Corporate Board Member research has repeatedly found diverging views among directors about the boards’ role in overseeing ESG matters. Yet a June survey finds consensus on at least one “S” component: nine directors out of 10 say in this environment, the issue of worker welfare (encompassing both physical safety and mental wellbeing below the C-Suite) should, indeed, be escalated to a board-level discussion.
“Employees are the single most important input for most companies. Why shouldn’t due attention be paid to this asset at the board level?” said Edith Green, chair of the nom/gov committee at Sanderson Farms. “That attention should be in ways to help the workforce in their personal wellbeing, which translates into loyal, willing and able inputs into business processes.”
“Employee welfare/wellbeing should be a board topic in conjunction with overall business opportunities and risk. [It’s] part of assessing CEO and C-Suite performance,” said one of the respondents. “Safety of employees metrics should be visible to the board on quarterly or annual basis, depending on company status on this topic.”
“Safety, both physical and mental, is a critical factor in determining healthy employee engagement and culture. If you don’t prioritize whether your employees have a safe workplace, how can employees think you care about them about other things?” said the lead director of two publicly traded financial companies.
Nearly 200 U.S. public company directors participating in the poll conducted by Corporate Board Member and the Diligent Institute June 13-16 shared their boards’ practices regarding the oversight of employee welfare. Fifty-three percent of directors surveyed say the issue is part of their overarching full-board discussion on human capital, while 39 percent say they have made it a committee responsibility.
“We have a board committee to address these HR issues on a regular schedule and report to the full board every board meeting,” said the lead director of an IT company, who adds that overseeing HR issues has also become an important part of the acquisition strategy. “We see a large movement of small to medium-sized companies having to sell. It will be driven by both the economy and by the demands of employee direct involvement in these types of issues. We make a big issue out of our approach to these issues on every acquisition opportunity we get involved in.”
Full board or committee, there is a long subset of issues being discussed. Among the most common are compensation plans (including profit-sharing and performance assessments), and inclusion and equity.
Some of these issues are, of course, more sector-relevant. For instance, only 24 percent of directors at financial services company say their board discusses worker safety, compared to 90 and 88 percent of those at companies in the materials and energy sectors—as to be expected. But there are still large gaps for issues that affect workers of all sectors. For instance, only 18 percent of directors in the financials space discuss mental health programs or absenteeism rates, and only a quarter of directors at energy companies discuss voluntary turnover rates.
“I think that for some companies (insert industries) that worker physical and mental welfare might be an appropriate focus for boards. However, as a board member of financial services companies which are not heavily involved in retail, I don’t think it is as big of a concern. Not that these issues aren’t important, but we don’t have issues like workers getting injured on a production line etc.,” said the committee chair of a financial company.
The challenge, perhaps, is getting everyone to agree about the importance of these issues on the board’s agenda.
“We provide competitive compensation and benefits to employees in exchange for work. We do not get involved in their personal issues,” said a REIT director participating in the survey. “If they need to see a doctor, they have health insurance that can help with the cost. Otherwise, no. We are not a social services organization. It’s time to stop pampering the buttercups.”
“Culture and talent management are important topics for board oversight. Employee welfare and wellbeing is a subset, and I believe that if culture and talent management are strongly positive then employee welfare and wellbeing (to the extent it relates to work life) is covered,” said a director who serves on three public company boards.
Intensifying Shareholder Pressure
The issue of the board’s role in worker safety was brought into focus recently when New York City’s pension fund, New York state’s pension fund and the office of the Illinois state treasurer teamed up to vote against the re-election of two Amazon directors, stating that the board had failed to adequately oversee the health and safety of its workers.
In the end, the votes didn’t get the support needed to pass, and directors say they’re not all that concerned about this wave of activism. This may explain why, when asked to rate their level of concern, only 13 percent of directors polled gave it a 4 or 5 rating, on a 5-point scale where 5 was “significant concern.” The weighted average fell at 3 out of 5, with 44 percent giving it a 3 and 33 percent giving it a 2/5.
“Boards are continuing to be distracted by alleged shareholders or representatives of shareholders with their own hidden agendas to defocus the company’s resources, increase operating costs and reduce shareholder value by their own self cultural interests,” said the lead director of a healthcare company. “This defocus and misdirection culture on every aspect of the C-Suite and boards is counterproductive and liable for failure to comply to the obligations of being a C-Suite and/or board member’s fiduciary duties to the real shareholders ownership.”
“The forcing of ESG agenda on companies and boards by index funds is wrong. Index funds are hired to invest to match the appropriate index not to pursue the views of their management. I will no longer invest my own money in index funds run by Blackrock and Larry Fink,” said Michael Child, who serves on the board of IPG Photonics Corporation.
“Activists are pushing boards to spend time on unproductive subjects. The result will be wasted resources and lower shareholder value,” said the audit committee chair of a manufacturing company.
“I wonder whether oversight groups will be happy with companies whose profits decline significantly because of the time and attention devoted to non-work-related activities or whether they just ‘want it all’,” said a director who serves on multiple healthcare boards.
“Safety and other HR decisions are impacted by Institutional Shareholder Services and Glass Lewis, as they provide feedback to large asset managers; one of ours is in the top 3. The resulting pressure for an ESG scores results in decisions that compromise results,” said a respondent on the board of a mining company.
“Please don’t create more engagement by boards,” said a multi-board director. “Management needs to run the company, not boards.”