2020, among other things, has solidified the importance of ESG-related issues in the corporate space. The Covid-19 public health crisis and ensuing economic fallout taught companies and boards that taking care of employees, clients, and customers was essential for survival. In other words, it made stakeholders a top priority. Racial justice protests in the wake of George Floyd’s murder, meanwhile, led to renewed calls for diversity, equity, and inclusion, particularly in the workplace. To top it off, natural disasters continue to grow in frequency and severity, proving that climate change remains a looming threat.
How have director perspectives on ESG, diversity, and stakeholder capitalism changed in 2020? How will this influence decision-making and priorities in 2021? Here’s what we learned from directors in 2020:
- Support for and accountability around DE&I and ESG is higher than ever
- Acceptance of stakeholder capitalism is growing amongst directors
- Governance is becoming more “human”
The Push for Accountability: ESG and DEI
In 2020, directors have indicated they are ready their companies to be held accountable for ESG and DEI. In Diligent Institute and Corporate Board Member’s December 2020 edition of the Director Confidence Index (DCI), a pulse survey of U.S. public company directors, we found that nearly half (46%) of directors were in favor of diversity mandates; a landmark shift compared to director sentiment on this issue even as recently as 2019, where a Corporate Board Member survey found that just 24% of 66 polled directors approved California Senate Bill 826, which required gender diversity for public company boards in that state.
More recently, we asked directors in our January edition of the DCI whether their companies had explored tying executive compensation to ESG and diversity issues. Of those surveyed, 40% of directors were either planning on or were already tying executive compensation to diversity goals, and 35% were either planning on are already tying executive compensation to ESG metrics.
Perspectives on Stakeholder Capitalism
The Covid-19 pandemic and its related effects, meanwhile, have influenced director perspectives on stakeholder capitalism. In Diligent Institute’s August 2020 report on stakeholder capitalism, we discovered staunch support regarding key statements in the World Economic Forum’s 2020 Davos Manifesto.
Given the statement, “A company is more than an economic unit generating wealth. Performance must be measured not only on the return to shareholders, but also on how it achieves its environmental, social, and good governance objectives,” 91% of surveyed directors agreed. When asked if we are in the midst of a fundamental shift towards stakeholder capitalism, 84% agreed that we are.
Meanwhile, directors expect the impact of boardroom decisions on non-shareholder stakeholders to be discussed in the boardroom more frequently over the next three years: 73% expect to discuss impacts to non-shareholder stakeholders at least quarterly in the three years after the pandemic, with 42% indicating that they will have these discussions every meeting.
Humanity and Governance
2020 also showed directors that the “S” in ESG is evolving rapidly, requiring new focus in the boardroom. In interviews for our Ask a Director series, they noted paying more attention to “the human aspect” of governance than ever before. The emotional and physical toll that 2020 took on the entire workforce has forced directors to look at new issues and answer new questions about the people aspects of business.
“As a result of the pandemic, we are being forced to really address people issues such as working from home, childcare, home schooling, illness, financial burdens, and mental health. It’s unprecedented and authentic demonstrations of empathy and compassion from leadership and boards have solidified how employees feel about their company.” -Dawn Zier, Hain Celestial Group and Spirit Airlines
This included everything from ensuring the physical safety of employees and clients to checking in on the mental health of employees, clients, and peers where they had never done so before.
“The emotional toll this has taken on everyone is unprecedented. The lesson here is to pay attention to the emotional and mental health of your leadership team.” -Phyllis Campbell, JPMorgan Chase & Co. (Pacific Northwest), SanMar, US-Japan Council, and Allen Institute
Questions for Directors:
• How is your board holding itself accountable to ESG and DEI initiatives? What can you do to further discussions of accountability and responsiveness?
• How frequently does your board discuss boardroom decisions’ impacts on non-shareholders? Does this frequency need to change in the face of changing priorities in 2021?
• Is your board spending enough time discussing the “human” aspects of business, even as Covid-19 vaccines are rolled out? How can you keep up the momentum and ensure that these issues retain importance this year?