Boards must re-up on responsibility

Most Canadian mining management has kept pace with corporate responsibility’s growth and complexity. But the makeup of mining boards has not. To help: a look at the new skills required and how to find directors that have them
By Craig Ford

In the business of mining resource development, the past decade has seen a dramatic rise in the scope and complexity of corporate responsibility issues. This has been driven by two primary factors. First, societal expectations of business and especially resource companies have evolved as concerns about globalization, environmental effects (including climate change), social justice and human rights, among others, have intensified. These concerns are voiced by a broad range of important stakeholders, from local communities, financial institutions and shareholders, to host country governments and non-governmental organizations. Second, some of these increased societal concerns have been manifested as additional or strengthened regulatory requirements, particularly in the safety, health and environmental areas.

There has been considerable progress by mining company management in responding to this changing landscape and in creating value for themselves and their stakeholders. Mining companies and their shareholders, financial institutions and the financial analyst community share a clear understanding that corporate responsibility matters are “material,” and that the level of “materiality” is increasing. Company management is well aware that failure to properly detect, understand and manage a range of corporate responsibility issues can translate into operational disruptions, loss of privilege to operate and significant declines in enterprise value.

However, the growing significance and materiality of corporate responsibility matters in the mining sector also places new obligations on boards of directors as they discharge their fiduciary and oversight responsibilities. Some of the larger companies are addressing this situation by supplementing their board expertise, but more work remains to enhance mining companies’ governance.

The traditional approach to the governance of corporate responsibility issues has been to have one or two board members with mining operational experience to address the safety and, perhaps, environmental challenges faced by mining companies. But this has serious flaws. First, safety, health and environmental matters are both highly technical and cultural, requiring specific expertise and experience to effectively discharge the fiduciary responsibilities of a board. Secondly, as the scope of concerns expands to include community development, health, security and rights, and dealing with governments and NGOs, a broader set of expertise, skills and judgment is required.

To appreciate the difference, it’s important to note that materiality in the corporate responsibility sense differs from the traditional definition of materiality used in the financial sector. Corporate responsibility materiality refers to those aspects of a business that have a measurable economic, social or environmental impact and which can significantly influence the views of stakeholders. Ultimately, these corporate responsibility material aspects can translate to the bottom line of business, but not directly in most cases. Instead, corporate responsibility issues are generally fraught with ambiguity, and thus require extensive knowledge of evolving international best practice, precedents, how social and environmental issues interact and a deep understanding of the role of business beyond delivering returns to shareholders.

Such factors demand that the boards of mining companies continue to evaluate their approaches to the oversight of these matters. Corporate responsibility expertise should appear on the skills matrices of all mining company boards. Professionals with strategic capabilities, corporate and operational experience, technical expertise, deep knowledge across the spectrum of corporate responsibility matters and demonstrated success in navigating the complexity of these issues are not plentiful, but they do exist.

When recruiting new directors to fill gaps in corporate responsibility expertise, boards should ask candidates the following questions:

1. What are the emerging corporate responsibility issues that you feel are facing our company?

2. How can we enhance the strategic management of our corporate responsibility issues to improve our business?

3. What is your experience in the design and implementation of management systems across an enterprise?

As companies struggle to survive this period of low commodity prices, having specific corporate responsibility experience at the board level can help ensure that management’s approaches, systems and programs are delivering value for cost. Experience clearly demonstrates that diversity of thought, experience and expertise at the board level helps ensure that companies preserve and enhance their privilege to operate and reputation so that business value is created. Enhancing corporate responsibility expertise at the board level of mining companies offers that opportunity.

Craig Ford is president of Corporate Responsibility Solutions Inc. in Toronto and former vice-president, corporate responsibility at Inmet Mining Corp. E-mail: craig@corporateresponsibilitysolutions.com.

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