Welcome everyone. My name is Justin Klein and I'm the Director of the Weinberg Center for Corporate Governance. The center has been in existence for over 20 years. And as part of the Lerner College of Business and Economics at the University of Delaware. It is my pleasure to welcome all of you to today's webinar. The second of two, on social and political activities of public companies. This webinar will focus on the roles of the board and senior management with respect to these complicated and challenging issues. As many of you know, the Center's mission is to provide a neutral forum for all of its constituencies. To interact, to learn, to teach with the goal of positively impacting and improving the field of corporate governance and the capital markets. This webinar is one important way that the Weinberg Center carries out its mission. This webinar is the first event for 2023. It has a companion to the webinar that we held late last year focused on social and political activities, are public companies. From the investor's perspective. Leslie Seidman, the moderator of today, Today's program, is an independent corporate director. She is a member of the boards and Chair of the audit committees of the General Electric Company and of Moody's Corporation. In addition, she is the former chair of the Financial Accounting Standards Board and a public oven or of the Financial Industry Regulatory Authority. We are delighted to have her and very privileged to have her. Leslie, I now turn the program over to you to introduce the expert panel that you would assembled. Thank you. Thank you. Thanks so much, Justin. Just one minor correction there. I am a former governor of FINRA. Just want to clarify that for the record. Any rate. Thank you all so much for joining us today. As Justin said, my name is Leslie Seidman and I'm very happy to be moderating our discussion today about the role of the board and the CEO in navigating political and social issues. When Justin and what we've asked me to moderate this discussion, I quickly agreed because this is such a timely issue for boards and for management teams. Independent Director, I can confirm that the events of the last few years have significantly broaden the range of issues that are being discussed in the boardroom. Of course, we had the COVID pandemic and that has led to detailed discussions of employee health and well-being than we have had and continue to have major weather events like floods and wildfires, which has led to more expansive discussions about business disruption and the role of corporations in the climate transition and the geopolitical instability around the world has affected corporate strategy and risk assessments for many companies, just to name a few recent examples. These developments have accelerated and also amplified conversations about the role that corporations play in society. They've reinforced a broader view of a company's stakeholders to include employees, customers, regulators, and others, in addition to its shareholders and other investors. There is clearly an increasing expectation that corporate leaders will speak out on a variety of political and social issues. We've seen a range of different practices emerged in response to that. I want to clarify right up front that of course, there are a number of governance issues that stakeholders would like companies to comment on as well. But we're not having that be the focus today just because most companies have a lot more experience and practice dealing with those issues. They've also been an increasing number of shareholder proposals related to environmental and social issues that are trying to increase transparency on these issues, motivates certain actions by companies or both. Today, we're going to discuss the responsibilities of executives and directors to speak out on or otherwise a dress. Environmental, social, and political issues. And we're going to try and provide some factors to consider in deciding how and whether to engage on these issues. As Justin said, we're very lucky to have a terrific panel today, all of whom have very significant and relevant experience in corporate governance. Let me just take a moment to briefly introduce them. First, we have Michael Pitt injure, who is a partner with the law firm partner Anderson and Peru, LLP. Next we have Hillary sale, who's Associate Dean and professor of leadership and corporate governance at Georgetown Law School and also a Professor of Management at Georgetown Business School. She's also a corporate director. And Hillary and I previously had the pleasure of serving together as directors on the FINRA board. Next we have Paul Washington, who's the Executive Director of the environmental, social and governance center at the Conference Board. Welcome to all of you. Alright, so let's jump right in and address our threshold question, which is, what are our boards and management's responsibilities to take a position on it or otherwise speak out on E, S, and G issues. Mike, I'd like to start with you first. If you could lay the groundwork for us on any legal requirements or regulatory guidance that tells companies what's expected of them in terms of legal and regulatory rulings. Sure, Thanks, Leslie. There's a lot of overlap between ESG issues and legal and regulatory compliance. We think of environmental, consumer protection, health and safety, which includes workplace health and safety. Labor laws, discrimination laws, health care related laws. So on one level, laws and regulations in every jurisdiction in which a company operates or potentially applicable to a wide range of ESG related matters. That includes tax laws, e.g. carbon taxes and various in the EU and various European countries. Other types of laws might be implicated as well. With respect to ESG, a lot of ESG matters might relate to even if there aren't strict regulations in place or laws in place, might pose