Shareholders increasingly expect boards of directors to exercise greater oversight over the social and environmental impacts of corporate activities. The 2013 Proxy Preview recently published by As You Sow, the Sustainable Investments Institute, and Proxy Impact, noted that the shareholders have recently filed approximately two dozen proposals requesting structural governance reforms in terms of how companies manage and oversee social and environmental issues, including specific requests that boards develop committees on specific subjects and/or identify board member nominees with relevant expertise.
A key function of a corporate board is to oversee management’s approach to risk management, legal and regulatory compliance, and strategic planning. Boards are also critical in ensuring that corporate strategies are consistent with the long-term sustainability of the enterprise.
In recognition of these considerations, a number of public companies have formed committees with explicit responsibility for CSR concerns. The responsibilities articulated in the charters of some of these committees are illustrative:
- Reviewing and making recommendations regarding “stockholder proposals that relate to matters of corporate social responsibility and are submitted for inclusion in the Company’s proxy statement for its annual meeting of stockholders.” (Phillips-Van Heusen Corporation)
- Reviewing “social, political, economic and environmental trends that may have a significant impact on the Company’s business activities and performance.” (McDonald’s Corporation)
- Reviewing and evaluating “management’s goals, initiatives and practices for Social Responsibility” and “recommending goals, initiatives and practices for Social Responsibility to the Board of Directors.” (Tiffany & Co.)
- Reviewing and assessing “[c]ompany policies and practices with respect to significant issues of corporate social responsibility, including, without limitation, compliance with the Company’s Code of Conduct, product safety, environmental health and compliance, transparency, sustainability, public policy matters, corporate citizenship and charitable contributions.” (Hasbro, Inc.)
- Reviewing “significant lawsuits, investigations by governmental entities and other significant legal matters involving the Company or one of its affiliates that affect or could affect the Company’s performance, business activities, or reputation as a global corporate citizen.” (H.J. Heinz Company)
- Providing oversight over operations and programs regarding “strategic philanthropy and employee community involvement; public policy and advocacy, including lobbying and political contributions; environmental management; corporate social responsibility of suppliers; human rights, as reflected in the Corporation’s policies and actions toward employees, suppliers, clients and communities; compliance with Community Reinvestment Act (CRA) and Fair Lending laws…; and corporate social responsibility governance and reporting.” (BNY Mellon)
These charters reflect the significant business considerations inherent in a company’s approach to CSR. Too many companies have failed to integrate CSR into the overall management of corporate operations. Such an approach fails to recognize that CSR can be a significant component of a company’s approach to risk management and may leave the board disengaged from its important oversight role in the company’s management of social and environmental concerns.
By establishing a “tone from the top” whereby a management is accountable for ensuring that the social and environmental impacts of a company’s operations are addressed responsibly, the board can help ensure that a company operates consistently with its commitments and the expectations of key stakeholders.