Getting stakeholder capitalism right has become a minefield in recent years, as critics of the shift toward embracing purpose along with profits press for companies to retreat from involvement in societal issues, while those on the left clamor for a level of political involvement that leaves many boards and management teams distracted and uncomfortable.
Emerging unscathed (knock wood) are companies like Visa and Topgolf Callaway Brands, both of which set and achieved aggressive goals in areas like decreased emissions and pushing more sustainable operating practices—while also offering competitive returns. Their secret? “Approaching ESG as situational,” answers John Lundgren, who chairs Callaway’s board and serves as lead director at Visa.
“None of this was divisive for any of the boards I sit on, both public and private,” adds Lundgren, who acknowledges the ESG pushback from some investors but says it hasn’t been an issue for the companies on whose boards he serves. “Larry Fink has said he no longer uses the term ESG, because it’s become weaponized—but that doesn’t mean you can’t look at each element from the standpoint of how relevant is it to the company and what we do?”
Visa offers a great case study, with a 77 percent decrease in Scope 1 and Scope 2 GHG emissions in recent years—while also handily outperforming both the overall market and an index of its peers.
For that performance, as well as his role as a high-profile and longtime ambassador for the nation’s corporate governance community, our 2023 selection committee named Lundgren Corporate Board Member’s Director of the Year.
CBM recently spoke with Lundgren about ESG and other issues directors should be thinking through and planning for right now. Excerpts of that conversation, edited for length and clarity, follow.
How did the companies on whose boards you serve approach assessing ESG-related concerns and developing goals? What role did the board play?
The three elements of ESG are clearly situational, and we approach them that way on those two boards. The E in ESG is just so much more relevant for, say, an energy company than a fintech or a financial service institution. But at the end of the day, the entire bundle of ESG can be wrapped up in these elements: How do we treat and interact with all stakeholders? How do we treat our employees and provide a meaningful, rewarding career for them? How do we interact with our customers, consumers, end users? How do we give back to, how are we respectful to, the communities in which we’re allowed or privileged to do business? And last but certainly not least, how do we provide a good return to our investors and to our shareholders?
Both of those boards looked at the elements of ESG in that way, in how we conduct our business. It may sound trite, but I feel fortunate to be involved closely with two companies who really feel that we can do well by doing good. It’s not a cost that you bear. It’s something that you do and that you monitor, because it’s the best way to conduct your business. Visa’s mantra, or mission, “The best way for everyone to pay and be paid everywhere,” says it all. And if you tie ESG into that, we’re obviously not going to do damage to our communities. We’ll work to support underdeveloped communities so those people have access to financial systems and the ability to transact. And we’ll do it with high integrity at all times.
At Callaway, the mantra since Eli Callaway founded the company was always “demonstrably superior, pleasingly different.” As we have our ESG discussions, we’re able to go back to that and establish goals because they’re important. The internal goals can or should be considered aspirational or stretch goals, but without them, you can’t measure your progress.
In environment, there are lots of ways to measure, such as the Dow Jones Sustainability Index. That is more important for raw material sourcing, for Topgolf Callaway Brands than it is for Visa. Visa doesn’t make anything; they provide a service. But in the social aspect, Visa has been top-ranked year in, year out on best places to work lists. How do you attract talent? How do you retain talent? How do you reward talent? And for the G, there are third parties that tell you how you’re doing at governance—ISS, Glass Lewis—and at diversity metrics on the social aspect.
So all of that is part of running our business for the long term, and a way to measure how you’re performing in all the areas that I touched on earlier in terms of employees, customers, consumers, communities, investors or shareholders. It’s not complicated, and it’s never, ever been controversial or divisive in any board meeting I’ve ever participated in.
There’s a disconnect then, between the headlines about investor pushback and what’s going on in leadership—but maybe it has to do with specific issues, things seen as costly and of no benefit to the stakeholders?
Exactly. And that’s where you have to get to the last element of it, because ultimately, it’s about the question: Do you establish goals in each of these areas? And the answer is an emphatic yes.
Jim Collins—one of my favorite management gurus—talks about the acronym BHAG: big, hairy, audacious goals. We’ve set them. We may or may not report them externally. That depends on whether it’s helpful or harmful. Competitively, you don’t always want them out there. But it really comes down to the company’s business model and whether it’s sustainable—not purely in the environmental sense, but its ability to survive, grow, make a profit and reinvest in the future of the company, and even prosper.
