The board of directors of any organization exists to provide vision and guidance. Ideally, they are meant to steer companies in the right direction, and keep them out of trouble.
Acre, a sustainability-focused recruitment agency, recently published a white paper called “The Case for the Social Board (and how to build one).” On the surface, a “social board” sounds like it might be the latest employee resource group tasked with organizing Friday happy hour (hopefully, most organizations have one of those, too), but this paper brings a fresh perspective on ways companies can keep an eye on broad environmental, social and governance (ESG) issues at the board level, in pursuit of the kind of society we want.
I caught up with co-author Catherine Harris, Principle Consultant at Acre, to learn more about the concept of a social board and how companies are bringing it to life in different ways.
This paper takes a new spin on boardroom conversations — it suggests the concept of a social board. What is a social board?
Catherine Harris: The idea of a Social Board is that the voice of society is included as a key stakeholder in the boardroom. This voice may be communicated in a number of ways — through an engaged Non-Exec Director(s) with background and experience in some of the issues outlined below; a separate Stakeholder Advisory Panel (SAP) also attended by board members, or simply a diverse board which more closely represents both society and the employees within the business itself. These individuals’ roles are to provide insights and direction on issues ranging from finance (tax avoidance or high executive pay) or employment (diversity & inclusion, gender pay gap, modern slavery and zero-hours contracts); to operations (data privacy, cyber breaches and health/safety practices) and the environment (climate-related risk, air pollution or ocean plastic pollution).
What is the business advantage of having a social board?
CH: A Social Board aims to create long-term value by tackling business-critical issues head on. Businesses are increasingly under scrutiny from society, employees, shareholders and investors — and there’s compelling evidence to show that companies with robust sustainability practices perform significantly better, too. We’re seeing ESG quant and SDG funds on the rise — some of which are outperforming their competitors by a significant amount. For example, Arabesque Partners has established an ESG Quant fund integrating sustainability data with financial analysis, which has outperformed the MSCI by over 5 percent since its inception in 2014.
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Patagonia has seen revenue quadruple in the past decade, and their CEO, Rose Marcario, is clear that doubling down on sustainability has created new markets for them and made them more money — their ‘don’t buy this jacket’ campaign alone led to a 40 percent increase in sales the subsequent two years.
Interface Inc., the world’s largest designer and maker of carpet tiles, reported a 60 percent increase in sales and a doubling of profits over a 12-year period when they were full-tilt with their sustainability initiatives to reduce waste and water and to become a truly circular business.
How can interested companies establish a Social Board? Is it an entirely new board? A new person on the board? What does this look like in practice?
CH: There are a number of ways a company can go about doing this — and in the paper, we present these options as an ‘ideas menu,’ recognizing that no one size fits all.
We wouldn’t advocate an entirely new board; however, one option is to appoint a ‘Social Non-Executive Director’ who would take a seat on the existing board. We suggest that such an individual should contribute on the topic of responsible business practice; and weigh in on wider business-critical issues from governance and risk to finance, growth and other shareholder concerns.
Some businesses might wish to appoint a ‘Chief Society Officer,’ with direct reporting responsibilities to the board. Alternatively, we know that an engaged CEO is also an extremely effective way of ensuring that social, environmental and governance issues are brought to light at the most senior level.
One of the suggestions is to set up a Stakeholder Advisory Panel or Ethics Board. What companies have done this kind of thing already and what was the outcome?
CH: There are numerous examples of businesses that have set up SAPs — from AXA and BASF to ExxonMobil, Dow Chemical and Westpac. The list is long and growing as SAPs prove to be an effective way to tackle ESG issues at the upper echelons of business. For example, Wells Fargo launched their own SAP, not long after their catastrophic data breach in 2017, to more deeply understand things like emerging issues, the financial needs of underserved communities, diversity and environmental sustainability.
While we can’t necessarily outline how effective individual panels have been to date, what we do know is that there are certain key criteria required to ensure that what’s discussed on the SAP has a material impact at board level. The SAP should be attended by business leaders or board members; in the case of Wells Fargo, their SAP is led by the company’s Vice-Chair and attended by the President and CEO, Tim Sloan.
In addition to participation of main board members, we also suggest that SAP members selected have a diversity of backgrounds and focus areas, and that the remit is broad enough to cover issues that may otherwise be missed or have low visibility. We also recommend they be remunerated to ensure they’re both engaged and committed.
‘Deep Immersion’ has been put forth as another option. What’s an example of a company that has sent its board members into deep immersion?
CH: Some of the most significant lightbulb moments can take place when a senior leader of a business sees firsthand the impact it’s having around the world. Proctor & Gamble’s VP and Chief Sustainability Officer, Virginie Helias, took executives and R&D team members to Nairobi to meet bottom-of-the-pyramid consumers where they live. They learned how innovative products can promote sustainability and cut water scarcity — leading to a significant shift in the team’s sense of ambition and purpose. The trip was organized by Leaders’ Quest, a nonprofit that provides deep immersion programs for board members and other senior leaders. Helias later reported:
“The Quest was a key milestone in my own transformation journey. Our team could see the sustainability challenges first-hand, and understand the impact of our products and technology. We brought back transformative business ideas that were immediately implemented. This is very powerful.”
When board members are unable to travel, an alternative way of engaging them on such issues is to bring an expert in to address them as a group. Al Gore has been known to regularly address boards on climate change and the steps they can take to mitigate climate-related risk in their own portfolios.
Is it more helpful to have executives from within the company take on a social role or executives from outside the company?
CH: This really depends on each business, and the skills and expertise they currently have on hand. A Chief Society/Sustainability Officer from the outside will bring a fresh perspective and will ask questions that may not occur to someone who may be heavily influenced by their experience within the business to date. An external voice also demonstrates to stakeholders that this isn’t simply a ‘bolt-on,’ and therefore the skills and experience required may not currently be found within the existing team.
On the other hand, someone from within the business can draw on their understanding of operations and business drivers, and will already have an established network internally, so are likely to be more effective at influencing and engaging team members across the rest of the business.
At this level, anyone appointed into such a role will have excellent communication and influencing skills, alongside the technical expertise required to demonstrate their credibility both inside and outside of the business.