A New Model for Corporate Governance is Emerging. Is Your Social Responsibility Program Ready for It?
2018-02-01 | 10 min read
As I mentioned in a recent post, Corporate Social Responsibility (CSR) – also referred to as corporate citizenship or sustainability – has morphed from the right thing to do several years ago to a business imperative today. This shift is driving new thinking in corporate governance models to ensure CSR strategies are aligned to industry trends, stakeholder requirements, and business success. Being in-line with, or even a step ahead of, this integration of CSR in corporate governance will save you and your company some grief. But how do you get there? And once you “get there”, how do you maintain momentum? At Keysight, we used our company formation as the impetus to embark on a 6-step journey to evolve our CSR program model to help get us “there” and position ourselves for continuous progress.
Importance of the Journey
Before I delve into the steps Keysight took to evolve our CSR program, I’d like to share how I was recently reminded about the importance of this journey. In a 2018 Annual Letter to CEOs, Larry Fink, Chairman and CEO of BlackRock, referenced the increasing importance of CSR in institutional investment decisions and corporate engagement strategies. “Society is demanding that companies, both public and private, serve a social purpose,” Mr. Fink wrote. “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”¹
That is a powerful statement. One that underscores how the investment community is signaling a move beyond just financial performance as an indicator of business value, to include societal impact and sustainable operations. As Mr. Fink stated, “a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth.”
This is not an isolated example. F. William McNabb III, Chairman and CEO of The Vanguard Group, Inc., noted last year in an open letter to directors of public companies worldwide that they “believe it is incumbent on all market participants—investors, boards, and management alike—to embrace the disclosure of sustainability risks that bear on a company’s long-term value creation prospects.”²
I couldn’t agree more! These messages are spot-on with the trends Keysight has experienced with our investment community as well as our customers and rating agencies as they request increasingly comprehensive social responsibility data. This reality, coinciding with our company formation, marked an opportune time to consider evolving our CSR program model to address these trends, and align it with our new brand and business strategy.
Six Steps to an Evolved CSR Program Model
Upon formation, Keysight had robust CSR programs with monitoring, reporting and functional accountability already in place. Many companies do, even if they don’t know it collectively. Keysight’s opportunity was to do a six-step, top-to-bottom review and assessment of our CSR program model and governance, to fine tune it and ensure ongoing success. Following was our journey:
- Defined Material CSR Topics – The base of any program starts with key stakeholder needs. So, as most new CSR organizations do, we first conducted a materiality assessment. This helped us identify and prioritize the topics most important to our investors, customers, employees, and the community, building on the trends we were seeing from these stakeholders. While the result did not note any significant difference from our previous approach, it helped ensure we were starting with a solid foundation based on issues important to our key stakeholders.
- Aligned Material Topics to Company Values – The purpose of this step was to align our stakeholders needs with our company’s core DNA. By reviewing the material CSR topics from the last step against our core company values, we ensured that the program tenets would be supported across the organization and deep within our employee base, all of whom have a part to play in our CSR success.
- Created/Modified CSR Vision – It is important for any program to have a vision statement, a beacon of sorts, that drives behavior and connects the program goal to the business strategy. At Keysight, we connected our top-level beacon, to “build a better planet,” with our business purpose of “accelerating innovation to connect and secure the world” all while “employing a global business framework of ethical, environmentally sustainable and socially responsible operations.” This comprehensive statement allows us to quickly frame the program tenets while testing that our efforts in this space support the program direction. If a CSR program or policy doesn’t support this vision, then why would we do it?
- Aligned Goals to Business Objectives – Along with supporting the broader global community, CSR programs must help the company meet its business commitments. As such, the goals of our CSR program were directly mapped to our business objectives in revenue growth, profitability and shareholder value creation. This step was critical to ensuring the company and the world is made better by our efforts, and also helped solidify the strategic nature of CSR in delivering business results.
- Developed Foundational Program Strategy – To achieve the vision and deliver to program goals, we defined a strategy that supports our business objectives while positively impacting the planet through a set of foundational pillars. Our six foundational CSR pillars provide a structure to which all programs are aligned and measured for company and global community benefit. They also compartmentalize a very wide-ranging set of functions to identify management accountability, helping to drive a governance structure … which was our final step!
- Engaged Governance Team – To drive accountabilities companywide and address emerging trends, we implemented a cross-functional governance team. With me as the executive sponsor and a set of executive colleagues as our steering committee, we ensured alignment at the root functional levels of the company. From there, a core team, led by a central program management team, manages the strategic planning and function-specific initiatives. The core team then relies on an extended support team within their respective functions to deliver to plan. This matrixed structure establishes ongoing alignment with executive leadership, puts in place a core accountability team to address cross-functional impacts and opportunities, and provides access to extended contacts across the company to meet program deliverables and goals.
Where to Next?
Evolve! Did I mention this is a journey? The end of the process is really just the beginning. The adventure continues. While we put much effort into these steps to get us to a point that addresses the emerging corporate governance reality, we will continue to review our programs and make progress while adjusting appropriately to meet changing needs.
Regardless of if your organization has long-entrenched programs or is new to CSR, you may find that our journey could also help your business develop and implement an evolved program model that is well-aligned to emerging trends and your corporate strategy. And of course, all while helping improve the planet!
1 "Larry Fink’s Annual Letter to CEOs: A Sense of Purpose," Larry Fink, Chairman and Chief Executive Officer BlackRock, January, 2018
2 "An open letter to directors of public companies worldwide", F. William McNabb III, Chairman and Chief Executive Officer of The Vanguard Group, Inc. Aug 31, 2017