Why Boards Need to Change

Patagonia Inc. is perhaps the best known U.S. company to become a benefit corporation, a new form of incorporation allowed in some U.S. states.

Image courtesy of Flickr user Sam Beebe, Ecotrust.

Sustainability is an increasingly important business issue. There is a growing recognition that the long-term viability of corporations depends on how they impact the environment and society. In response, many companies have initiated sustainability and corporate social responsibility programs. Some of these programs represent good first steps toward improving the impact of their organizations on the environment and society. However, they are not enough.

For organizations to perform well financially, socially and environmentally, they need more than just a program. They need a fundamental change in their goals and how they achieve them. Instead of a sustainability program, corporations need a DNA change that must begin at the top.

Research on organization change programs shows that the initial gains they produce rarely survive unless they address the standard operating procedures of companies from top to bottom. In the case of creating a corporation that performs well socially, environmentally and financially, there is every reason to believe that this can be accomplished only if major changes occur in how corporate boards are structured and operated. Major change in the performance results that organizations achieve can only come about when leadership at the very top of an organization changes its performance goals. This requires action by the corporate board and by the senior executives of the company.

Unfortunately, most boards today are not able to provide the kind of leadership that is needed to move major corporations toward sustainable effectiveness. Instead, many corporate boards are designed, staffed and function in ways that are intended to “maximize shareholder value” — a goal that is singularly financial. As a result, when it comes to issues of corporate social responsibility and sustainability, boards are “OK” with programs, grants and projects that add to the bottom line. They are also “OK” with low-cost social and charitable programs that improve the corporation’s image. What they are not OK with or knowledgeable about is how to manage, organize and hold their organizations accountable for performance that is targeted at optimizing a combination of financial, social and environmental outcomes.