Rebuilding Corporate Leadership

The current financial crisis provides a painful reminder of the conflict that can occur between private-sector actions and public goals. So begins a new report, Rebuilding Corporate Leadership: How Directors Can Link Long-Term Performance with Public Goals, by the Committee for Economic Development (CED). The report concludes that corporate boards and the leaders they select must integrate relevant societal concerns (such as environmental and human rights considerations) into corporate strategy, to strengthen long-term competitiveness and the sustainability of both the corporation and the society in which it exists. CED is a business-led public policy organization committed to national priorities that promote sustained economic growth to the benefit of all Americans.

"The economic downturn and the challenges facing corporate leaders today make this a very timely report. Right now, corporate leaders should be thinking not only about cost cutting and immediate survival, but also about the longer-term sustainability of the corporation and, really, of our market-based economic system. Now is the time for the business community to think seriously about its interdependent relationship with the broader society. Now is the time to reevaluate failed strategies and to think about how we might do things differently," said former Securities and Exchange Commission Chairman William Donaldson. Mr. Donaldson, a CED Trustee, is the Chair of CED's Subcommittee on Corporate Governance, which produced Rebuilding Corporate Leadership. On February 6, 2009, Mr. Donaldson was named to President Obama's Economic Recovery Advisory Board.

The report is aimed primarily at corporate directors and the boards they compose. Individual directors can make an enormous difference by motivating management to identify and execute long-term solutions to the economic and social pressures their businesses face. Major recommendations include:

• The board of directors has ultimate responsibility for the performance of the corporation. Directors have an obligation to act as stewards of the corporation's long-term economic health. They should widen the purview of their deliberations to give weight to societal issues that impact the firm's longer-term performance.

• Boards should encourage company management to evaluate societal concerns, examine the various strategic responses, and decide on sound business grounds what management ought to do.

• Directors regularly should consider how the company plans, manages, and communicates its interaction with society. The board should insist that management report regularly to it and to the public on non-financial performance, including social performance. To institutionalize the process, the board may want to establish a special committee or empower its governance committee to take responsibility for oversight. That committee should report to the full board and appear regularly on its agenda.

• Directors should recognize the value of corporate communication with shareholders and the public on issues that bear on the company's reputation and brand value, even when such communication may not be required by regulation or fit neatly into financial disclosure formats. Boards that have a non-executive chair or lead director may want to consider a communications role for that person on such issues and topics.

• Directors should promote honesty in reporting not only on financial results and other nonfinancial aspects of their company's operations, but also on the risks, opportunities and results of its social interactions. Such reporting should show how the company evaluates the long-term impact of potential costs and benefits. Directors should use their authority to help their companies find a firm-specific way to communicate effectively with shareholders and the public--through the regular annual report to shareholders, in a separate public report, or in some other way.

• When choosing a CEO, the board's selection committee should be mindful of the role that person will play in setting the tone and direction of the company with regard to ethics, integrity, and engagement with shareholders and other interested parties. Boards should tie a portion of CEO and senior management's performance compensation to metrics based on the corporation's performance on such concerns.

"CED was founded by a group of business statesmen who had strong views on the direction of public policy and the role of the business community in helping to advance our society as a whole," said CED President, Charlie Kolb. "This report," he added, "highlights a key, if not critical, contribution of the business community to overcoming societal problems through corporate policies. But we should also look to business statesmanship--the willingness of business leaders personally to speak out on pressing public concerns. It is not an either-or choice. U.S. business leaders should consider both how their business strategies interact with societal issues and how they personally can make a difference by supporting sound public policies that address society's key concerns."

Rebuilding Corporate Leadership and an executive summary are available at www.ced.org.

CED is a non-profit, non-partisan organization of more than 200 business leaders and university presidents. Since 1942, its research and policy programs have addressed many of the nations most pressing economic and social issues, including education reform, workforce competitiveness, campaign finance, health care, and global trade and finance. CED promotes policies to produce increased productivity and living standards, greater and more equal opportunity for every citizen, and an improved quality of life for all.