skip to content

Cambridge Institute for Sustainability Leadership (CISL)

Why boards must lead

26 April 2022 - This blog is the first in a series from CISL Fellow, Professor Richard Calland on Why Boards Must Lead. It explores the core fiduciary responsibility of the board of directors, and how it has changed substantially, before inviting a deeper critical reflection on the fundamental purpose of a business and the implications for board governance. It concludes by laying the leadership gauntlet for boards to reset their mission and rewire their approach to leadership, so as to fundamentally rethink the role of business in society and the economy.

Why Boards Matter

“Will you go the way of the dodo, or will you be a phoenix?” This was one of several powerful questions that animated Black Rock CEO Larry Fink’s annual letter to CEOs in January. It came hard on the heels of Antonio Guterres’ pointed challenge to the corporate world to avoid the trap of ‘green-washing’, with the announcement at the end of COP26 that the UN Secretary General is to establish an expert group “to propose clear standards to measure and analyse [carbon] net zero commitments from non-state actors”.

Capitalism appears to be entering a distinct new phase in its historical evolution.  

Whether it becomes known in time as the era of “stakeholder capitalism” or attracts some other epithet is not the point. That it will raise fundamentally challenging, existential questions of companies and those that lead them is.

As pressure mounts on corporates to think differently about their relationship with people and with planet earth, attention has largely focused on the leadership of the ‘c-suite’ – the highly-paid CEOs and the other members of their Excos responsible for running the company day-to-day.

Now, however, the role of directors is rightly attracting far greater scrutiny. I say ‘rightly’ because, after all, it is the board of directors that hire and fire the CEO and who, moreover, ultimately are legally accountable for setting and overseeing the strategic direction of the company.

If the company causes harm, then the corporate law has long-held that directors can be held responsible. The trajectory is clear: directors will be held to high standards in relation to their assessment and management of climate and other risks – particularly the non-executive directors who by definition are not involved in the day-to-day running of the company and so are assumed to have an extra level of independence and hence responsibility.

There is growing war chest for public interest litigation on this front. In March, ClientEarth announced it was launching hard-hitting litigation against Shell’s Board for failing to align corporate strategy with the requirements of the Paris Agreement in breach of its legal duty. 

The bottom line is that boards matter a lot. Why? The buck stops with the Board. But also because businesses matter as the engine room for a thriving and dynamic economy. And they are going to matter even more as the surrounding context becomes even more complex and the risk landscape sharpens - as, for example, climate litigation ramps up, and the stakes rise on most other fronts.

Boards matter because they sit between the owners – the shareholders – and the executive and management of the company, and increasingly, between society and the impact of the company on society.

Clearly, that intermediation has become more complicated by the requirement to act on behalf of the corporation and its future well-being rather than ‘just’ the returns to shareholders and the concomitant need to heed actively the interests and concerns of a range of stakeholders.

So boards will need to raise their games, because the challenge is complex and intense, replete with ‘wicked problems’. Ultimately responsible for the direction and oversight of the company, and one step removed from the day-to-day running of the company, the Board is perfectly placed to oversee and support a far-reaching transformation. Management will need the experience and diversity of perspective of the board to test and challenge thinking, to consider decisions from a range of potential perspectives and scenarios, and to provide heavyweight support with critical stakeholders to create political space for transition strategies and radical departures from business as usual.

This should offer an exciting challenge. It is where the board of the future will play a powerful leadership role.

The Changing Role and Responsibilities of Boards

Given the apparent step change in board accountability, this is a very good time to pause for thought and attempt a deeper reflection on the role and responsibility of boards of directors. In turn, this will lead many companies to reconsider the composition of their boards, as once they have recalibrated their leadership responsibility and opportunity they may well conclude that they need non-executive directors with different skills and experience, far greater social and professional diversity, and a different collective mindset and worldviews.

This blog begins with the core fiduciary responsibility of the board of directors, and how it has changed substantially, before inviting a deeper critical reflection on the fundamental purpose of a business and the implications for board governance, and concludes by laying down the the leadership gauntlet for boards.

Subsequent blogs will move to the ‘how’ question, including, for example, a framework of key questions that boards should be asking themselves and the corporate executives that they are overseeing.

First, then, the law itself. Inevitably, the legal dimension to this pivots around the precise nature of the fiduciary duty that rests with directors: What is the substance of this fiduciary duty? To whom does the duty lie? And what is its scope – how far and wide does it stretch?

