Corporate Governance and Sustainability

Over the last years, we have seen an unprecedented raise of collective awareness in Europe with respect to sustainable development and, more specifically, the environmental cause. This growing interest for sustainable development is of course impacting businesses. The non-profit sector is also concerned by this movement and should undoubtedly play a leading role in the sustainable development empowerment.

Indeed, the corporate responsibility and accountability of non-profit organisations (hereafter: “NPO”) to their stakeholders (i.e. members, members of their members, employees, sponsors, partners, public institutions, authorities, etc.) has been steadily increasing. As a result, NPOs have been putting more and more pressure on themselves to enhance best practices for corporate governance.

In this article, we explain how solid corporate governance practices can be a useful tool for the implementation of sustainability measures within your NPO, and also underline why the implementation of such solid corporate governance practices is valuable.

By Antoine Druetz, Partner, and Alix Degrez, Senior Associate, at KOAN Law Firm

When corporate governance and sustainability meet

First of all, let’s get back to basics: what is corporate governance and sustainable development?

• Corporate governance is the system of rules, practices and processes by which an NPO is directed and controlled. Corporate governance thus concerns the functioning and internal control of an NPO, but also its interactions with the other stakeholders in all its areas of focus. The aim of corporate governance is to empower, to better manage and control an NPO. It is based on transparency, independence and liability principles. Its purpose is to adopt responsible behaviours within NPOs.

• Sustainable development has been defined in many ways. However, the most common way of describing sustainable development is as follows: the development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

Most recently, NPOs have been more and more concerned about saving natural resources and reducing their impact on Earth. In this respect, the incorporation of conservation principles into the NPO’s mission, culture and strategies can be a useful tool.

If undertaking actions with respect to sustainable development is recommended and admirable, implementing solid corporate governance practices should not be underestimated by NPOs. In particular, attention should be paid to the following elements:

• Thinking before acting – In order for good corporate governance practices to be efficient, a careful reflection should be first made. If necessary, a working group composed of a limited number of persons can be set up in order to reflect on the project. The composition of the working group itself already represents as such a first reflection. Indeed, who should be represented in the working group? Only members and/or directors or also other stakeholders (e.g. employees, partners, etc.)? The working group should then reflect on the sustainability principles/standards the NPO would like to implement.

• Political support – For these new solid corporate governance practices to be efficient, the NPO should ensure it has the political support of its members (and, as the case may be, the members of its members), directors and stakeholders.

• Competence – Who is competent to adopt corporate governance practices? The NPO should scrutinise its articles of association in order to determine which of its bodies is competent to adopt corporate governance practices.

• Non-binding nature – In principle, good corporate governance practices do not have a binding nature. The members, directors, etc. apply the principles on a voluntary basis. However, special attention should be paid to the phrasing and formulation of these principles in order to avoid the latter from becoming binding.

Why does it matter for your NPO?

Why are more and more NPOs concerned with adopting good corporate governance practices with respect to sustainable development?

• Reputation – Unquestionably, good corporate governance practices enhance the public’s confidence and faith in an NPO. Indeed, trade associations and lobbies have often negative press. Only recently, some major NGOs have been tainted by scandals which accordingly shed a light on the fact that also NPOs have social responsibility. Therefore, sustainability efforts will improve the general public’s view and opinion on NPOs, which on its turn will have a positive impact on the achievement of their purpose and the activities they carry out. Indeed, stakeholders and the general public enjoy the efforts made by an NPO to contribute to sustainable development (e.g. reduce waste, going paperless, provide organic and local food at the cafeteria, reduce the energy footprint, etc.).

• New opportunities and partnerships – By increasing its sustainability efforts an NPO will also attract new people, such as staff members, but also members and partners. In the upcoming years, it can be feared that NPOs which have not adapted to this new culture of sustainability might encounter difficulties to hire staff, find sponsors and donators and to engage in partnerships to conduct some projects. Adopting good governance practices regarding sustainability furthermore gives an NPO new opportunities to promote innovative and creative ways of doing things which can be beneficiary for its members and other stakeholders. Redefining corporate governance rules and practices in general is always a good exercise to be performed from time to time.

• Transparency – As the interest of the stakeholders and the general public for corporate sustainability will continue to grow, NPOs will feel compelled to support their efforts with transparency and public disclosure. Information regarding the NPO’s good corporate governance practices should be made available to the stakeholders and the general public in order to demonstrate that the NPO is committed and takes the required steps to improve sustainability.

Conclusion

It results from the above that improving sustainability within NPOs is part of the evolution in the non-profit sector and can be extremely valuable for it. One of the tools available for NPOs is definitively good corporate governance practices. The setting up of such a tool should nevertheless be well-considered as well as the implementation thereof in order to be efficient and successful.