Company directors

Company directors need to drop compliance preoccupation for 2020

Many boards shout loudly about their sustainability efforts and the subject is high on the agenda of numerous organisations which have adopted and champion the rhetoric of triple bottom line reporting, says Andrew Kakabadse, Professor of Governance and Leadership at Henley Business School, University of Reading.

Sadly, this public visibility often masks a reality where sustainability is a low priority initiative, often viewed as an imprecise concept attracting ecological interest, but which does little to minimise genuine environmental harm in a world of rapidly depleting natural resources.

While 2019 will perhaps be looked back on as the year of ‘#Activism,’ with social media inspiring real action through #ClimateStrike, #PeopleVote, #MeToo and #TimesUp to name a few, social pressure on business and governments to become ever more ecologically and socially responsible will increase throughout 2020. Environmental disasters, social injustice, enlightened investors and citizens, as well as changing public expectations will push sustainability to the top of the director’s agenda.

These pressures should incentivise governments and local political bodies to introduce new and appropriate legislation. By way of example, Bristol City Council has already proposed a ban on all diesel vehicles within its city centre, and will raise a congestion charge from 2021.

Legislation and social pressures are likely to force boards to make significant environmental disclosures, including data on greenhouse gas emissions, water usage, waste disposal, labour relations, product and service safety, employee wellbeing and progress in diversity.

This, of course, comes in addition to the board’s already hectic fiduciary duty to oversee company strategy, risk, data protection, cybersecurity and shareholder and stakeholder rights.

From 2020 onwards boards will feel palpable demand from investors and other stakeholders to proactively evaluate competitive threats and better understand disruptive market trends. Similarly, directors will be required to engage effectively across emerging organisational misalignments, integrating sustainability and corporate purpose with financial short-termism.

All of this is set against a need to continue achieving distinct competitive advantage. Linking sustainability to business strategy requires enhanced disclosure mechanisms to promote the firm’s reputation and achieve active engagement with multiple stakeholders.

None of this will be possible if directors continue to remain needlessly preoccupied with compliance.

The oversight function of boards is about balancing compliance against stewardship. This requires directors to facilitate difficult conversations, using monitoring and mentoring to help integrate sustainability with financial challenges.

2020 is set to test the resolve of directors’ ability to adapt their enterprises to be sustainability prepared. Boards need to rethink their role and contribution towards actively caring and being seen

to do so, while placing controls around certain activities that will fully stretch their intellectual capacity and resilience.

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