 5 Cs:
code (help develop the code of conduct)
CEO (pick the company leader and successors with an eye to culture)
compensation (compensation committee sets incentives for nonfinancial and well as financial results)
controls (audit committee ensures compliance with laws, the code of conduct, and any other norms)
composition (nominating and governance committee selects the board, which then sets the tone at the top through all of the above)
But as it turns out, although I did intone my 5 Cs, I didn’t have to do much explaining about how the boardroom works. Directors and business VIPs were everywhere in the crowd of over three hundred—including some with strong NACD credentials.
Day 1 featured former Medtronics CEO Bill George, who co-chaired the NACD Blue Ribbon Commission on Executive Compensation, as a keynote panelist on the theme of love and trust in business.
On Day 2, the director community was also in evidence. The moderator of the corporate culture panel, Deborah Wallace, is an NACD Fellow, and her panel included NACD’s most recent Director of the Year, Jenne Britell, chair of United Rentals. Another director on the panel, Ralph “Bud” Sorenson, is the chair of the nominating and governance committee of Whole Foods. The conference also featured several notable CEOs, past and present (not only Tindell and Mackey, mentioned earlier, but also Ron Shaich, founder and co-CEO of Panera Bread; and Doug Rauch, former CEO of Trader Joe’s and current CEO of CCI).
Coming all the way from Australia was Ian Pollard, a prominent member of the Australian director community, active with the Australian Institute of Corporate Directors. And I couldn’t resist giving a shout-out to Steve Jordan, director of the U.S. Chamber of Commerce’s Business Civic Leadership Center. (BCLC advances businesses’ social and philanthropic interests through a variety of programs, including corporate citizenship awards and a disaster help desk that empowers businesses to help communities when natural disasters strike.) Like yours truly, Steve is a member of the advisory board of the Caux Round Table, which deserves its own full-length blog post—coming soon.
This star lineup told me that corporate America is already engaged in social responsibility, already devoted to making capitalism sustainable for the long term. Why else would such respected directors be there? And I noticed some knowing nods of agreement from the audience when I discussed the Global Reporting Initiative (GRI), the standard for reporting on company accomplishments in the environmental, social, and governance (ESG) realm—or “sustainability” for short. At NACD, we’ve been keeping our members in the know about such issues—which we will cover at our Board Leadership Conference in October 2012. As usual, our speakers and panels on sustainability-type issues will draw an appreciative crowd.
But Conscious Capitalism runs deeper than simply preaching to the choir about the importance of social issues. According to CCI co-founder Raj Sisodia, Conscious Capitalism has four defining characteristics: “First is a higher purpose. There needs to be some other reason why you exist, not just to make money. Second is aligning all the stakeholders around that sense of higher purpose and recognizing that their interests are all connected to each other, and therefore there’s no exploitation of one for the benefit of another. The third element is conscious leadership, which is driven by purpose and by service to people, and not by power or by personal enrichment. And the fourth is a conscious culture, which embodies trust, caring, compassion, and authenticity.”
Ideally, these values permeate the conscious corporation at every level, including all its employees. Keynote speaker Singh Kang, general manager of the Taj hotel in Boston, gave a good example. Taj is owned by the Tata Group, an $80 billion Indian conglomerate known for its benevolence to employees. Kang was general manager of Taj Mahal Palace in Mumbai during a terrorist attack on November 26, 2008, referred to as India’s 26/11. During the crisis, he stayed on duty, focusing on safety for all as his employees tried to protect guests, even taking bullets for them. Eleven employees died in the attacks. Their families received generous, lifelong survival benefits from their company, returning loyalty for loyalty.
This was Conscious Capitalism in action. These loyal employees and their equally loyal employer will remain forever etched in my mind, inspiring me to continue defending and protecting our economic system—along with the positive values it can foster.
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-termshareowners. 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 howcan 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.
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!
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.