Everybody understands the essential role that internal controls play in upholding the financial side of a business. So it only makes sense that when it comes to ensuring that corporate responsibility policies are being properly executed, a similar set of controls is required.
How can boards ensure that such policies are, in fact, maintained, updated and implemented? By tasking the executive team with the responsibility for creating management systems—the analogue to internal controls—and then making sure they are in place.
Management systems are exceedingly useful in dealing with corporate responsibility matters, whether that means safety, security, environment, community relations or human rights. This is true in all sectors, but particularly in mining and metals where the breadth and complexity of corporate responsibility issues demand disciplined approaches to ensure the business and its impacts are managed responsibly.
Management systems do just that, by establishing a structured approach to plan, organize, execute, measure, improve, audit and track the management of key functions. A corporate responsibility management system consists of standards, guidelines, tools, processes and indicators to help ensure consistent levels of performance in addressing the material corporate responsibility issues facing a company.
This is not some arcane assignment: increasingly, investors, capital providers and a broad range of other stakeholders expect resource development companies to have effective management systems in place.
Of all the elements that make up a corporate responsibility management system, standards are at its heart. They describe the “what” and the “how” for each material aspect the business might face. Key corporate responsibility standards for miners would address the “what” and the “how” for tailings management, for example. Likewise, for such things as working at heights or site-level grievance mechanisms. The “how” statements in the standards are prescriptive and link corporate policy with operations-level action, risk management and performance.
Because the standards are mandatory, management must determine the level of prescription it desires. This will be based on the breadth of its business, its size, corporate responsibility maturity and on the degree of operational flexibility senior management feels is appropriate; standards that provide too much flexibility can lead to chaos and difficulty in achieving the desired performance improvements.
Standards for particularly material business issues, such as tailings management or hazards that could result in fatalities (e.g. energy isolation and lock-out), deserve especially careful consideration. It’s essential that they are sufficiently prescriptive and detailed so that the business, the environment, workers and members of the public are all properly protected. Mandating critical control requirements and incorporating recognized evolving international best practice is entirely appropriate for such standards. For example, a tailings management standard would explicitly require that operations management follow the three Mining Association of Canada tailings management guides, since these are generally recognized as best practice worldwide.
Once standards have been developed, the board has a role in overseeing that their requirements are effectively implemented across the business, at the operations level, according to a clearly defined schedule. The ability to operationalize the requirements contained in standards can be challenging unless they are practical and have been co-developed with operations leaders to achieve support and alignment.
Ideally, an implementation tracking process that is used at all levels of the enterprise to demonstrate implementation progress of each standard can produce rolled-up results that gives the board a clear picture of whether implementation is on track or behind schedule. Implementation status of management systems should be a standing agenda item for corporate responsibility committees.
That still may not be enough to keep senior management’s eye on the ball, however. The solution: link effective development and implementation to their compensation in the design of both short- and longer-term incentive packages.
Even then, the buck still stops at the board. Directors have an important oversight duty to ensure that management is bringing life to policy and designing operational actions to address key business issues, improve performance, build privilege to operate and reputation, and drive value. In the case of corporate responsibility management systems, the board also has a role in understanding the structure of the systems, the prescriptiveness of their requirements, if and how evolving international best practice is incorporated and the status of systems implementation. The payoff is clear: well-designed, practical and effectively implemented corporate responsibility management systems bring discipline to the management of key business aspects and risks, and are indicative of responsible oversight and the quality of management.
Craig Ford is president of Corporate Responsibility Solutions Inc. in Oakville, Ont. E-mail: email@example.com.