June 20, 2021
In recent years, expectations for corporations have evolved and expanded significantly when it comes to the areas that corporations and boards should prioritize and the types of audiences they should be including in the conversation.
To shine more light on this topic, CPRS Edmonton invited Kevin Hanson, a former practicing litigator with knowledge of the energy, electricity, construction, natural resources, transportation, manufacturing, and legal sectors, to lead the “Getting on Board with Today’s Governance” webinar.
Kevin shares that corporations and boards duties have increasingly expanded to include a broader range of stakeholders on an equally broader range of issues, known as the environmental, social, and governance (ESG) imperative.
“We’ve arrived at a place where there’s a wide expectation and understanding that a corporation’s duty should include a much broader range of stakeholders beyond shareholders,” says Kevin. “Business of business is no longer just business.”
The corporate world is expected to move away from prioritizing shareholders first and become more committed to understanding a range of stakeholder interests.
“The year 2020 is forcing a reckoning about the role of the corporation in society and the responsibilities of boards of directors to the corporation’s myriad of stakeholders,” shares Kevin. “If the role of the corporation is changing and expanding, then it follows that the corporate governance has to evolve as well and the expectations we place on corporate directors will need to be broadened.”
The 360 degree Governance article states that “boards need to be expert in recognizing ways that their companies’ interests could have adverse impacts on stakeholders, and seek to resolve these tensions in creative and generative ways.”
This is all new and significant in terms of what directors should be focusing their attention on in today’s world: stakeholder committee and conflicts, organizational diversity, corporate activism, etc.
Increasingly, directors are being called to deal with issues in greater detail and approach them from different angles. For example, with climate change, directors are expected to assess climate risk and to factor it into their oversight and their strategic planning.
“We’re seeing boards weighing in or providing oversight at a minimum in terms of the impact to climate-related risks and opportunities on corporate finances in a very purposeful and specific way,” says Kevin. “If policy makers follow through on their stated intent to create an environment where global temperature increases are capped at 2 degrees Celsius, how will that impact the organization’s business model?”
Another growing importance for directors to pay attention to is social equity: to build a more caring economy that looks at diversity, systemic racism, and employee well-being, which includes sick leaves and childcare, at the forefront. Good corporate citizenship is very valuable to organizations that want to maintain a positive reputation. Increasingly, people want to work for companies with mission statements they feel good about
“There is growing evidence that by doing right, companies also tend to do better financially, not just in terms of talent acquisition or customer retention,” says Kevin. “A sense of purpose and ESG performance are increasingly determining access to capital.”
Kevin further elaborates that organizations with weak ESG performance will find themselves either screened-out or required to pay a higher cost of capital by institutional investors. They will also be unable to participate in green bonds and other growing forms of sustainable finance.
To help organizations improve their ESG performance, communicators can employ their reputation management expertise that directors and their advisors may not have. Communicators have a better understanding when it comes to stakeholder sensitivities or reactions.
“Communicators are more attuned to imperatives of authenticity, or perils of greenwashing,” says Kevin. “ESG reporting is not a marketing exercise but is a strategic communications exercise.”
Kevin suggests that corporate boards can improve their ESG oversight by answering the following questions and working on their strategy, messaging, risk assessment, and reporting:
- How is the company measuring and monitoring its progress against milestones and goals set as part of the strategy?
- Do ESG messaging and activities align with the company’s purpose and stakeholder interests?
- Have material ESG risks been identified and incorporated into the ERM (enterprise risk management)? Has the board allocated the oversight of these risks to the full board or individual committee?
- What is the best communication platform to use for the company’s ESG disclosures?
In summary, global crises are accelerating the already fast changing stakeholder expectations, and the ESG imperative and evolution to stakeholder capitalism will only intensify. All this gives great hope for ensuring that climate change and other societal issues will be addressed, and it offers a great opportunity for communications professionals to utilize their skills to help their organization do the right thing and become a corporation that promotes an economy that serves all Canadians.