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Governance, Risk and Reputation 

The foundation for an effective enterprise-wide sustainability strategy is a clear understanding of its links to the organization's governance structures, and its role in the effective management of the organization's key risks and reputational issues. Aspects to be addressed include: Risk and Reputation, Sustainability Strategy, Governance, and Ethics and Integrity.

Risk and Reputation
Companies across the globe recognize that a robust, positive corporate reputation is a primary asset and a significant source of value and competitive advantage. They also recognize that corporate reputation can be lost or severely damaged in an instant by a single inappropriate decision or action.

Efforts to build, maintain, and protect corporate reputation have been made all the more difficult by the continuing increase in the variety and complexity of the potential sustainability-related risks to corporate reputation. These risks have resulted from the globalization of business operations and the rise of a network of socially, environmentally, and ethically aware global actors that monitor and report on corporate activities on a 24/7 basis. Reputational risks abound—especially for companies with global operations and/or sales—and can relate to a variety of issues, such as:

 

  • Legal and Regulatory Compliance
  • Human Rights
  • Environmental Management and Protection
  • Supply Chain Issues – e.g., labour standards and practices, product quality and safety, environmental performance
  • Government Relations – e.g., anti-corruption and anti-bribery rules, and public sector procurement.

 

Many companies have recognized that, to achieve the benefits associated with a robust corporate reputation, a focused strategy is required with respect to building, managing, and maintaining this reputation and working diligently to restore it when it is threatened or damaged. In addition, they have recognized that a key element is a structured and effective corporate sustainability strategy that focuses management's attention and corporate resources on financial, environmental, and social responsibility.

 

Sustainability Strategy
Integrated sustainability practices are founded upon an effective sustainability strategy. The organizations that have been most successful in creating sustainable value by managing risk and opportunity have recognized this simple principle. These companies have established a formal sustainability strategy with clear objectives and performance measures, focusing their efforts on:

 

  • Integrating sustainability strategy into the wider corporate strategy
  • Developing a thorough understanding of how the organization affects its physical, social, and economic environments
  • Limiting their sustainability efforts to a manageable number of high quality and high impact initiatives that focus on organizational core strengths
  • Identifying and pursuing opportunities presented by sustainability initiatives, such as supply chain and production innovation, and new product development.

 

This represents a transition from the traditional reactive response to isolated challenges (typically environmental in nature), to a proactive integrated approach to managing risk, creating opportunities, and engaging with stakeholders to develop open communication about relevant sustainability information.

Governance
An effective corporate governance program and a strong and continuous commitment to ethical behaviour are essential to protecting the integrity and reputation of an organization. Leaders in sustainability have incorporated the oversight of management's development and execution of the sustainability strategy within formal governance structures, either by designation to an existing committee or the establishment of a new committee tasked with a Corporate Responsibility and/or Sustainability mandate.

International leading practice in corporate governance generally focuses on at least three areas:

 

  • Rights and Equitable Treatment of Shareholders – The appropriate protection and full exercise of shareholder rights, and the equitable treatment of all shareholders, in particular minority shareholders
  • Responsible and Effective Stakeholder Relations Management – The appropriate recognition of the legal and contractual rights of other stakeholder groups, and active interaction and cooperation with a broad range of stakeholder groups in order to promote economic and social development within the communities in which it operates
  • Transparency, Disclosure and Accountability – Full commitment to operating in the most transparent manner possible through the timely and accurate disclosure of information related to the finance, operations, governance, and sustainability of the organization.

  

Ethics and Integrity
The importance of ethics and integrity has been clearly highlighted by the string of market failures that have punctuated the past decade. From the failure of major corporations such as Enron and Worldcom through the current financial crisis that has consumed Wall Street stalwarts such as Bear Sterns and Lehman Brothers, the potential catastrophic results from ethical failures have been demonstrated dramatically over the course of the first decade of the 21st century.

As these failures have highlighted, effective corporate sustainability strategies and corporate governance programs are predicated on a sustained corporate commitment to appropriate ethical principles and behaviour, and demonstrable integrity in all its activities. Failure to behave ethically and with appropriate integrity can lead corporate sustainability and corporate governance efforts to failure.

Therefore, corporate ethics and integrity programs represent a critical element of both an effective corporate sustainability strategy and an effective corporate governance program. While the content of any specific ethics and integrity program will vary with the context and needs of the corporation, key areas of focus for such programs will often include specific commitments to issues, including:

 

  • Sustainable development
  • Respect for the rights of those affected by corporate activities
  • Local capacity building, including human capital capacity
  • Rule of law and appropriate relationships with government and regulatory officials
  • Ethical behaviour on the part of business partners, including suppliers and sub-contractors