The role of the board in the sustainability agenda

Mehlomakulu, M. (Mandla) (2003-12)

Study project (MBA)--University of Stellenbosch, 2003.

Thesis

ENGLISH ABSTRACT: This study examines the role of the board of directors of private and public companies. The focus is on "directing" (and not managing) - in view of the policy and strategic dimensions of boardroom activities. The second step focuses on the sustainability issue - the what and why of this important core governance value. A modem board is responsible for business strategy development and ensuring that a strategic planning process is in place, is used, and produces sound choices. The board must monitor the implementation of current strategic initiatives to assess whether they are on schedule, on budget, and producing effective results. Second King Report on Corporate Governance for South Africa (King II) has lately amended these responsibilities to include recommendations on minimum practices that should be adopted by corporations in relation to their corporate governance practices, as well as sustainability management and reporting. King II follows the worldwide trend of "triple-bottom-line", whose approach is recognising that the company has to consider stakeholders when formulating strategies. As part of building a case for the consideration of sustainability, cost savings could be the primary motivator (if nothing else) for making a business case for sustainable development. Businesses can reduce costs by making environmental improvements that deliver an immediate impact on the financial bottom line. They can also reduce financial, reputation and political risks by engaging with stakeholders. Understanding the concerns and interests of employees, customers, Non-governmental organisations (NGO's), politicians and business partners helps a company to manage environmental and social expectations better, resulting in reduced risk of civil action or brand assassination, improved access to capital and insurance, cost savings and reduced vulnerability to regulatory changes. Another view is that of avoiding a strategic disadvantage, where if firms do not respond to environmental opportunities, and their competitors do, they risk placing themselves at a competitive disadvantage. Governance, simply defined, is "the process of decision-making and the process by which decisions are implemented. If governance is about transparency and looking after shareholder value, and sustainability is about ensuring long-term success, then sustainability is the core part of governance. Managing this equilibrium is an integral aspect of good governance and a major challenge for any board. It will be achieved only where there is active engagement with all stakeholders and where proper attention is paid to health, safety and environmental issues - board of directors is accountable for addressing these challenges. The board should also ensure that its sustainability responsibilities are properly delegated and that strategies and policies are implemented through the effective use of a board representative for sustainability, a dedicated board committee for sustainability, and senior management. The consideration of sustainability issues by directors can reveal new opportunities for the company. Ignoring these opportunities could weaken its competitive position. In addition, if sustain ability issues are not considered, both the company and its directors may be held liable for failing to act with due diligence. The board must be aware of the corporation's liabilities caused by its sustainability obligations over the life cycle of its activities, products and services, and the necessary financial provision for such liabilities must be made and communicated to stakeholders. Directors must be aware of the sustainability threats, and take steps to safeguard the organisation - it is a matter of risk management. It is also a matter of investment, not cost. Like any investment, companies must find the resources and assess the paybacks. But there are many cases where the paybacks have been swift and substantial, and it has been shown that addressing these issues is more likely to help companies identify cost reductions than add to their costs. A number of leading South African companies, for example Anglo American, BlIP Billiton, Eskom, Sasol, and South African Breweries - have begun to drive the sustainability agenda within the local business community. Two case studies (Sasol and Nestle) of companies that are making sustainable development a core part of their governance role are presented. Recommendations naturally do not guarantee safety against failure, but a board can begin with changes that, taken together, will provide a better early-warning system against failure: 1. Reengineer the board. 2. Monitoring and evaluation by the board. 3. Introduce a Sustainability Board Committee This work has illustrated that by having appropriate standards of governance the long-term performance is raised and total shareholder return is enhanced.