So having those goals out there and coming back to reflect on them and how they tie to strategy has been a very important and integral part of every board meeting we’ve had. If you can’t measure it, it’s not going to happen. We all know that. That is why the goals are there, but with the recognition that it is situational, depending on the company, its industry and its position in that industry, and some are going to be more important than others at a certain point in time.
What shifts in priorities have you seen in boardroom conversations and among stakeholders with regard to ESG?
The change has not been so much in priorities but in asking how these issues relate to us. When political, geopolitical, social activities are taking place, do you or don’t you weigh in as a company? Both of the companies that I have the privilege to work with—and I guess as a board member I may have something to do with it—decide that based on whether it’s relevant to our company and what we do.
With voter’s rights, gun control, you name it, you think hard about whether it is relevant to our business, and, if so, should we take a position internally and externally? If it is, this is where Visa stands on such and such an issue. Gun control is a classic issue where there is tremendous pressure on a company like Visa. Visa will honor the law. If you’re allowed to purchase a firearm legitimately with a background check, you can use a Visa card for that. As soon as that’s not a legal transaction, then we’re not going to do it.
You can get into so many gray areas where you’re asked to be judge and jury. But in certain cases, you need to take a position, because it does impact your company, your business model. In others, respectfully, you stand down, because it’s not in the best interest of your companies or your shareholders to take a position.
AI AWARENESS
There is a great deal of controversy around the future of AI and how businesses should be incorporating it into their strategy. What is your take on what directors should be asking and thinking about in this area?
It’s evolving rapidly, and the best and most candid way to describe it is, I think all boards and companies are learning as we go. And I think, first and foremost, it’s to avoid making a serious mistake, or have an unintended consequence with any employee, or any part of the company, trying to take advantage of the benefits of AI without being totally aware of some of the consequences. The best way to think about it is establishing guidelines or guardrails around managing its use, educating your own employees from a management’s perspective, and educating the board as well.
That’s true broadly, with everything from regulation and shifting geopolitical concerns to advancements in digital technology. How can boards stay informed and up to speed on evolving issues and challenges?
Discussing these topics at every board meeting, as I think every company does, you do get to a certain level of technical understanding. But Visa goes further by holding optional director educational sessions. They’re off cycle, because in two days you run out of time. That practice is very thoughtful on the part of management and very much appreciated by the board. Rather than try to sync up everyone’s schedule for a meeting, they say, “Here are three two-hour blocks in the next month for whoever can attend them.” Directors who can make it participate live, and it’s recorded so those who can’t participate can watch at their convenience. It’s a lot of work for management to condense a subject like AI or cyber and get it into a workable, manageable format and present it. So it’s very thoughtful on the part of management and very much appreciated by the board.
To me, that’s a best practice. It’s really valuable, because you can get into a topic at a level that you might not be able to with the board meeting, when you’ve got to do so many things that are absolute requirements. It’s a lot of work for senior management—which is busy running a company in addition to educating its board—and a lot of extra time for the directors, but it has tremendous benefit. So that’s a shout-out to Visa, but any company can have the internal expert, or a third party if you don’t have that expertise internally, help get board members up to speed on trends and whatever is most relevant to the company.
At the same time, educating the board in the boardroom or at the board meeting is pretty important. So it comes down to striking the right balance of presentation, conversation, enough time for follow-up. And when you can’t get it done, particularly for digital transformation, AI, cyber, things that are changing so fast, and are so important, and not everyone’s an expert, some of it you can take offline. That’s why the practice that Visa implemented in the past couple of years has been very effective and why I think it’s so good.
Another thing is CEO communication. Jamie Dimon starts every board meeting with “Since we last met,” and gives directors an update. Literally, it’s an interim update between board meetings, one page or a few paragraphs: “Here’s how we’ve been doing since we last gave you an update. Here are some things that have happened in terms of key strategic initiatives.” Maybe it’s the status of a deal in process or news about a new key hire. That’s a really good thing to do in terms of continuity, and not having sometimes a six- to 10-week gap between meetings without formal communication.
Many companies are still grappling with how best to adjust to the changing expectation of their workforce in areas like work/life balance and where work can and should be done. What’s been your experience of those shifts?
Every company is still adjusting. Clearly, there is a need to balance the company’s needs versus the employees’ preferences. Also, certain jobs can’t be done remotely, while others can be done easily remotely, and maybe should be, because it’s effective.
