Conference Board Report: Stakeholder Capitalism Is Coming to a Boardroom Near You
A new Conference Board report suggests that a stakeholder management orientation is rapidly entering discussions at the board level at leading organizations and is already having an impact on how decisions are made and the expected qualifications for board members in the future.ESG (Environmental, Social, Governance) and Stakeholder Capitalism will have a meaningful and lasting impact on US corporate boards, according to a new report by The Conference Board. It finds that 68% of survey respondents in its working group believe that ESG will have a significant and durable impact on their boards, while 53% say the same about Stakeholder Capitalism.
Note: The Conference Board does not provide the definition used or implied in its survey for Stakeholder Capitalism, which has no official definition in any dictionary, even Wikipedia. Based on an analysis of nearly 50 years of usage in business and academic work, and input from Alex Edmans, Professor of Finance at the London Business School; Martin Whittaker, Co-Founder and CEO of JUST Capital, and a social media crowd-sourcing process, the Enterprise Engagement Alliance uses the following definition: “Enhancing returns for investors only by creating value for customers, employees, distribution and supply chain partners, communities, and the environment.”
The Conference Board has released “a suite of reports describing how the focus on ESG and multi-stakeholder interests is affecting boards.”
The reports, produced with Morrow Sodali and Weil, Gotshal & Manges, based on insights from a Conference Board working group featuring more than 240 executives from 137 companies, are designed to provide “forward-looking insights on how boards can Incorporate ESG and stakeholder interests into their core business decisions; adjust their composition, structure, and capabilities; enhance the information that they receive and how they engage with stakeholders; and improve how they evaluate the company’s, senior management’s, and their own performance.”
Paul Washington, co-author of the report and Executive Director of The Conference Board ESG Center “We are at the outset of a sustainability transition of business, which overall may be as significant as the digital transition but will affect each company differently. Accordingly, as with any ‘strategic inflection point,’ the role of the board is changing and becoming more of a strategic partner with management in setting priorities and balancing the interests of multiple stakeholders. This does not require a shift in the line between board and management responsibilities, but does require a fresh look at board composition, structure, and capabilities.”The report asserts that the focus on ESG and concern about the long-term welfare of stakeholders have already affected boards, with virtually all respondents saying that ESG and Stakeholder Capitalism has affected topics discussed, according to working group participants. For 52%, it has affected the factors the board considers in decision-making and 24% say it has affected the actual decisions they make.
“Boards do not need to reinvent the wheel. They have long considered issues that now fall under the heading of ESG and have factored the well-being of employees, customers, and communities into their decision-making. Just as companies are integrating sustainability more deeply into their business, boards should evaluate how they can build ESG and stakeholder perspectives into existing board and governance processes,” says Merel Spierings, co-author of the report and a researcher at The Conference Board ESG Center.Yet, stakeholder relationships still are discussed in a piecemeal way: 60% of working group respondents say the stakeholder relationships are discussed in a piecemeal way. Only 8% say the process to evaluate the company’s relationships with stakeholders is comprehensive. “It is important to ensure that there is alignment among the board’s annual evaluations of the company’s performance, management’s performance, and the board’s own performance in addressing key ESG topics. If an area is strategically important to the company, it should appear at all three levels of review,” the report concludes.
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