CSVC: I know youíve got some thoughts on ways that Boards should
implement social value considerations in their governance and decision
making, but maybe we should start at a baseline.
Prochno: So the role of the Board of Directors (BoD) from a companyís
perspective is to advise on the strategic direction of the organization.
But thatís not always clear, as there is a constant friction between
two facets of ďstrategic direction.Ē On one hand, the BoDís prerogative
is to ensure that companies retain managers that make the best decisions
for shareholders. On the other hand, BoDís also have a responsibility
to leverage their networks, understand the environment of the company,
and account for stakeholders beyond shareholders.
Thatís an implicitly different conceptualization of Boards than
the shareholder profit-maximizing bottom line approach. For example,
letís say Iím a shareholder at an oil company and I see that the
company is considering a member of GreenPeace to bring onto their
BoD. To me, what value does someone without managerial or business
expertise bring to the leadership of my company?
CSVC: But if someone like Exxon-Mobil brought on an executive
from GreenPeace that provides them a more strategic perspective
on how to navigate the business environment, environmental considerations
inclusive, thatís a consideration for future expectations of profit.
Itís not just about the short-term discounted cash flows, there
are assumptions to be made beyond those captured internally by the
more discretely operational costs and revenues, yes?
Prochno: I would agree. A lot of the discussion around BoDs is
internally focused, ensuring that moral hazard and agency issues
donít affect the stewardship that managers have over the best interests
of shareholders. But rather than focusing on BoDs as policemen,
Iíd argue that the discussion should focus on strategic roles of
Board members in social and environmental considerations as company
However, this has to go beyond just categorizing those considerations
as purely marketing or philanthropic facets of the business fabric.
65% of S&P 100 firms have CSR-focused board members but are only
focusing on those parts of the equation. I would argue that business
leaders should think about social value creation as an implicit
facet of their strategy and competitive advantage.
CSVC: Is it just that social value is hard to measure?
Prochno: But businesses make strategic decisions everyday on
non-social value related issues that are difficult to measure. Competitive
strategy is difficult to quantify by nature.
CSVC: Right, strategic commitments, ďTop DogĒ strategy, etc.,
so much of it is assumptions.
Prochno: So if you accept that having an ear to the social value
landscape has a positive return for your company, itís the same
as any strategic decision that keeps a company ahead on the innovatorís
spiral. And in that vein, a BoD with the advisory acumen to keep
those considerations in mind is valuable to the company and to its
shareholders. They should provide a perspective that canít be captured
internally, for the benefit of the shareholder, and one that ultimately
increases the profitability of the company.
Unfortunately, what you see with many BoDs is a sort of ďinside
outĒ perspective on strategy. They are often individuals born out
of the management and internal culture of the company. In that way,
these individuals can be experts of the companyís history, of its
business practices, yet simultaneously bring an unintentional myopia
to the table. For BoDs to create value they need to expand out of
this trend and get an outside perspective, including experts with
more experience with the social value facets of their companyís
CSVC: Do shareholders care about the compositions of their BoDs?
Prochno: Well, what happens with many companies is that Board
members are representatives for major shareholders. Letís say this
mutual fund or that pension fund has a certain percentage ownership.
That gives them X number of Board seats. So those specific Board
members are often in turn making decisions in the best interest
of those individuals holding those funds.
CSVC: Wait a minute. So now it seems to me that you run into
an incentives/agency problem. If individual board members are acting
only vertically-minded and accountable to the holders of the funds
they represent, then itís an extra hurdle to expect any single director
to be the one that represents that external social or environmental
perspective. If the Board as a whole is to be strategically strongest,
it is going to take lateral leadership across the group rather than
vertical leadership driven from the individual clients represented
by a given Director.
Prochno: Now weíre talking, I feel like weíre driving at an art
form of sorts.
CSVC: Ha, I wouldnít say that.
Prochno: To expound on your point, oftentimes across Directors
you see a certain level of groupthink. Boards become too familiar,
too harmonic. And without conflict, this sort of harmony can result
in a level of stasis, a lack of innovative thinking. But on the
other hand, that same conflict brings more difficulty in the decision
making process. I think even accounting for both these parts of
the equation, to drive success the BoDís need more than ever to
have that external perspective on social value issues.
CSVC: Do the most successful companies have those perspectives,
that sort of implicit conflict you are referencing that would drive
Prochno: To my knowledge, there isnít much empirical evidence
that Iím familiar with. Itíd be difficult to capture, youíd have
to have Board surveys. And those surveys would need to be captured
by external observers over time. Getting data on these sorts of
things is fairly difficult. But itíd be curious to look at.
CSVC: Alright, now to the fun partó I make everyone tell me about
their hobbies and interests. What does Professor Prochno do in his
Prochno: Well, I do have a passion for movies, and music.
CSVC: Do you play?
Prochno: (laughing) Ha, badly. But yes, I play acoustic guitar,
Brazilian style. Badly though, reallyó maybe if I played better
I would be a musician instead of an academic.
CSVC: I assure you, we are very happy that your musical career
didnít take off like your academic career has.
Prochno: Ha, thank you.