Lynn S. Paine
One surprising role of Nike’s corporate responsibility committee is to provide support for innovation. More and more companies recognize the importance of corporate responsibility to their long-term success—and yet the matter gets short shrift in most boardrooms, consistently ranking at the bottom of some two dozen possible priorities. Many years ago labor conditions in Asian contract factories prompted Nike board member Jill Ker Conway to lobby for a board-level corporate responsibility committee, which the company created in 2001. In the years since, the committee has steadily broadened its purview, now advising on a broad range of issues including innovation and acquisitions in addition to labor practices and resource sustainability. A close examination of Nike’s experience has led the author to conclude that a dedicated board-level committee of this sort could be a valuable addition to many if not most companies in at least five ways: as a source of knowledge and expertise, as a sounding board and constructive critic, as a driver of accountability, as a stimulus for innovation, and as a resource for the full board. In an accompanying interview with Paine, Conway discusses the committee’s creation and provides an insider’s perspective on what has made it so effective.
A board member was exchanging a few words with the CEO of a fast-growing athletic apparel maker before the annual shareholders’ meeting when the two caught sight of a group of labor activists at the back of the hall. The group was known for protesting labor conditions in the Asian contract factories where the company’s products were made. The CEO turned to the director and, without prior warning, said that he planned to ask her to take charge of the meeting if any disruption occurred. When the activists marched to the front of the auditorium partway through the meeting, that’s exactly what he did.
Although corporate directors are often faced with difficult questions about the conduct of the companies they serve, rarely are they confronted in such a public fashion. But that’s what happened to Jill Ker Conway at Nike’s 1996 annual meeting. A former president of Smith College and a self-proclaimed jock, Conway had been recruited to Nike’s board by the chairman and then-CEO, Phil Knight, in 1987 for her expertise on women’s issues and her understanding of the student perspective.
Fortunately, Conway was not taken wholly unawares when Knight called on her to chair the proceedings. A few months earlier she had told him that she expected labor issues in the contract factories to come up at the meeting and felt that at least one director should be able to speak about them firsthand. During that conversation she had offered to visit some of Nike’s contract factories in Southeast Asia as part of a trip she was about to take to her native Australia. With Knight’s blessing, she had made the first in what would become an extensive series of visits over the next few years. So she was well equipped to preside when a heated exchange broke out between the labor group’s leader and the assembled shareholders and, later, to advise on a formal research effort that would shape many of Nike’s early corporate responsibility initiatives.
Much has been written about Nike’s extensive corporate responsibility efforts and how they have transformed the company from an organization whose name was synonymous (as Phil Knight said in 1998) with “slave wages, forced overtime, and arbitrary abuse” to a pioneer in using social and environmental issues as catalysts for innovation. Far less attention has been paid to the board’s role in these efforts or to Nike’s creation of a board-level corporate responsibility committee to institutionalize the company’s commitment to responsible performance.
That’s not surprising. Those engaged in the mainstream corporate governance discussion have been largely silent on the subject of the board’s role in overseeing corporate responsibility and sustainability. Why that’s so is not entirely clear, especially with the increasing pressures on (and opportunities for) companies to help address serious economic, social, and environmental problems around the globe. It may result in part from the intense focus over the past decade on financial reporting, executive compensation, and board leadership in the wake of the Sarbanes-Oxley Act, the 2008 financial crisis, and the Dodd-Frank Act. Although that focus has been mainly to the good, one unfortunate side effect has been the relative neglect of other aspects of governance.
In view of growing concern about business and sustainability, and given the importance of corporate responsibility for ongoing value creation, directors should be asking whether their board’s oversight in those areas is sufficient. Recent surveys suggest that no more than 10% of U.S. public company boards have a committee dedicated solely to corporate responsibility or sustainability. Nike’s experience indicates that such a committee could be a useful addition to many if not most boards in at least five ways: as a source of knowledge and expertise, as a sounding board and constructive critic, as a driver of accountability, as a stimulus for innovation, and as a resource for the full board. A look at how Nike’s corporate responsibility committee has served each of these functions will show why.
A Source of Knowledge and Expertise
Chief executives often seek directors who have expertise and relationships that could help the company, but rarely with corporate responsibility or sustainability issues in mind. Yet domain-specific knowledge and relationships are as relevant for those areas as for any others.
When protests over labor practices abroad broke out on U.S. college campuses in the mid-1990s, Nike was fortunate to have in Conway a director with extensive knowledge of the student population and expertise in the societal effects of industrialization. That was not entirely by chance. Conway had been recruited as part of Knight’s efforts to bring fresh thinking and experience to the boardroom at a time when the company was struggling to regain the momentum of its first decade. With the notable exception of one director who was an expert on innovation and creativity, the board had consisted mainly of friends and family of Nike’s founding group...
Published on Harvard Business Review in July-August, 2014.
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Harvard Business School