Businesses around the world are slowly recognising the long-term benefits of incorporating social factors into decision-making. Companies in many regions are being encouraged by customers, NGOs, and partners to act in a socially responsible way. This helps improve their brand image and gives them a competitive edge.
In many parts of the world, mandatory reporting regulations on social indicators have made measuring companies" social impact and efforts a compliance requirement. This has become one of the main drivers for companies to focus more on the social aspect of ESG.
Additionally, social indicators are slow to show results and difficult to measure. These factors are often hard to define and even harder to quantify. This poses a challenge for companies in prioritizing them according to their importance and giving them the attention they deserve.
Traditionally, CSR oversight has been centralized within a single board committee. However, Prof. Garg’s study challenged this paradigm, advocating for a shared governance model where CSR-related roles and responsibilities are distributed across multiple board committees. By doing so, companies can harness the unique expertise of different committees, enabling more holistic and effective engagement with social issues.
Drawing from an analysis of S&P 500 firms, the research revealed a striking insight: firms with shared governance structures consistently outperformed their peers in CSR performance. As such, the impact was most pronounced in companies that implemented shared governance, established a dedicated CSR committee, and encouraged overlapping committee memberships. This interconnected approach fostered collaboration, enhanced decision-making, and strengthened a company’s ability to deliver on its social impact goals.
The study underscored a critical yet often overlooked factor in ESG performance—board committee structure. Governance mechanisms must evolve beyond compliance to facilitate meaningful collaboration and innovation in addressing environmental and social challenges. As stakeholder expectations for accountability continue to rise, firms need governance systems that are both agile and collaborative.
Prof. Garg made three recommendations to boost the effectiveness of social impact initiatives. The first—establish a CSR committee that can coordinate efforts, ensure alignment, and drive the firm’s social impact agenda.
The second is to adopt a shared governance model to distribute CSR oversight responsibilities across multiple board committees to leverage specialized expertise. As mentioned earlier, the CSR committee is useful only with the shared governance model. Interestingly, just having a CSR committee does not produce any statistically significant effect on the firms’ CSR.
Additionally, in his third recommendation, Prof. Garg urged companies to optimize board committee memberships and encouraged directors to serve on multiple committees to enhance cross-functional communication and cohesive CSR strategies.
As companies grapple with the escalating demands of ESG accountability, the governance of CSR emerges as the linchpin. Firms willing to rethink their board structures can unlock new potential to lead with purpose, create shared value, and leave a lasting mark on society.
Sam Garg is a Professor of Management at ESSEC Business School Asia-Pacific.
This article was adapted from CoBS Insights.