This is a wide-ranging subject, with many layers. But, the critical contours concern the duties to act honestly and in good faith in the best interests of the company – and the attendant duty to promote the success of the company in a stressed world; secondly, the duty of competence – the duty to exercise reasonably care, skill and diligence (to apply the UK corporate law language, which is replicated in the same or similar form in many other jurisdictions, especially commonwealth or common law ones such as South Africa) – which encapsulates the duty to take full cognisance of the associated risks and also related duties of oversight and information disclosure.

The risk landscape is changing very rapidly and very dramatically; a combination of systemic shocks and global pressures suggests a seismic ratcheting up of risks and also social, legal and political change. When pent-up concern suddenly catalyses an epochral reaction, businesses may be blind-sided or flat-footed in response.

Liability risks are increasing significantly - transition risk (particularly market sentiment), social contract risks that may relate to inequality or employment responsibilities – as the recent furore surrounding P&O’s decision to lay-off a large number of employees –  as well as physical risks. For example, litigation risks, too, as the new frontier of public interest, climate litigation opens up.

Legal action is now being launched across the world against companies that not only directly emit CO2 but who indirectly contribute to climate change by, for example, providing finance for such companies or who otherwise ‘enable’ them to carry on doing harmful business.

The potential scope for such legal challenges is almost infinite, in the sense that since very few companies have yet achieved carbon neutrality let alone carbon net zero, so everyone else is potentially liable unless they will be able to demonstrate a clear pathway towards carbon net zero and a tangible and credible set of targets that are explicitly aligned to what science is telling us is urgently required.

Many companies are making net zero commitments via the Race to Zero campaign, but there is a long way to go to generate meaningful transition plans and to implement them. In some cases, new business norms, such as net zero, are being established before the implications of meeting them have been properly defined and digested by the organisation. There will be growing scrutiny of action following the pledgefest and, therefore, over-promising and under-delivering will undermine investor confidence and public trust, and could threaten social licence to operate.

Besides, are those that are acting doing enough, especially in light of the fact that inaction by others is causing a tragedy of the commons? What, in this context, constitutes a ‘fair share’? These are just two of the tough questions that emerge from the changing risk landscape, and which demand the high-level attention of boards.  

Furthermore, ‘soft law’ climate change developments – such as the TCFD recommendations – are contributing to behavioural changes from companies, particularly in relation to increased disclosure of climate risk – as well as raising the bar by laying out the questions they expect governing bodies to be able to answer.

Hence, these considerations will inform the approach that courts take in adjudicating the critical question of how a reasonable director would act or should have acted. Since this is an ‘objective’ test, courts will – and are already – taking into account the ‘objective’ reality of a stressed world, in which a variety of systemic signals and social and environmental ‘externalities’ cause great harm to lives and livelihoods. Directors who do not act mindfully in response to this objectives conditions are likely to be held to be negligent.

Forward thinking Boards have adjusted their priorities and agendas accordingly, often reflected in the formation, role and mandate of board sub-committees. I know of one major asset management company whose board now spends more time on what hitherto might have been regarded in the words of one of its non-executive directors as “the soft stuff”; she tells me that “we now spend more time on these social and environmental issues than we do on pure asset management”.

The Board of the Future

The lazy and mistaken presumption that the over-riding duty of the director is only to the shareholders is being replaced by an active appreciation for the fact that the board must heed a far wider, and more complex, set of stakeholder concerns and interests. Corporate law is now reflecting this understanding, too, as courts across the world are starting to reject the anachronistic idea that the director is merely the agent of the shareholding owner.

In order to ensure that the business can sustain itself over the long term it must pay full attention to the context in which it operates, however complex and uncertain. This must be the primary responsibility of the board, as a part of its high-level strategic direction and oversight role. Accordingly, a board of directors must pay attention to the state of society and the planet, and thereby be accountable to a wider group of stakeholders. Why? For the very simple reason that most businesses can only thrive in a thriving economy. As leading sustainability author, strategist and campaigner Tony Juniper says, “you can’t do business on a dead planet”.

Call it enlightened self-interest if you will, but certainly businesses do have a profound, vested interest in protecting the social and environmental foundations that underpin economic activity. Social instability or violent conflict, for example, can undermine socio-economic development – revolution or war, even more obviously so. Scarcity of vital ecological ‘infrastructure’, such as water, or food insecurity, will threaten the business prospects or operations of many companies.

This has been clear and obvious for a long time. So the interesting question is why have so few business leaders acted in accordance with this imperative. Recognising, in an honest and straightforward fashion, that it is often the business-as-usual practices of the for-profit sector that is eroding social well-being and environmental integrity, or that of their wider value and supply chains, is a critical piece of self-reflection.