AFRIKAANSE OPSOMMING: Hierdie studie ondersoek die rol van die direksie van publieke en private maatskappye. Dit fokus op die "leiding" (en nie die bestuur) - in die lig van die beleid en strategie aspekte van die raadsaal aktiviteite. Die tweede deel fokus op die volhoubaarheid kwessie - die wat en waarom van hierdie belangrike bestuurswaarde. 'n Moderne direksie is verantwoordelik vir die ontwikkeling van die besigheidstrategie en die versekering dat 'n strategiese beplanningsproses in plek is, funksioneer en lei tot die regte besluite. Die direksie moet die implementering van die strategie monitor om te verseker dat die resultate beriek word, op skedule is en binne die begroting is. Die tweede King-verslag oor korporatiewe beheer in Suid-Afrika (King II) het die verantwoordelikhede verander deur aanbevelings in te sluit oor die minimum prosedures wat maatskaapye moet instel rakende korporatiewe beheer, asook volhoubaarheidsbestuur en verslagdoening. King (II) volg die wereld-wye tendens van "triple-bottom-line", wat beteken dat die maatskaapy sy verantwoordelikheid teenoor belanghebenes in ag neem tydens die formulering van strategie. Kostebesparings is waarskynilik die belangrikste motivering vir die inagneming van volhoubaarheid. Die maatskappy kan kostes bespaar deur omgewingsverbeterings aan te bring wat onmiddelik 'n effek op die netto wins sal he. Maatskappye kan ook finansiele-, reputasie- en politieke risiko verminder deur met die belanghebendes saam te werk. Deur die bekommernisse en belange van werknemers, kliente, nie-regerings organisasies, politiekusse en besigheidsvennote te verstaan, help 'n maatskappy om die omgewings en sosiale verwagtinge beter te bestuur. Dit sal lei tot die vermindering van die risiko vir siviele aksies, 'n verbetering in die toegang tot kapitaal en versekering, kostebesparings en 'n vermindering in die kwesbaarheid as gevolg van vernaderinge in regulasies. 'n Ander oorweging is die vermeiding van 'n strategiese nadeel. Deur nie te reageer op omgewings geleenthede nie, terwyl die kompitisie dit wel doen, kan lei tot 'n kompiterende nadeel. Korporatiewe beheer is die proses van besluitneming en die proses waardeur besluite geimplementeer word. Indien korporatiewe beheer gaan oor die deursigtigheid van besluite en die bevordering van aandeelhouerswelvaart, en volhoubaarheid gaan oor die versekering van lantermyn sukses, dan is volhoubaarheid die kern van korporatiewe beheer. Die handhawing van 'n balans tussen die twee aspekte is 'n integrale deel van korporatiewe beheer en 'n uitdaging vir die direksie. Dit sal slegs behaal word indien daar aktiewe deelname is van alle belanghebbendes en die nodige aandag gegee word aan gesondheids-, veiligheids- en omgewingsake. Die direksie is verantwoordelik vir hierdie uitdagings. Die direksie moet ook verseker dat die volhoubaarheids verantwoordelikhede behoorlik gedelegeer word en dat die strategie en beleid geimplementeer word deur die effektiewe gebruik van 'n direksie verteenwoordiger vir volhoubaarheid, 'n direksie komittee vir volhoubaarheid en senior bestuur. Die inagneming van volhoubaarheids aspekte deur direkteure kan lei tot nuwe geleenthede vir die maatskappy. Deur die geleenthede te ignoreer kan die maatskappy se kompeterende posisie beinvloed. Die maatskappy en sy direkteure kan ook verantwoordelik gehou word deur nie met die nodige sorg op te tree nie. Die direksie moet bewus wees van die maatskappy se verpligtinge, as gevolg van die volhoubaarheids verantwoordelikhede, oor die lewenstydperk van sy aktiwiteite, produkte en dienste en die nodige voorsiening maak vir die finansiele laste en dit kommunikeer aan alle belanghebbendes. Die direkteure moet ook bewus wees van dit wat volhoubaarheid kan bedreig en die nodige stappe neem om die maatskappy te beskerm - 'n kwessie van risikobestuur. Dit is ook eerder 'n belegging, as 'n koste. Soos met enige belegging, moet die maatskappy die nodige bronne vind en die opbrengs oorweeg. Daar is verskeie gevalle waar die opbrengs vinnig en wesenlik was en dit is bewys dat deur hierdie aspekte aan te spreek, dit lei tot koste besparings en nie tot additionele kostes nie. Verskeie Suid-Afrikaanse maatkappye, soos Anglo American, BBP Billiton, Eskom, Sasol en SAB het begin om die volhoubaarheidsproses uit te rol in die besigheidsgemeenskap. Twee studies (Sasol en Nestle) oor maatskappye wat volhoubaarheidsontwikkeling natreef as deel van hulle korporatiewe beheer, word aangebied. Aanbevelings is natuurlik nie 'n versekering teen ondergang nie, maar direksies kan begin met veranderinge wat tesame sal lei tot 'n vroee waarskuwing stelsel: 1. Hersamestelling van die direksie; 2. Monitering en evaluering van die direksie; 3. Samestelling van 'n Volhoubaarheids Kommitee Die studie het bewys dat, deur nodige standaarde en beheer, die langtermyn verdienstes verhoog en aandeelhouerswelvaart bevorder word.

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