Boards And Management May Be Misaligned On Stakeholder Interests

A recent survey by Women Corporate Directors (WCD) suggests that within the last 12 months many boards have reassessed how their company will deal with stakeholder interests. This process of reassessment is particularly important now that companies are attempting to transition back to normal operations after disruptions caused by the Covid-19 pandemic. Increasing pressure from regulators and investors to show meaningful progress addressing environmental, social and governance concerns also makes the reassessment of stakeholder interests critical. Over the last two years the world has changed, and boards should determine how they can better align evolving stakeholder concerns with their current and future business objectives.

The WCD report polled its global membership of women corporate directors and found that 98 percent said their company has already reassessed how stakeholder interests will be addressed within the past year. Boards reassess priorities every year, but the focus on stakeholder interests rather than solely concentrating on shareholder interests may be different this year. In a press statement, Susan Keating, CEO of WCD said that companies reassessing their stakeholder interests has resulted in “an increased focus on ESG and DE&I issues, their symbiotic relationship, as well as their role in driving performance. At WCD, we welcome this shift and expect the trend to benefit companies and their stakeholders.”

The WCD survey also reported that:

• 73% of respondents said the most important reason to focus on ESG issues is its importance to long-term performance and value creation.

• 40% ranked Employee Health & Safety as the highest ESG priority in boardroom discussions, followed by DE&I at 29% and Cybersecurity at 21%.

• 54% of respondents said they are confident that their company’s management team understands the business implications of ESG.

• More than 80% said it is very important to align strategy and business practices with stakeholder interests to create sustainable, long-term value.

These statistics highlight a potential issue that boards must guard against. If 73 percent of respondents said “the most important reason to focus on ESG issues is its importance to long-term performance and value creation,” but only 54 percent of respondents said that they “are confident that their company’s management team understands the business implications of ESG,” this suggests that some boards and management teams may not be on the same page regarding company strategy on ESG-related issues. Boards should determine if any such disconnect exists and eliminate any misunderstandings with the management team.

ESG issues will likely dominate board agendas into next year. Articulating well-conceived messages about how the company will deal with climate change-related issues, diversity and inclusion issues, policies on workers returning to the office, cyber security threats, pay equity and other stakeholder concerns will need to be delivered by management in most cases. How companies communicate with stakeholders regarding these issues plays a larger part in a company’s financial success these days. In the past, boards did not have to respond to mask mandates or decisions on voting rights laws, but now, these types of things fit into the “social” part of ESG, and they must be addressed.

In addition to reassessing the effectiveness of company disclosures on ESG matters (including an ESG or Sustainability report) a company may need to beef up its ability to communicate at lightning speed through social media, the company website and alternate news organizations. Members of the management team may need to be prepped on how to deal with unscheduled interactions with the media. Members of management and the board may need to partner on visits to large shareholders to discuss ESG priorities. Making sure that the company sends the message that it “understands the business implications of ESG” should be the primary goal.