So What About the Board?
It’s now a year since Michael Porter famously threw down his gauntlet by announcing from on high that all value needed to be Shared Value. That, as I wrote last year, we are moving into the Third Age of corporate-social relations. From old-style “philanthropy” – typically disbursed after corporate titans had made their pile -- to “corporate social responsibility”; from fairtrade to subtler alignments of brand and charitable effort; to something approaching the end of CSR and its sublimation into a revolutionary reshaping of mainstream business strategy.
Of course, this progression is not to be understood as the abandonment of Stage 1 in order to move to Stage 2 and Stage 3. In fact the superheroes of corporate largesse, from Soros to Gates to Buffet, are firmly stuck in the Victorian mold, even if (or so we are encouraged to believe) they are much nicer guys than the robber barons whose ill-gotten gains have powered much of the 20th century’s philanthropic endeavor. What’s more, the major global CSR organization is the Committee for Encouraging Corporate Philanthropy (CECP), founded illustriously by Paul Newman, and quietly directed from New York City by former Olympian and corporate leader Charlie Moore. Their work is fascinating for many reasons, not least in that it uses the old nomenclature (philanthropy) to brand the leading CSR network, and operates at the CEO/Chairman/Board level – hence their famous Board of Boards conferences, and their membership basis: a group of nearly 200 of the Fortune 500 CEOs. Philanthropy. CSR. And now the board?
Chief executives have of course often been personally involved in charitable efforts. There is benefit to corporate brand; the expenditures may be seen as unusual; and it can be fun to open buildings and give things away and get media coverage in the “good guy” section. But Porter’s call is for a deep rethink of the nature of value, which understands it as entailing the good of the community. It takes the philanthropy/CSR agenda straight through the Chairman’s office to the boardroom. In fact CECP’s 2010 McKinsey report on Shaping the Future does a fair amount of the spadework to take Porter’s argument forward.
It’s plain that boards remain the weakest link in the corporate endeavor. A global leader in the movement for board reform is Lucy P. Marcus, whose recent broadcast was a plea, not least, for boards to recognize the full scope of their responsibilities, which include exactly the issues we are discussing here.
As I noted a few columns ago, the principal-agent problem is essentially unresolved in contemporary capitalism, as ever more egregious rewards for CEOs as well as the constant drip of scandals that cross the legal line reveal with every news cycle. And when companies make huge mistakes, the question comes back: Where was the board? (Here’s my op-ed on Groupthink, the top corporate and governmental risk element in the context of rapid change.) Theoretical models of checks-and-balances and representation of the owners of capital who are the real boss of the boss break down once a board actually meets in what may be a spaghetti of conflicts of interest, personal and business relationships outside the boardroom, and the sheer fact that the CEO/Chairman (often one person especially in the United States) is likely to have the whip hand in picking the men (oh yes, and even a few women) who get to be appointed. If we are looking to burnish our efforts in the face of growing competitive forces around the world, here is where value can most readily be added. Transparency, accountability, the appointment of many more women (and others more likely to raise hard questions and accept less readily the traditional culture of western business) – every move in these directions can hardly fail to add value.
Which brings us back to value. Because even if Porter is only half right, he has handed every board member a tool with which to press two related alignments: with the community within which the company operates; and with a sustainable future for the enterprise. What Porter has proposed is that a focus on these contexts for corporate decision-making lies squarely within the fiduciary remit that constrains board members and corporate officers. It’s all about value, and the philanthropy/CSR/SharedValue discussion needs to commingle with efforts at board reform.