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May 15, 2001
Getting Boards to Address the Triple Bottom Line
    by Mark Thomsen

New report proposes a set of principles and actions to assist corporate boards in addressing the triple bottom line of economic, social and environmental performance.


Corporate boards can play a vital role in assuring the longevity and success of their companies. This role is becoming more complex as companies are increasingly being held accountable for their non-financial policies and activities. Evidence indicates that environmental and social performance today can affect a company’s future reputation, brands, the ability to attract talent and other important intangibles that ultimately affect share value.

A new report by two London-based organizations, the International Business Leaders Forum (IBLF) and SustainAbility Ltd., suggests that corporate boards cannot afford to ignore triple bottom line issues. "The Power to Change: Mobilising board leadership to deliver sustainable value to markets and society" was written by Jane Nelson, Alik Singh, and Peter Zollinger. Nelson is Director of Business Leadership and Strategy at IBLF, Singh is a Coordinator at IBLF, and Zollinger is SustainAbility’s Executive Director.

“The report links the usually isolated arenas of traditional corporate governance and emergent triple bottom line considerations,” said Nelson. “The practices of a diverse range of companies…indicate that leading boards are starting to address societal challenges.”

Based on its analysis of leading companies, "The Power to Change" argues that high performing boards are characterized by six principles that make up the acronym L.E.A.D.E.R. Those principles are: Leadership by boards on the triple bottom line agenda; Engagement with outside perspectives; internal and external Alignment to achieve coherence between company policy and practice; Diversity in board composition to foster independent thought and creativity; Evaluation of the board and the company as a whole; and board Responsibility and accountability for company activities.

The writers acknowledge that as corporate boards already face enormous complexities and time constraints, most directors would not welcome additional duties. “As long as the triple bottom line is perceived to be an additional task, little progress will be made,” observed Peter Zollinger. “Our research confirms that only when cross-connections between sustainable development and a board's existing core functions are made do companies make real progress.”

The report takes each of the six principles and explores them through three questions: why does it (e.g. engagement) matter, what is the challenge, and what can boards do. Answers to the questions are peppered with examples of how various companies and company boards are successfully addressing the issues.

Engagement, for example, matters because “dialogue and consultation with stakeholders is a critical element of corporate accountability.” The authors also note that engagement is a useful learning and information tool for companies and boards that can help build trust with stakeholders.

The report admits that boards face a number of challenges in increasing engagement with external perspectives. Those challenges include the need to protect commercially sensitive information and the practical difficulties regarding a lack of time. Nevertheless, the authors suggest that “boards have to consider new ways of interacting with ‘outsiders’ on key commercial and societal questions that may materially impact the company’s survival or success.”

The report offers a few different approaches that boards can take to encourage a culture of engagement, as well as real-world examples. In an inset box, Dow Chemical (ticker: DOW) is described as one of the first multinationals to create a formal framework for engagement and greater public involvement in the company’s environmental activities.

In 1991, Dow created a Corporate Environmental Advisory Council (CEAC) that comprised external policy and opinion leaders from around the world. The authors write that “insight and recommendations from the council have helped Dow to strengthen its core environmental competencies and played a key role in the company’s decision in 2000 to create a sustainable development framework for all its activities.”

"The Power to Change" offers relevant suggestions and examples for all six principles, and would be quite useful for boards and companies that are considering a commitment to sustainability and an improved triple bottom line.

Companies perceived as not making a commitment to sustainability may find themselves at a competitive disadvantage in the future. Remarked co-author Zollinger, “Both drives for better corporate governance and for sustainable development will not go away. Increasingly, the two agendas will converge. Markets and society will insist on best practice.”

 

 
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