In theory at least, non-executive directors are best placed to bring this perspective to bear – provided that they are sufficiently well informed and the independence of mind to challenge a business-as-usual approach. Hence, resetting the mission of a company so that profitability is a means to an end – the organisation’s social purpose  – and not an end in itself is essential.   

Once this strategic rubicon is crossed, a company’s leadership will want to, and will need to, try and help shape society and the economy. This will appear to some people to be an even more significant or even radical departure from the myopic view that ‘the business of business is business’. Well, as I argue above, a vital part of modern business is in having a far more sophisticated understanding of the relationship between the business and the society and economy in which it operates – recognizing both the legal, fiduciary responsibilities that exist and which have grown exponentially, and the necessity of recognising that in an essential first step in supporting a thriving economy is in recognising the impact that the business has on the social and environmental undergirdings of economic activity.

In similar vein, some will consider that the job of regulating society and protecting the environment is government’s, not that of business. This is a outdated worldview: it is everyone’s job. And some business leaders are taking up the challenge. For example, Lloyds Banking Group's new purpose is: “Our purpose is Helping Britain Prosper. We do this by creating a more sustainable and inclusive future for people and businesses, shaping finance as a force for good.”

Not only do nation-state governments struggle to cope with the complexity and intensity of the challenge that contemporary systemic shocks and trends present, but their own institutional vulnerabilities are often exacerbated by political economy blockages, most obviously corruption, and the inherent short-term pressures of the electoral cycle. In our experience, forward-thinking, boldly-led businesses invariably have the greater nimbleness and capability to act. Often, too, they are the cause of the problem and so are in the best position to act to design remedial action that is fit for purpose and which can be expedited.

If this sounds like a invitation to more transparently intervene  in policy and even politics in support of society and nature rather, then so be it. As recent Edelman Trust surveys reveal, people now trust businesses more than governments, with rising expectation that business’s societal role is here to stay. Besides, business has a legitimate as well as significant stake. This is not to encourage a no holds bar lobbying or interference in democratic processes, but rather an invitation for business leaders to articulate their values, define their expectations, and to set out what it is that they intend to offer by way of contribution. How businesses should conduct their public diplomacy and government relations in this paradigm deserves careful consideration, and will be the subject of a separate thought-piece from CISL in due course.

Which is why having a clearly defined social purpose, as the ultimate reason to exist or KPI of the business, is such a critical foundational pillar. It is the first ‘calling card’ of any progressive-minded business in its dealing with all stakeholders, but especially government as well as community and other social stakeholders.

It is why our view is that purpose is a critical feature of the sustainability revolution that is engaging modern capitalism. It requires companies to not only adopt a clear, meaningful and authentic purpose, as CISL has set out in its white papers on Unleashing the Sustainable Business, but to transform their understanding of the relationship between profit and purpose, so that profitability – and financial sustainability – provides the means to achieve the purpose rather than the end in and of itself.

We are not naive in assuming that it will be easy or even possible to profitably and sustainably deliver on a purpose to society within current market conditions. It may be uneconomic. But as stakeholder demands escalate, clarity of purpose will be critical to ensure the business is not on the back foot and being pulled in multiple directions. Even more importantly, clarity of purpose, awareness of fundamental challenges to ‘business as usual’ and the current barriers to aligning purpose and profit, will highlight the strategic imperative for businesses to use their institutional influence to shift markets and work constructively with regulators to create the enabling conditions for profitable delivery of purpose.

This will require a new direction of travel for many if not most companies. In corporate governance terms, it is the board that ‘directs, oversees and is accountable to’ the company. Since organisational culture, and internal incentives and political economy, as well as the ingrained professional instincts of many chief executives, may find the demands of this reset a very difficult challenge to meet, boards – and especially the non-executive directors who are once removed from the daily cut and thrust of running the business – will need to provide sage and robust new direction and oversight.  

Inevitably, this will be a process and not an event. Yet, climate science and other evidence of profound global change indicates that the journey must be embarked on with urgency and intentionality.

Resetting Board Governance

As stewards of the future, boards need to ask the right questions of their executives to ensure that organisation makes a positive contribution to fixing a broken world. It is inevitable that boards need to evolve to this approach as only through becoming purposeful in this way that businesses will be able to play a truly sustainable role in society; securing their license to operate, gaining the ability to navigate a complex future and becoming a core pillar of a society and economy with a better future.