But one thing that isn’t discussed, that is pretty important, is the silver lining the shift to remote work has meant for young parents in general and women in particular, because they more often bear the burden of childcare. Over the years, a number of talented young parents left the workforce because it was just too much. These were well educated and upwardly global individuals who were tremendous assets to the company.
So if nothing else good—and I can’t think of anything else good—came out of the pandemic, it was enabling that extension of the career track of a lot of tremendously talented individuals who were forced to or chose to leave the workforce due to family circumstances. I’m seeing it across every company I’m involved in. And hopefully we’ll continue to refine that model and get it right. That will be a huge benefit to productivity and profitability, not to mention the livelihoods and self-esteem of the individuals who would have liked to have carried on in their careers, but had to make the tough choice.
That’s very true, but at the same time, these young people who are coming right out of college and immediately starting to work at jobs they do from home are missing out on a lot of in-office learning opportunities.
I’m a huge believer in learning by observing, having been a young professional, carrying the bags to important meetings and just listening to the dialog and being there. It is an advantage being in the office, where somebody really senior might walk by and ask how you’re doing or if you want to have lunch. That does not happen on Zoom, ever.
So there are career advancement opportunities and learning opportunities lost. That being said, we’re making a lot of progress in filling a gap that I think previously was just left open.
Are there any ways to bring remote workers into the fold somehow?
My view is that will play out with age and tenure, when that individual sees someone get promoted because they were in the office… and that’s not bad. He or she might make the decision, “Oops, I screwed up.” Or, “That’s okay, because I really like working from home. I love the flexibility. And if it means a little slower career track, as long as I’m adding value, as long as I’m happy, fulfilled with my work, that’s fine.”
That is what is unfolding, and it will show more over time that the world is different, the world has changed. But for companies that have been so successful because they’ve established and maintained such a strong culture, there is no substitute for personal interaction. For them, it’s why employees come to work, why they enjoy coming to work, why they’re productive, why they do a good job and why they stay with a company. So it’ll be very interesting to see how we deal with culture now.
FUTURE FOCUS
What other issues should directors be thinking about and planning for right now?
It’s pretty well understood that directors should be thinking about CEO performance and understanding, validating and challenging strategy. But also, it’s not a coincidence that companies recognized as being well governed, and in most cases high performing, are led not only by high-performing CEOs but CEOs with high integrity who communicate regularly, consistently, transparently with their board. Both the board as a whole, and individually, one on one.
That leads to a collaborative working relationship, a relationship of trust based on mutual respect. Then you just don’t ever get the feeling from a board member, “What’s he not telling me?” That is not the case with every company. That’s what has made it relatively easy to do my role well—two CEOs who work really, really hard to ensure that they’re on the same page with their board, and that nothing is off limits in terms of ability to discuss it and even to agree to disagree and come back later, because ultimately you need to agree. It’s hard for the CEO to do that if they don’t have a cohesive board of directors who work well with one another.
Part of the role of a lead director is to, when there is disagreement or lack of consensus, take that burden off the CEO and resolve that amongst the independent directors, because the CEO has a company to run in addition to a board to work with.
What has worked resolving disagreements that you can share with other board members? Any particular strategies?
It’s important that every director knows that his or her input, whether it’s on strategy, people, a function, board operations, has been heard. Consensus doesn’t require agreement. You can have one director out of 10 who feels strongly about something—and we understand, we’ve listened, we’ve heard, we’ve discussed, but we’re not going in that direction. And we hope you can support it even if you don’t agree. That’s the definition of consensus.
It’s the lead director or non-executive chair’s role to make that happen. You just can’t communicate enough and broadly enough. That is why those in-person meetings are important, because you know everybody heard the same thing at the same time. A lot of work gets done in the committees out of necessity, because you can’t cover every function as a full board, so that’s where it should get done. But it’s your role to ensure that then gets communicated to the entire board, that at least they understand how the decision was reached and why.
Any misunderstandings have happened because, “Oh, we thought you knew. We agreed on that in nom/gov or in comp. And we should have shared that with the whole board.” So it is being cognizant of the fact that directors want to help, they want to do their job, they want to fulfill their responsibilities, but they’re also highly accomplished individuals or they wouldn’t be sitting on the boards, so they want to be sure that their input has been received and reflected upon. They want to understand what’s going on elsewhere in meetings or functions where they weren’t specifically involved.
