In a Director Note recently published, The Conference Board assesses how and to what extent social and environmental issues are integrated into the strategic agenda of the board of directors of U.S. public companies. The report is based on findings from a survey of 359 SEC-registered business corporations conducted by The Conference Board in collaboration with NASDAQ OMX and NYSE Euronext. Data are categorized and analyzed according to 22 industry groups (using their Standard Industrial Classification [SIC] codes), seven annual revenue groups (based on data received from manufacturing and nonfinancial services companies) and five asset value groups (based on data reported by financial companies, which tend to use this type of benchmarking).

The study updates a previous edition of “Sustainability in the Boardroom,” released by The Conference Board in June 2010.

The following are the main findings discussed in the study.

…continue reading: Sustainability in the Boardroom: A 2013 Update

Major companies across industrial sectors are putting more effort and investment into demonstrating good corporate citizenship on environmental, social, and related governance factors. However, research shows that it may be getting harder for companies to gain recognition for doing so.

Last year, Brandlogic and CRD Analytics prepared the 2012 Sustainability Leadership Report: Measuring Perception vs. Reality, marking the second year for the annual report and continuing our pioneering work in measuring and comparing real sustainability performance to the perceptions of key stakeholders. This follow-on study used the same methodology established for the inaugural report, as described in a November 2012 issue of Director Notes (see “About the Sustainability Leadership Report,” p. 2, for a summary). [1] Moreover, the follow-on study validated the methodology’s usefulness as a management framework for making decisions about if and where to invest in sustainability, both on the operational and communications fronts.

With a second set of data in hand, we are able to observe year-over-year movement. Overall, real performance on sustainability is rising, reflecting ongoing and intensifying corporate efforts to define and achieve sustainability goals.

However, perceived performance, on average, is declining. The findings suggest that it is becoming more difficult to achieve differentiation among those audiences who are most attentive to sustainability, despite a better track record. This finding is both striking and surprising. Why is perception slipping despite an increasing volume of communications around sustainability? In what follows, we explore possible answers.

…continue reading: The Bar Is Rising on Sustainability Leadership

Operational sustainability performance is becoming increasingly important to corporations and their stakeholders, but operational performance is not the only measure that matters. There is also considerable value in communicating the corporate sustainability story. This report looks at the potential benefits to corporations of demonstrating good environmental, social, and governance (ESG) performance and discusses five common characteristics of sustainability “leaders”—companies that excel in both the operational and communication dimensions of sustainability.

As economic and societal priorities change over time, so do the criteria that define corporate leadership. The world’s “best” organizations have, at various times, been identified as those that excel in research and development and new product development, those that display excellence in operational and process reengineering, or those best able to focus on core competencies. More recently, the yardstick has been the ill-defined term “innovation”—the ability to be a game changer via breakthrough products or business models.

…continue reading: Charting a Path to Sustainability Leadership

A growing number of corporations are releasing stand-alone sustainability reports. To provide insight into corporate sustainability performance, many reports contain sets of performance indicators. However, questions remain about what should be reported and the indicators disclosed vary widely. This report presents an analysis of the indicators disclosed in 94 Canadian corporate sustainability reports.

Sustainability policies, plans, programs, and projects have been initiated in corporations around the world. Given the broad nature of sustainability, the breadth and depth of these initiatives varies widely. For example, initiatives as diverse as measuring a corporation’s carbon footprint, fostering diversity in the workplace, and supporting community development could all be classified under the umbrella of sustainability. These initiatives are of interest to a variety of internal and external stakeholders. Depending on the issue, these stakeholders may include employees, investors, customers, suppliers, regulators, nongovernmental organizations, and local communities, to name a few.

One important way corporations share information about their sustainability initiatives is through the release of publicly available reports. Although the titles of these reports differ, they typically include words such as “sustainability,” “responsibility,” “accountability,” or “citizenship,” and they focus on addressing the economic, environmental, and social dimensions of corporate performance through a review of both qualitative and quantitative information. (For the remainder of this issue, the term “sustainability report” is used.)

…continue reading: Reporting on Corporate Sustainability Performance

The global market has created a complex political environment for corporations. On the one hand, they seem less beholden to state control, but on the other hand they have become more concerned with brand, image, and reputation as assets used to gain customer loyalty, stakeholder support, and regulatory freedom (Klein 1999). Their reliance on reputation as an asset has meant that they have become more committed to impression management tactics, like philanthropic activity and improving firm environmental standards, in order gain the approval of the stakeholders that matter most.

Having a good reputation has numerous positive consequences for firms. In our study, Good Firms, Good Targets: The Relationship between Corporate Social Responsibility, Reputation, and Activist Targeting, which was recently made publicly available on SSRN, we suggest that it also creates certain liabilities. Belonging to the top tier of most reputable firms and engaging in reputation-building actions, like announcing prosocial activities, exposes a firm to activist attention, making them more likely targets of boycotts. Activists, ever eager for media coverage and the agenda-setting influence attached to it, use firms’ reputation-seeking as a weapon against the firm. By targeting firms that are already committed to reputation-building, they put those firms in a position where they must react by conceding or by doing more CSR activities if they wish to maintain their lofty status in the field. Our findings suggest that scholars who have asserted that CSR and other reputation-building activities have insurance-like properties that protect a firm from future activist challenges may be wrong. Rather than serving as a form of insurance against future criticism, CSR may in fact just make firms more attractive targets. Insofar as activists are eager to target companies that the media and other stakeholders will notice, companies that built reputations for being socially conscious are certainly on their radar. Such companies offer a visible stage for activists.

