Q&A With David J. Vidal — Sustainability and Boards

If companies truly want to embrace sustainability, all they have to do is think of it as asset preservation.  And if a board wants to understand how sustainability works, they have to realize that business change reflects social change.

Those are some of the thoughts of David J. Vidal, director of The Conference Board Center for Corporate Citizenship and Sustainability. Vidal, who has led the center for more than three years and has been the director of global corporate citizenship the past 12, addressed a Governance Center Director Roundtable Forum session in November on sustainability.

Among his many messages were: corporate citizenship and sustainability are integral to a sustainable future for any leading company, good financial are necessary but not sufficient, environmental and social issues count and new market opportunities await those who embrace a sustainable future.

The center is designed to change companies’ views of sustainability and corporate citizenship to one where core business strategies target business opportunities instead of fragmented, defensive measures aimed at minimizing risk.

After hearing Vidal speak at that November roundtable, I thought I would sit down with him and get some of his more specific thoughts on sustainability. Below are those thoughts:

How would you define sustainability as it pertains to corporate governance?

Given that sustainability covers the proper balancing of the long-term successes and short-term successes of the business, it’s central to what corporate governance is about. It’s not just about the fulfillment of short-term compliance. I am suggesting sustainability is a shared strategy for which the primary goal is asset preservation. The company is not isolated in its protection and tracking of its assets. (You have to be good at handling the panoply of assets.) Public assets are the marketplace itself. Those assets have changed expectations. It’s a case of social change driving business change. For example, there are the effects of ecology on the internal asset, work values and the processes and rules [affecting those assets.] Private assets are the exclusive domain of a company (such as shareholder equity]. It has a public license and should function in a public marketplace. Sound oversight of all requires sound corporate governance.

What kind of relationship, if any, is there between sustainability and fiduciary duty?

There’s a company out West – Intel – that reached a policy decision that said it approached sustainability and   corporate responsibility as a fiduciary duty of company directors.  Freshfields, a law firm in the UK, has also issued studies saying much the same thing. . Fiduciary duty can be seen as a prohibitive one for the shareholders. Shareholders also have a duty to the company. If you are not dealing with the long-term viability of the company, you are not meeting your ‘fiduciary duty’.

How do you differentiate between sustainability and climate change, something that many companies consider to be synonymous?

If you take climate change off the table, you will still have a sustainability challenge. In the near future, there will be about 9 billion people in the world. The level of material assets (such as water and energy) cannot support that growth. And if you add climate change to that, it’s an accelerant. Consider that it has taken 6,000 years to grow the population to 1 billion and in the last 200 years the population has grown about eight times, but the planet itself has not.

Climate change is a political debate, not a scientific one. Climate change and sustainability are intertwined, yet they exist separately.

How can you tell if a board is properly overseeing its sustainability issues or not?

I’d say to look at the agenda of the board meetings and see if it is there. I’d say to check the notes of the meeting and see if it is mentioned. And ask why if it is not mentioned.

How do risk, sustainability and governance relate to each other?

They should be inseparable. If you assume a board’s duty is to have a handle on the risk of the enterprise, then you can’t do that without considering sustainability risk. If a board is doing its job, it can only do that if it is connecting the dots between these three [risk, sustainability and governance].

What key questions should boards ask related to sustainability?

• Does the company have a sustainability risk strategy?
• Does it have a sustainability opportunity strategy?
• Is the company properly organized to execute these strategies?
• How does that strategy compare to the company’s peers? To leaders in the field?
• What are the projections of the company as an enterprise for the next 10-15 years?
• What information is there about customer/suppliers (the supply chain) regarding sustainability?

Do you envision a time when capital markets are driven by sustainability and governance issues rather than the current model? If so, why and how?

The current capital markets favor short-termism as a measure of success. The problem with that is that you will wind up eating your young and not survive. It’s a narrow-minded vision of success. There are experiments in Johannesburg and Sao Paolo [Brazil], where markets favor long-term sustainability. Also, there are a number of efforts to create a market for that [sustainability]. The culture that underlies that is not just about the bottom line or ‘who gets there first.’ It is about paying the 18-month shareholders as well as the long-term ones. Supposedly, the markets are supposed to be the most efficient allocators of capital. That’s not essentially true now. The markets have become a reflector, rather than a creator. Basically, the sum of private interests doesn’t equal the sum of the public interests.  Business change reflects social change and as society demands sustainability and a low carbon future, the capital markets will eventually follow that trend but they will not necessarily lead it.

- Gary Larkin