What Is the Board's Role in the Business' Social Purpose?

Nicholas J Price
5 min read

Consumers have a growing social awareness about the businesses from which they buy. As a result, investors have a greater sense of commitment and accountability toward business social purposes. Business social purpose accounts for aligning corporate strategies with social responsibility. About 90% of public companies incorporate some type of social purpose into their corporate strategies.

The new focus on business social purpose may be related to a renewed interest in social responsibility by investors who realize that social responsibility is a path toward building a competitive advantage. Investors are also looking for material records that are specific to their business and its financial performance.

What Is the Board's Role in Business Social Purpose?

Boards of directors should consider expanding their role in risk management and oversight to include the nature of social purpose strategies. Oversight must also include the actions necessary to implement social purpose activities. New strategies inherently come with new risks, and boards will need to be able to identify and assess newly created or potential risks.

Business social purpose is a topic that boards should be discussing with the management team. If the company lacks a business social purpose, the board should perform due diligence by starting the conversation about it and asking why they don't have one.

Some boards may feel the best way to tackle this issue is to form a committee to explore the issue of business social purpose and report back to the board. Forming a designated committee may demonstrate the company's commitment to investors related to business social purpose. A newly formed committee may also grant the appearance that the board is fulfilling its oversight responsibilities.

Board directors will need to make decisions about how to align the social purpose strategy with the corporate strategies they've already set. They'll also need to explore how a social purpose strategy will affect budgeting and availability of resources.

Companies often quickly identify the benefits of having a business social purpose. This revelation should instigate further questions about whether they need to increase publicity of business social purpose to key stakeholders and others, and whether it may be worth expanding the social purpose strategy.

As part of oversight of the business social purpose, boards should compare their efforts with the pro-social strategies of their competitors and work toward using the social purpose strategy to gain or sustain a competitive edge.

Frameworks for Reporting Material Business Social Purposes

Boards won't find too many standards in the frameworks for reporting material business social purposes, although new models are beginning to emerge and develop. Two such organizations dedicated to business social purposes are the Sustainability Accounting Standards Board (SASB) and the Financial Stability Board's Task Force on Climate-Related Financial Disclosures (TCFD).

SASB set standards for 79 industries in 11 sectors as a tool for disclosing insightful sustainability information to investors. TCFD is currently developing disclosure standards that target climate-related financial risk and offer guidance on how corporations can align their reporting to satisfy investors. Both groups focus on specific strategies and operational detail.

Investors are looking for corporations to provide specific information on measuring total energy costs from the grid and from renewable sources. Investors are also interested in water preservation. Specifically, they're looking for metrics on water usage, water recycling and availability of water in various regions.

One of the many challenges of business social purpose is that metrics aren't readily available for certain issues. In lieu of factual data, many investors are content to receive narrative data on social responsibility activities. Investors want information about strategy, competitive positioning, degree of corporate control, measures the company has taken and measures they plan to take as they pertain to sustainability issues.

Currently, SASB and TCFD standards are strictly voluntary. TCFD has already developed some specific metrics. TCFD asks companies to describe the resilience of their strategies during climate-related scenarios.

Business Social Purpose Action Steps for Boards to Consider

The new focus on business social purpose adds to the responsibility of today's boards. Board management software solutions increase efficiency of board work, leaving them more time to explore how to use business social responsibility to their advantage.

Governance Cloud, by Diligent, offers an entire suite of innovative digital tools that streamline board and committee processes while keeping all solutions contained in a highly secure digital platform. Now is the time to implement a board portal and related tools so boards can focus on new strategies for sustainability.

The emphasis on business social purpose will create new discussions about governance best practices. Diligent Boards provides a platform where boards can collaborate on emerging standards for business social purpose to help them make the connection between talent, leadership, and culture and social purposes.

Business Social Purpose May Alter Best Practices for Board Composition and Managers

Business social purpose is bound to have an impact on board composition. As nominating committees pursue a course for succession planning, they may need to start considering board candidates who have a familiarity with business social responsibility.

Pursuing a course for business social responsibility will also require boards to assess their management team's skills in the social responsibility realm. Investors will begin looking at the expertise and talents that managers bring in the area of social responsibility. Managers will need to be able to understand the higher stakes that come with business social responsibility and how to translate non-financial factors into business outcomes.

New strategical approaches will require boards to become increasingly innovative and forward-thinking. Technological advancements, operational enhancements, and the emergence of new business models are future-oriented and advancing rapidly. Boards will have to be nimble in how they mobilize strategic priorities and embrace efficiency along the way.

Incorporating a business social purpose will change the fundamental way that companies approach their businesses and overall performance at all levels.

Business social responsibility changes the expectations of investors. We're moving into an era where boards will need to insist on stronger standards and set goals to surpass their competitors. In the very near future, boards will need to compete in the area of business social responsibility to be able to get the necessary capital to sustain themselves for the long term.