Boards and Social Issues

It’s perhaps an understatement to say that companies and their boards often struggle to determine if, and how, they should address significant social issues. While certainly not all can be addressed, a board needs to be engaged in a discussion about what issues are paramount (and why), what the company is considering saying about them and if the company position needs to be disclosed.

According to The Conference Board, investors want companies to address social issues through their workforce. Key issues identified fell in to three broad categories: 1) health & safety, 2) economic opportunity & equality, and 3) racial equality & justice. Findings from its recent report indicate that young, non-white, higher-income consumers favor corporate social involvement the most – with equitable pay and health care at the top of the wish list. Still, shareholder proposals on racial equity and civil rights audits have gained considerable traction in a short time as have resolutions on abortion.

A recent study by Bentley University in partnership with Gallup found a similar trend – younger adults are more likely than older adults to believe businesses should take a stance: 59% of those aged 18 to 29 think as much, compared with 51% of those aged 30 to 44, 41% of those aged 45 to 59, and 43% of those aged 60 and older. Additionally, women, Asian Americans, Black Americans and Democrats are particularly likely to believe businesses should take a stance. In fact, 75% of Democrats – and only 18% of Republicans – say businesses should speak out. To be sure, speaking out versus speaking up has pros and cons.

But not all issues are material to a company so taking a step back to think through which issues matter and why is a good place to start.

Often, companies start with a materiality assessment. Materiality assessments have become a popular tool to inform and prioritize various environmental, social and governance issues based on a company’s key stakeholders and their expectations. Key to this process is identifying issues of importance. Think about the connection of the issue 1) to your business, 2) to your existing ESG plan, 3) to society and 4) what impact can your company have on the issue?

CMS Energy, the first utility company in the United States to end its use of coal, starts with
capturing the current landscape through developing a broad list of topics that might be considered important. Its process generated an initial list of 114 topics which were then narrowed down to 60 relevant ones through multiple review and analysis stages with internal stakeholders, including workshops with cross-departmental teams. It revised the list to develop a survey which it provided to internal and external stakeholders that asked respondents to rate the importance of the 60 topics. It then considered the impact it might have on these issues based on criteria relevant to the board including: the employee incentive compensation plan, the annual report, the perceived Securities Exchange Commission disclosure interest, and the perceived investor interest.

Identifying and publicly discussing these issues is not without risk. A well-conducted materiality assessment serves as a key step in a company’s process of understanding the risks and opportunities relevant to its business and stakeholders, and in managing both at the same time. Part of this risk analysis is to look for potential areas of contradiction in what your company is doing or has done in the past to avoid or prepare for criticism.

No doubt a company’s impact needs to be assessed through surveys and data-driven analyses to gauge the reaction of stakeholders and to measure the impact on the issue after responding.

The Conference Board recommends the following when responding to social issues:

  • Empathy: what may be “new” to you is a way of life to others
  • Inclusion: Ground company’s position in company’s values,
    not partisan or “charged” language
  • Tailoring: Consult with regional/international leadership on
    how to present
  • Follow through: Decide how to follow through before taking
    a stand

It’s only at this stage a company and its board can think about disclosing its stance more formally.

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