…continue reading: The Relationship between Corporate Social Responsibility, Reputation, and Activist Targeting

Consistent with corporate social responsibility (CSR), firms strive to engage stakeholders through various initiatives aimed at fostering dialogue between managers and external stakeholders. Diverse forms of dialogue and broad involvement are critical to the success of stakeholder dialogue (SD) initiatives. This Director Notes describes the results of an international survey on 249 SD initiatives undertaken by firms in Germany, Italy, and the United States. The survey results highlight the limitation of current SD practices and identify a strong link between the national approach to corporate social responsibility and the firm approach to SD.

Firms seek the involvement of stakeholders in order to maximize the alignment of business activities with the interests of different organizational and social actors. [1] In particular, SD refers to all initiatives undertaken by firms to listen and communicate to stakeholders regarding a vast array of topics. [2] Many researchers have noted the positive effects SD is expected to produce:

…continue reading: Stakeholder Dialogue in Germany, Italy, and the United States

With more than $400 billion in combined assets under management, US college and university endowments constitute an important segment of institutional investors involved in sustainable and responsible investing – defined here as the explicit incorporation of environmental, social and corporate-governance (ESG) issues into investment decision-making and active-ownership activities. This study provides one of the most comprehensive analyses to date of the state of ESG investing by educational endowments.

In it, we aggregate multiple survey datasets that address three broad areas of ESG investing activity: 1) the incorporation of ESG criteria into endowment management; 2) shareholder advocacy and active-ownership initiatives; and 3) the governance and transparency of ESG investment decision-making.

In addition to analyzing existing survey data, the study advances a novel interpretation about the distinctiveness of endowments’ involvement in ESG investing. What differentiates educational endowments from the adoption of sustainable and responsible investing strategies by other institutional investors, such as foundations, hospitals, public pensions, corporations, unions or faith-based investors, is the particular constellation of stakeholder relations within which the vast majority of ESG investment practices have been adopted by colleges and universities.

…continue reading: Environmental, Social and Governance Investing by University Endowments

According to a new study recently released by The Conference Board, U.S. corporations continue to lag far behind their counterparts in other developed economies—notably , the European Union and Japan—in transparency of environmental and social practices. In particular, the overall disclosure rate of this type of information by U.S. companies in the Russell 1000 is 10 percent, compared to 19 percent for a global sample of 3000 business organizations tracked by Bloomberg’s Environmental, Social, and Governance (ESG) database.

The new report, Sustainability Practices: 2012 Edition—a collaboration between The Conference Board, Bloomberg, and Global Reporting Initiative (GRI) Focal Point USA—covers a total of 72 environmental and social practices including: atmospheric emissions, water consumption, biodiversity policies, labor standards, human rights practices, and charitable and political contributions. For benchmarking purposes, Bloomberg ESG data is compared with the S&P 500 and the Russell 1000, and further analyzed across 11 business sectors and four revenue groups.

The following are some of the other major findings discussed in the paper.

…continue reading: Sustainability Practices in 2012

In a paper recently published in Fordham Law Review, Corporate Philanthropy as Signaling and Co-optation, I examine a previously unnoticed mechanism through which corporate philanthropy (CP) can enhance company value: signaling.

Current value-enhancing accounts rest on the premise that CP “buys goodwill” for the company: companies, by acting nicely, can increase consumers’ or employees’ willingness to pay. But the necessary conditions underlying this theory are simply too unrealistic. For one, consumers have to be aware of companies’ CP policies and be willing to pay to delegate their philanthropy (that is, pay for someone else’s charitable preferences). We should focus less on charitable preferences and warm-glow concepts, and more on the potential of pro-social sacrifices to convey messages about a firm’s fundamentals. Explicit sacrifices of profits can serve as costly signals. They reliably convey messages about attributes that are important to shareholders, consumers, and employees – who are evaluating whether to invest in, buy products from, or work for those companies (that is, important even to those stakeholders who are strictly profit-minded).

To illustrate, the paper elaborates on the option of CP as a costly signal to investors. An increase in the level of donations could convey messages about financial strength to potential investors, who could infer that future free cash flows are perceived by insiders to be relatively high, that the company is now less financially constrained, or that the riskiness of future cash flows has decreased. Pro-sociality could also bridge asymmetric information between insiders and non-financial stakeholders, such as employees and consumers, by conveying messages about the styles and characteristics of top management and the extent to which they are subject to short-termism.

…continue reading: Corporate Philanthropy as Signaling and Co-optation

In less than two years, seven states, including New York, New Jersey and California, have enacted laws creating a new hybrid type of corporation designed for businesses that want to simultaneously pursue profit and benefit society. Advocates for this new type of entity—typically called a benefit corporation, or B Corp– say that it fills a gap between traditional corporations and non-profits by giving social entrepreneurs flexibility to achieve the dual objectives of doing well and doing good. [1]

At first glance, the B Corp seems a welcome addition to the corporate governance landscape, that promises to advance the cause of socially responsible business. Indeed, B Corp proponents have been remarkably successful in making their case to lawmakers; the statutes were passed without a single dissenting vote in both houses of the New York and New Jersey legislatures last year, and similar proposals are pending in four additional states. Meanwhile, hundreds of businesses, most notably the outdoor clothing company Patagonia, have chosen to organize under the B Corp banner.

But viewed from a broader corporate governance perspective, the B Corp initiative—however well-intentioned–has troubling implications. The problem is that its primary rationale rests on the mistaken, though widely-held, premise that existing law prevents boards of directors from considering the impact of corporate decisions on other stakeholders, the environment or society at large. This crabbed view of directorial fiduciary duties perpetuates the unfortunate misconception that existing law compels companies to single-mindedly maximize profits and share price, and in so doing undermines the very values that corporate governance advocates should seek to promote: responsible, sustainable corporate decision-making by companies of any stripe.

…continue reading: Benefit Corporations vs. “Regular” Corporations: A Harmful Dichotomy