By Hayden Green, Head of Sustainability, IsoMetrix
When Corporate Governance first entered common usage, in the mid-70s, it referred to the inter-relationship between directors, executives and shareholders of publicly-traded companies.
Since then, and especially over the past 15 years, as awareness of the impact business has on the environment and society has grown, our understanding of Corporate Governance has extended to encompass social responsibility, environmental stewardship and corporate ethics.
Sir Alan Cadbury, the author of the UK’s Corporate Governance Code of Best Practice, provides a modern definition of Corporate Governance:
“Corporate governance is concerned with holding the balance between economic and social goals and between individuals and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.”
Whereas historically the focus of the board was on the bottom line, and making profit, various factors have come into play, shifting the focus to the triple bottom line: People, Planet, Profit; or People, Planet, Prosperity.
Factors that have prompted a change in approach include the growing influence of institutional investors; governmental legislation, and pressure from NGO’s, as well as raised awareness of the cost of climate change, and the social cost of disasters such as Marikana.
Investors, governments and, increasingly, corporates themselves, are realising that a company’s long-term financial success is inextricably linked to its sustainable business practices.
This understanding that businesses cannot act in isolation, and that they have a direct and indirect impact on the environment, society and communities within which they find themselves, has led to a radical change in approach to Social Management.
All companies listed on the JSE are now obliged to provide an integrated report that exposes the company’s social sustainability initiatives, in accordance with the format set out by the Global Reporting Initiative (GRI). Companies are also required to submit a Social and Labour Plan that ensures adherence to the social commitments undertaken by the business, and its continued social licence to operate.
Whereas previously the upliftment of communities was left solely to government, business is now seen as a key role player and stakeholder in the development of the local economy, community human resources, and a sustainable supply chain.
Increasingly, proper systems, such as social sustainability, are required to manage these programmes, so that they are auditable, and can provide management with real-time reporting. For companies taking a long-term view, understanding social management is an essential component of their strategic thinking and systems.
Social Governance can only be institutionalised, entrenched and managed if there are integrated feedback loops between the following:
- Enterprise Risk Management – Key Material Risks
- Environmental and Social Governance (ESG) Strategies
- Negative impact mitigation and positive impact advancement initiatives
The key to improving the organisation’s “social license to operate” and understanding social management lies in the visibility of the above performance management processes. Performance management includes performance against strategy and compliance conditions as well as holding the individuals assigned to implement, monitor and manage these initiatives accountable to the associated tasks.
As Georg Kell, executive director of the UN Global Compact says: “Business, environmental, social and governance responsibilities are no longer add-ons. They are integral to success.”