The board’s role in corporate purpose and shaping a sustainable organization

Board members are guardians of corporate purpose – the reason a company exists. The role of the board has become more complex in recent years as demands for companies to acknowledge their social responsibility beyond increasing profits has grown to encompass a wider economic, social, and environmental impacts.

Responding to rising stakeholder demands for organizations to operate “sustainably” has added a fresh challenge to board oversight: How can companies balance doing well for their shareholders and doing good for their employees, customers, and other stakeholders? At the extreme, leaders might consider this a “zero-sum” game believing that purpose and profit are fundamentally at odds. New evidence shows the link between sustainability and financial performance continues to strengthen, as sustainability becomes a powerful source of competitive advantage. To unlock this advantage, leadership teams need to build stronger stakeholder relationships at the core of their organizations.

A recent Accenture report, Shaping the Sustainable Organization, finds that stakeholder concerns are too often an afterthought: “bolted on” to existing business practices, as opposed to being “built-in,” fully embedded, measured and incentivized. For example, 68% of senior executives believe they create empowering workplace environments—but just 36% of employees agreeⁱ. These ‘consensus gaps’ between leadership and stakeholders can weaken the link between sustainability and profitability. Indeed, our analysis shows when executives and employees are strongly aligned on sustainability performance, companies are growing 13% faster than competitors, on average.

Prioritization is at the heart of the challenge. Sustainability is recognized as a business imperative for 73% of leadership teams. Other influential stakeholders – from 71% of consumers to 64% of local communities – are increasing on their organizations’ sustainability-related activities over the next three years.

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Yet sustainability still remains a second-tier priority: when forced to choose, our research suggests executives continue to focus on more traditional concerns [see chart] rather than prioritizing sustainability. Fully, 58% of leadership believe operating more sustainably involves a trade-off with growth.

This results in a domino effect – the lack of prioritization leads to a lack of integration, as only 25% of organizations have implemented sustainability goals systematically across their entire organization. The lack of integration leads to 43% of companies failing to match ESG rhetoric with resultsⁱⁱ and less than half of stakeholders surveyed believe leadership teams “walk the talk” on sustainability.

The data is clear: executive teams who want to be competitive in the marketplace need to develop strong stakeholder relationships and cultivate a sense of shared ownership to drive change within their organizations. How can the board and executive team work together to recalibrate business strategy and governance models of yesterday to urgently address today’s evolving needs?

The key is to build strong “Sustainability DNA” – to help strengthen the organization’s management practices such as Equal Workplace Opportunities, Executive Compensation and Labor Standards – that embeds stakeholder-centricity at the core of the culture of the organization.

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Importantly, Sustainability DNA can help companies align their twin objectives of doing well for the shareholders and doing good for all stakeholders. The analysis reveals that those companies with the strongest Sustainability DNA outperform their peers by 21% in terms of both profitability, and positive environmental and societal impact.

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Three simple steps will allow executive teams to embrace the fundamental change that becoming a truly sustainable business entails - we recommend CEOs and boards work together to embark on a continuous, cycle that places stakeholders at the core:

• Diagnose: Understand the strength of your Sustainability DNA from your board to your front-line staff, and beyond – having the right data from diverse perspectives is critical to know where to start.
• Define: Identify key interventions to boost stakeholder alignment and the key actors of change to achieve your sustainability goals – what needs to change and where do you want to focus your efforts?
• Develop: Build a roadmap with clear metrics and KPIs for sustainable growth, to balance value and impact, iterating as you go.

Leveraging these steps will provide the foundation for boards, CEOs and executive teams to strengthen their Sustainability DNA.

Here are ten questions board members can use to start the dialogue within their organization:

1. Has management created a baseline to measure progress against delivering on our corporate purpose?
2. What are the costs incurred for the corporate purpose strategy, and how are the costs reconciled illustrating positive or negative impact on the KPIs of the corporate strategy?
3. What needs to change to meet our corporate purpose goals – do we have the right organization to achieve both ESG goals and financial success? Do we have the right individuals in the right roles to make that happen?
4. Have we identified our strategic stakeholders? How is the company actively soliciting stakeholder feedback on meeting our strategic objectives?
5. Does the company mine existing datasets to better understand stakeholder perspectives?
6. How are we building consensus with stakeholders? How does our approach compare to our competitors?
7. Do we have a clear set of KPIs to measure success?
8. What development areas have been identified by management where we need to better align with our stated values or develop KPIs?
9. How are executives’ performance and compensation incentives aligned to KPIs?
10. How are we using technology in delivering our corporate purpose?

See more Sustainability insights.

Sources:

ⁱ Accenture (2020) ; “Hidden value of Culture Makers”
ⁱⁱ Accenture (2021); “Signals of change”