Leading Sustainable Organizations
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What would it look like for the board of directors of a major corporation to consider, in a meaningful or material way, stakeholders beyond its shareholders? To be sure, many have argued that companies ought to look beyond their shareholders. But the specifics about what that would like have remained an exercise in speculation. Until now.
To the best of our knowledge, Atlas Copco — a Swedish industrial products company with 10.9 billion euros in 2015 revenues — has become the first listed company whose board of directors has made an explicit statement identifying a significant connection between its business goals and the well-being of stakeholders other than its shareholders, or what we call a “Statement of Significant Audiences and Materiality.”
Atlas Copco’s Statement appears on page eight of the company’s 2015 Annual Report. Note that it is both brief — just one half-page in their annual report — and clear about their commitment.
Atlas Copco is registered in Sweden and is legally governed by the Swedish Companies Act (2005:551). This act requires that the Board of Directors governs the company to be profitable and create value for its shareholders. However, Atlas Copco recognizes going beyond this, extending it to integrating sustainability into its business creates long-term value for all stakeholders, which is ultimately in the best interest of the company, the shareholders and society. The significant stakeholder audience, as outlined in the Atlas Copco Business Code of Practice, includes representatives of society, employees, customers, business partners and shareholders.
The Business Code of Practice is the central guiding policy for Atlas Copco, and is owned by the Board of Directors. Its commitment goes beyond the requirements of legal compliance, to support voluntary international ethical guidelines. These include the United Nations International Bill of Human Rights, International Labour Organization Declaration on Fundamental Principles and Rights at Work, the ten principles of the United Global Compact, and OECD’s Guidelines for Multinational Enterprises.
Atlas Copco has employed a stakeholder driven approach in order to identify the most material environmental, human rights, labor and ethical aspects for its business. These priorities guide how the Group develops and drives its business strategy, as its roadmap to support the UN Sustainable Development Goals.
The strategic pillars and priorities presented on pages 6–7 all aim at continuously delivering sustainable, profitable growth for the Group. This means an increased economic value creation and, simultaneously, a positive impact on society and the environment, thus creating shared value.
Atlas Copco monitors and voluntarily discloses the progress on these material financial and non-financial aspects, through an externally assured, integrated annual report. In addition to the Annual General Meeting, Atlas Copco also creates engagement opportunities so that non-shareholders can address the Group. For example at the annual stakeholder dialogue.
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For Atlas Copco, taking this step was not considered to be a particularly dramatic move. The company’s first statement of materiality and significant audiences (although not entitled as such) came out in 2003, when they re-issued their Business Code of Practice, a formal document built on concepts in the “Atlas Copco Book.” This book, first published in 1965, explains the mission, vision, and strategy of the Group and was designed to help managers and leaders understand the Group’s values, ethics, and commitments. In the first edition of the Book, five main stakeholder categories, including both significant and less significant audiences, were established. Over the years, four CEOs in a row have used the Book as a management tool to spread Atlas Copco’s values.
As Mala Chakraborti, Vice President Corporate Responsibility at Atlas Copco, noted, “We signed the statement of materiality and significant audiences because we believe it best represents the evolution of sustainability as a core part of our company’s strategy.”
Atlas Copco’s Statement shows how a company’s Board can protect management in the face of pressure by short-term investors, so that they may make the long-term decisions necessary for a sustainable strategy. Boards who believe their company’s interests are aligned with a sustainable strategy should have no problem showing their support of long-term value creation by issuing their own Statement. (Our goal is to have the board of every listed company issue a Statement by 2025.) On the other hand, boards who find themselves uncomfortable with the idea of supporting long-term value creation because they judge that the company’s only significant audience to be short-term investors should issue a one-sentence Statement to this effect. Then the board’s significant audience choices are clear for all stakeholders, who can make fully informed decisions regarding their subsequent engagement with the company.