Should all public companies have a Chief Sustainability Officer (CSO)?
On his website, Richard Karmel discusses issues relating to human rights and corporate social responsibility in corporate society.
On his blog today, he looks at the reasons as to why a public company should employ a Chief Sustainability Officer.
A sustainable future is key for any business
It’s evident that the sustainability agenda isn’t going to disappear in business.
Since the global financial crisis of 2008, it has been widely recognised that capitalism probably went too far. At the time, profits above all else were good and that accordingly society will benefit – well that was the theory and we’re all still paying for it!
As a result of the crisis, society has demanded a more socially acceptable form of capitalism.
However, we’re not talking about the extreme view of capitalism bordering on communism, espoused by some well-known commentators. One where companies should only aim to breakeven and employ more people to make this happen.
The theory here is that there will be no unemployment because companies can employ more people as they don’t have to make a profit to distribute to their shareholders. As a result, products will be cheaper for the same reason, meaning more people will be able to afford to buy and consume more.
A lack of incentives effects efficiency
Whilst I understand the theory, practice is a different matter; mainly for one reason – human nature gets in the way!
It’s ingrained in us all to feel good when we are praised and with appropriate incentives we’re likely to perform better.
In the corporate world, the incentives tend to be in the form of increased compensation and praise from both our peers and superiors. To reap these rewards we need to demonstrate progress; meet the needs of customers (both external and internal); do things more efficiently and self-develop.
In the aforementioned capitalism/communism theory there isn’t a direct incentive for the individual to work harder just to enable a company (at best) to breakeven or the feeling of doing good for society.
Look at certain elements of western economies’ public sectors; these house some of the most inefficient institutions that exist. Very often there is little incentive to do today what can be done tomorrow. Consequently, there isn’t a lot of progress and little incentive to make things more efficient.
Businesses have the power to shape society
The type of capitalism that needs to take hold is one which sees companies provide the vehicle for creating jobs and building wealth but in so doing accept that they also have a fundamental role to play as part of society rather than alongside society.
The legitimacy of business suffered greatly at the turn of the 21st century and it’s vital that it regains its position as the leading mechanism for progressive societies.
Regulators, investors and stock exchanges also have a role to play. The short-termism quarterly reporting demanded by certain stock exchanges and investors, I believe is forcing the wrong behaviours.
For companies to reclaim its leading role in society, they need to demonstrate longer term thinking. That doesn’t mean by just understanding and anticipating the needs of their customers, but by also making sure they don’t harm society and strive to do what is good.
This may require incurring costs up front for a greater return on investment in time; but isn’t this standard business procedure?
Upfront costs for long term success: sustainability
However, this is where tension arises: short-term profit reporting against investing for the longer term. Incurring upfront costs on something called ‘sustainability’ for future profits is not that palatable or understandable in the eyes of many.
The tide may be turning, though.
There exist significant investors who are demanding change. One of the tools for this change is to demonstrate respect for human rights by complying with the United Nations Guiding Principles Reporting Framework on Human Rights.
As regards human rights, companies are required to understand their current impacts and future risks on people with whom they and their suppliers have a relationship. Ensuring they have appropriate policies and controls in place will help prevent negative impacts arising. In doing so, they will experience greater engagement with many more stakeholders, which in turn will be reciprocated with greater trust.
Whilst this is easy to write, I understand that it’s difficult to implement in practice. There are two prerequisites to successful implementation:
- Buy-in at the C-Suite
- One person who is accountable for coordinating all efforts for change across the business
Without either of these, the company isn’t ready for change and will more than likely fall into the old category of a business that works alongside society rather than as part of it.
Should a public company have a CSO?
So, given the two prerequisites above, the obvious answer to whether all public companies should have a CSO, is that they should.
But, like everything, it isn’t as straightforward as just creating a new position. The role needs to be intrinsically built into the strategic direction of the company and not just seen as running alongside the company strategy; rather it needs to be fundamentally ingrained into the day-to-day operations and culture.
Companies shouldn’t see sustainability as an optional extra. In the past, certain companies have used it as a veneer to mask otherwise harmful behaviours; but it should be seen as helping companies thrive for the longer term, whilst playing their key role within society.
The role of the CSO is key to achieving this. However, it doesn’t necessarily need to be defined by having a separate title.
Some public companies have made sustainability a key part of the Chief Operating Officer’s role. The advantages being that the COO is overseeing the day to day operations of the company and he/she is in the best position to make sure that sustainability is embedded into everything the company does.
On the other hand, I believe that it takes a very talented person who is capable of delivering both roles. It may be easier for companies to start on this journey by creating the separate post, which over time may disappear as the CSO is able to transform the culture of the company, such that it breeds the type of COO referred to above.
As sustainability evolves, the roadmap for companies will become clearer. For now, however, companies need to accept that change is necessary to prosper throughout the whole of the 21st century, not just a few years of it.
They need to decide on the most appropriate path to achieve longevity through playing their societal role. Sustainability is a key player for that journey and each company needs to decide how best to ensure accountability is built into its boardroom.
Will it be through a separate CSO or become a competency of the COO or CEO? There is no right answer, it just needs to be on the agenda and built into the wider strategy.
About Richard Karmel
Richard Karmel is responsible for Mazars’ award winning business and human rights reporting service line. Richard and his team have devised an innovative solution to help protect the reputation of businesses whilst ensuring compliance with their social obligations.