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| Best Practices: On the Board |
Paragon or Pariah?
Amy Braunschweiger
10/01/2005
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While Stangis handles the day-to-day social
issues, from community relations in New Mexico to water use in India, the board
members keep their eyes on the bigger picture. “It is part of their charter to
oversee the company’s stance on those issues,” Stangis says. “We communicate
with them often on issues that have the potential to impact our reputation. Our
brand value is a huge intrinsic component of the company’s value.”
To protect their companies, directors of firms must be
aware of their operating environment when they interact with the public or
governments, says Lenny Mendonca, a director in consulting firm McKinsey &
Co.’s San Francisco office. “There are topics that businesses are going to need
to engage in, to influence their license to operate,” Mendonca says. “Business
has largely been silent on what we’re going to do with the challenges of health
care. It’s a very large issue for their employees, and it is an increasing
expense overall for their income statement. They’ll have to engage in a
thoughtful way.”
A diverse board, knowledgeable and sophisticated in social
topics, can help guide a company through social minefields such as oil spills
and sexual harassment lawsuits. Directors who have had experience working in the
public sector, nonprofit arena or educational settings will be especially
helpful when it comes to anticipating the needs and actions of these
constituencies, Mendonca suggests. Additionally, most boards fall short on
international experience, a potential liability for multinationals because
corporate citizenship standards vary widely across the globe. With the Kyoto
Protocol entering into force, for example, international energy companies are
now confronted with new sets of regulations and public relations hazards and
will need to hone the necessary skills to effectively trade emissions.
Last
year, social fund group Calvert made it a point to stamp out the homogenous
nature in the boardrooms of the companies it invests in. Its funds filed
resolutions with nine companies, six of which agreed to adopt a new director
nomination charter that stresses the role of diversity in member searches, says
Julie Gorte, who leads Calvert’s social research department. As boardrooms
continue to diversify, thanks in part to Sarbanes-Oxley, the growing number of
independent directors taking seats around the table may increase the focus on
social issues. In general, it is the independent directors—who are less beholden
to management—who are more likely to speak with socially motivated funds, says
Steve Lippman, vice president of social research and advocacy with Trillium
Asset Management.
Boards that understand the social risks surrounding a
company can ask important questions, Mendonca says, setting a course and helping
implement plans in order to troubleshoot or deal with any backlash stemming from
questionable corporate citizenship. “Changing a business’ role in society is not
incompatible with shareholder value,” Mendonca says. Indeed, “for many
companies, the vast bulk of shareholder value is tied with how you interact with
society.”
Amy Braunschweiger has been published in the Wall Street Journal and the
Village Voice.
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