This means that boards must be more ambitious and smart, and be willing to recognise that businesses are part of the problem, rather than something to be protected against external threats. In protecting the things that truly matter – the businesses’ ability to create social and economic value, its duty of care to its employees and customers, the ongoing history and reputation of an institution itself – boards will need to lead a purposeful transition away from an unsustainable status quo. Boards will need help to reset and align their strategic sights and modus operandi – and worldview and underlying values – and many will have, as a first step, need to recognise that they will need help to achieve this re-wiring of their board governance capability.

What does this mean in practice? It means that boards must have the right information at their disposal so that they can have what we call strategic foresight – an ability to understand the complex context in which business must operate, the tough systemic changes that characterise the current era of global change – social, economic and political as well as environmental – and which will in turn enable directors to ask the right questions of their executives, and thereby provide the leadership needed. A future, follow-up blog will address this issue and offer a framework of governance and accountability questions that a board of the future must be willing and able to ask of itself and the executives that it directs and oversees. On the ‘how’ of a reset board governance, another future blog will examine the composition and skillset of a board of the future, as well as more detailed and practical governance issues such as board sub-committees and reporting.

Rewiring Board Leadership

This reset is not all about risk and sacrifice. It is also about opportunity: that the future will be kind to those who are resilient and flexible as well as analytically rigorous, who have the leadership courage and vision to navigate the VUCA landscape of a rapidly changing world, and who can find new ways to create long-term well-being for all.

For many business, aligning profitable business models to deliver positive outcomes that serve the organisational (social) purpose – in a commercially viable and resilient way – will be tough, and may require major resets and investments. But the fact that it will not be easy shouldn’t be used as a reason to duck or delay action. Many investors will increasingly want transparency and clarity on how businesses are engaging with this agenda, and will want to see how business leaders are being proactive in tipping the economics to be more favourable, for example through proactive engagement with customers to create demand for more sustainable products.

So, to return to Larry Fink’s question “Will you go the way of the dodo, or will you be a phoenix?”, the answer for corporations will depend on the leadership of the company and it is our view that the opportunity that now presents itself for Boards is for the directors to step up and take responsibility to provide this leadership.

In doing so, greater courage will be needed. Shortly before Fink’s fabled annual letter was published, a true global icon passed away. Archbishop Desmond Tutu’s willingness to speak truth to power is an example for us all, and has relevance for the role that Board directors should play. As Tutu once said, “There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in”. That was his way of calling for systemic change that addresses the underlying structural causes rather than focussing on the effects – which is precisely what we believe is needed now.

And, when Tutu embraced a cause, he gave it everything; he never held back. There is a lesson here for everyone. How many of us do just this – hold something back, for reasons of caution, or ‘objective neutrality’, or fear?

We may not be conscious of it; but there may be a subliminal reverence for authority or power. How many of us can match Tutu’s unflinching willingness to challenge the status quo or the prevailing wisdom or predominant paradigm?

In Boardroom terms, how many of us who serve as Directors hold something back? My sense is that some directors are ‘diligently coasting’ – that is to say, they are doing what is expected of them but coasting relative to what is needed from them. They turn up and serve, respectably, donating their accumulated years of experience and expertise, but not taking that additional step that is the hallmark of true independence: the willingness to pose the really difficult question and to challenge even the holiest of cows.

Tutu would take that step. From the world of investment and capital, Fink’s question implies that such courage will make the difference between Dodo and Phoenix. This is the gauntlet that we figuratively thrown down to Boards – to reset their mission and rewire their approach to leadership, so as to fundamentally rethink the role of business in society and the economy.

Now is exactly the right time to do so.  

Find out more about how we work with boards to develop transformational leadership for a sustainable future.

About the author


Richard Calland has thirty years of experience in law, politics and sustainability. As a member of the London Bar he practiced law for seven years before coming to South Africa in 1994, where he is now based at the University of Cape Town (UCT) as an Associate Professor in Public Law. In the field of sustainability strategy, Richard is a Fellow of the University of Cambridge’s Institute for Sustainability Leadership and as such has served as a member of faculty on numerous CISL leadership programmes for organisations such as the World Bank, African Development Bank, PWC, Network Rail, Namdeb, Tata, Anglo Platinum and Nedbank. He is also the co-director of the African Climate Finance Hub – the only African-based organisation with a specialist track record of working with governmental and development partners on climate finance in Africa.


Staff articles on the blog do not necessarily represent the views of, or endorsement by, the Institute or the wider University of Cambridge.


Zoe Kalus, Head of Media  

Email | +44 (0) 7845652839