Authors: Robert G. Eccles, Mary Johntone-Louis, Colin Mayer, and Judith C. Stroehle
Publisher: Harvard Business Review (September - 2020)

 

In the current edition of the Hub, we are bringing to you an insightful study on the role of Boards in incorporating sustainability into the long term business strategy. The study is part of a multigroup project led by the University of Oxford and aims to provide research and guidance on linking corporate purpose to strategy and performance. The same has been published by Harvard Business Review.

 

Business performance is now being evaluated not solely on financial metrics but also include indicators related to various Environmental, Social and Governance (ESG) issues. Majority of the company directors feel that boards are spending more time than needed time on sustainability issues. Lack of diversity in the boards and restricted mandate to deal with compliance issues were some of the key reasons assigned this short sightedness. However, the evolving concept of “corporate purpose” and increased focus on ESG has mainstreamed sustainability in the functioning of business organisations.

 

The major output of the project is SCORE, a framework that outlines five actions; Simplify, Connect, Own, Reward, Exemplify, to help boards deliver on purpose of the organization.

 

Simplify

The corporate purpose needs to be defined in simple and clear words and need to be communicated with all the stakeholders including employees, supply chain partners and other stakeholders. The purposes statement should spell out clearly how the company is going to fulfil the unmet needs of the society and at the same time should not be too generic.

 

Connect

A clearly defined purpose need to be connected to the organisational strategy and capital allocation decisions. Such connection helps executive leadership in deciding long term goals and avoids tradeoffs with short term profits which might not be sustainable.

 

Own

Senior management in the organisation should ensure that the stated purpose is reflected in its own decision making process and communicated to the entire organisation. Board must put appropriate structures and processes in place for effective dissemination of the enacted mission of the organisation.

 

Reward

Performance needs to be evaluated and rewarded on the basis of purpose and not simply profits. Both financial and non-financial metrics should be used to set compensation and evaluate performance in the long run. Global standards to evaluate ESG impact should be in place and linked to assess and reward performance, similar to the conventional financial metrics that have been long used for performance evaluation.

 

Exemplify

Quantitatively, the reporting on sustainability performance of the company should be integrated with its financial performance. Qualitatively, there should be a consistent narrative around the actions of the company to achieve its purpose.

 

We duly acknowledge the authors and Harvard Business Review for this note on their study with the same title