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Corporate Boards in a Green World

Corporate Boards in a Green World

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Work with boards of directors can bring up some complex issues and delicate balancing acts. One of the most challenging is the conflict between the drive for increasing profits and the social responsibility of the company - particularly if corporate activity produces negative impact on society or the environment.
Work with boards of directors can bring up some complex issues and delicate balancing acts. One of the most challenging is the conflict between the drive for increasing profits and the social responsibility of the company - particularly if corporate activity produces negative impact on society or the environment.

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Published by: Dr. Earl R. Smith II on Oct 15, 2008
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06/16/2009

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Corporate Boards in a Green World
By Dr. Earl R. Smith IIDrSmith@Dr-Smith.comwww.Dr-Smith.comWork with boards of directors can bring up somecomplex issues and delicate balancing acts. One of the most challenging is the conflict between the drivefor increasing profits and the social responsibility of the company - particularly if corporate activityproduces negative impact on society or theenvironment. These challenges frequently presentdilemmas for directors who have to make a complexcalculation in order to decide what is in the bestinterest of the shareholders.Corporate boards no longer operate in smoke-filled backrooms. Thenames of the members of a board of directors are often just a mouseclick away. Boards can no longer consider only bottom-line issues indeveloping corporate strategy. Profits, once the only measure of aboard’s performance, are being challenged based on societal cost.Boards need to develop governance strategies to not only delivereconomic value but also social value.Financial performance expectations for companies are higher thanever. The internet has made the earnings cycle easier for shareholdersto follow and reach their own assessments regarding corporatefinancial results. Shareholders are quick to make a judgment and justas quick to adjust their portfolio strategy when financial results do notdeliver the return on investment demanded by shareholders.Shareholders are also now composed of pension funds, institutionalinvestors, labor unions, environmental activists, government regulatorsand other special interests groups all with issues and demands oncorporate resources. Good governance demands that boards find waysto profit on social issues - issues that are often championed by thesespecial interest groups. Conflicts over these ‘social profitscansometimes arise among the shareholders. Individual shareholders caneffectively demand that directors take an active leadership role onenvironmental and humanitarian issues. Institutional investors are riskadverse to strategies failing to add to the company’s bottom line.Advisory boards are often established to assess social issues affectingthe corporation’s activities and to determine how best to comply withthe public relations issue without damaging the company’s earningpotential.
 
Director’s face the complex and often competing issues of enhancingshareholder value and meeting their social responsibilities. No directorwants a shareholder’s meeting to become a political or social activismnews story. A board may choose to establish and advisory boardcomposed of shareholders with leadership experience on social issues. The executive committee may be charged with assessment duties andreporting back to the board on the company’s social responsibilityperformance.Compliance issues are often difficult enough for a board to establishpolicies and strategies to ensure success. However, many specialinterests groups act as watch dogs - demanding corporate boards toestablish strategies far exceeding regulations such as Sarbanes-Oxley.Corporate ethics should be posted on company websites and includedin the prospectus of a company. This serves to demonstrate thecorporate board’s commitment to transparency in financial matterregarding director’s governance.Corporate ethics are determined by corporate culture and by the ethicsof the directors. Directors have a responsibility to the shareholders forincreasing the value of the company, however occasionally directorsbring into the boardroom agendas of their own. Many directors, justlike other shareholders, have backgrounds as environmentalist, unionleaders, and in government. Corporate ethics usually require directorsto adhere to corporate charters in carrying out their responsibilities asa corporate director. Good governance demands the CEO andChairman of the board to conduct assessments to ensure soundpolicies are being promoted by the board, and not the policies of aspecial interest group.Leadership development and professional governance rules canprovide guidelines for social issues. Rules establishing an advisorycommittee to consider and make recommendations to the board as awhole on all social and environmental issues can decongest the boardmeetings. The CEO and Chairman of the board must conductleadership assessments of all directors to ensure the right mix on theenvironmental committee. The board should also develop and post anenvironmental and social responsibility statement on the company’swebsite and as a part of the company’s annual report.Corporate governance is a balancing act between competing issues. Agovernance structure must satisfy compliance issues, regulatoryissues, financial issues and social, environmental and human rightsissues. Failing to address adequately any one of these issues can havea negative effect on the board’s ultimate financial responsibility toenhancing shareholder value.

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