This month, automotive industry leader Valvoline created an ESG and Equality Council to focus on “strengthening Valvoline’s commitment to diversity, equity and inclusion (“DE&I”), including gender, racial and LGBTQ inclusion, and … work to further Valvoline’s efforts to integrate sustainability into the company’s business operations.”
According to a press release, the Council was established after conversations with representatives of Chicane Opportunities Fund LP—one of Valvoline’s shareholders. Should corporate boards consider establishing ESG and Equality Councils to get ahead of shareholder ESG concerns? Will more shareholders move to influence companies to establish such councils in the future?
Some corporate boards with constituencies that have considerable concerns about ESG and DE&I issues may want to investigate what Valvoline is doing. Valvoline’s board of directors will oversee the Council through its Governance & Nominating Committee. With a board member, the company chief legal officer and other key executives on the Council, the press release claims the Council will be “goal-oriented and disclosure-focused” to “engender a more inclusive workplace.” How they accomplish that will play out in the years to come.
Adjusting to ESG
Clearly, most companies will not need to establish a “council” to address shareholder ESG concerns. However, all corporate boards have a responsibility to create an ESG strategy that supports the company’s business goals and corporate culture.
As the disclosure requirements for certain aspects of ESG continue to grow, boards will need to determine how they will handle those disclosures and how they will communicate their decisions to shareholders. Valvoline’s Council can take some of that burden off the entire board by examining ESG issues and concerns as they arise and developing potential responses and solutions based on regulators’ and shareholders’ concerns. Those responses and solutions can then be refined and ratified by the full board.
Since many ESG issues deal with stakeholders that board members rarely encounter, the council could regularly communicate with those communities (employee groups, customers, community groups, proxy advisors, etc.) to collect input that could head off potential problems in the future. The council could also periodically educate board members about ESG trends or changing aspects of ESG that can be used to improve business operations or mitigate future corporate risks. It will be interesting to see, over time, how Valvoline uses its ESG and Equality Council and how the company benefits from it.