risks to a corporation. And corporations need to think about whether their risk factor disclosures need to include certain risks. What we would think of as ESG related matters. In a lot of European countries, there are mandatory ESG disclosure laws. Companies have to think of all of those things. And then you'd have the issue of fiduciary duties. And there's been a some academic debate more and more in recent years about how fiduciary duties interrelate with ESG issues. On the one hand, there's a debate about whether principles of stockholder primacy and the required focus on value maximization for stockholders. Under Delaware law, at least whether that precludes or somehow limits of boards ability to consider and address ESG issues. There's not enough time here in detail what that what that is. It would be a seminar in and of its own, but my view, at least as long as the company's decisions on ESG matters or how rationally related to financial performance or stockholder value, including in the long term, or rationally related to preventing or reducing some harm to the company. That can include reputational harm or employee morale and retention issues. Very broad things is as long as they are rational relationships to those types of things, I believe Delaware law provides considerable flexibility to directors and officers to consider and address and speak out on ESG matters that are important to the company. It was a great presentation by Vice Chancellor last or of the Delaware Chancery that's available on the court's website, in which he gives a very thoughtful and I believe, entertaining analysis and these type of issues. And I would highly recommend that it's on the center's website. He points out e.g. that Directors can select the timeframe for achieving corporate goals and for corporate value maximization. And that can be a very long timeframe. Hundred years, more than 100 years and says, Therefore, decisions on environmental responsibility and things like that can certainly be rationally tied to stockholder value. On top of that, Delaware courts required directors to protect against harm from all sources. So I think there's there's a lot of flexibility for directors to consider ESG issues. I think where the real potential exposure. Might lie is frankly, when directors don't consider them and don't take steps to put systems in place to monitor and determine what issues are important to the company, how they're going to address them, and that somehow leads to harm to the company, right? So I think there's, there's potential exposure and there's all sorts of debates about what the standard would be for not addressing ESG type issues if it could lead to harm to the company. But my view at least is that if a board is well-informed and considering an acting on ESG issues in good faith and the man are they determined is appropriate. There's there's little risk of liability. I don t think that means means the decisions are easy to make. I just think it means that their business decisions will be protected by the business judgment rule. Thank you. That's really helpful. Background. Even if there isn't a requirement in the letter of the law. Let me ask you, what are some other strategic or other reasons why a company might want to speak out on E and S issues. Thank you, Leslie. I'm so happy to be here. And I just want to say thank you for that great legal summary, right? I think it's super helpful to the entire conversation we're having, which if I may, over-simplify as a backdrop, there's a lot of latitude for decision-making on the part of corporate directors where they won't violate their fiduciary duties, but it doesn't mean to your point, Leslie, that they won't otherwise get themselves in trouble. And when I think about what boards are supposed to do, I always say we have three great responsibility, strategy, risk and people. And these issues touch on all three of those. So you can have the best strategy in the world. But if the world of politics and social media intervenes, you may not be able to perform on your strategy and your people matter there, your stakeholders in lots of ways, whether they're your internal people, your employees, or your clients, or your customers, or others who might really consider the choices of the company to be problematic. I think the best way for boards to think about this is to be focused on making informed decisions. To say to themselves, okay, what's our strategy and what's the business that we're in. And when I say strategy, I'm using it in the classic sort of constrained resources trade-offs occupies the space between vision and tactics way. What is our strategy? What's the business we're in, and what are the things that could disrupt that. What matters to our stakeholders? That's where engagement surveys and being in touch with your employees really matters. Then the next step is to say, okay, now we understand we're operating in a world where there's a lot of politics and I'm using that term broadly and loosely. There's a whole lot of social media and a lot more transparency than there used to be on the decisions that we're making. And we know we can't quantify this. We can talk about it, and we can think about the impact, but it's pretty hard to quantify. So how do we understand it? What are the potential impacts on our strategy and our stakeholders? And let's think about it in advance. So we're not forced to make ad hoc decisions. Yeah. So we don't end up waffling back and forth. It turns out actually we have some research on this which I think we're going to share later. But some of the research tells us that waffling is actually worse than taking a tough stand and sticking with it. And then when appropriate, communicate. When you communicate about this, you communicate about it. Otherwise, it's like the rest of this stuff the board discusses. You don't communicate it until you have two. And when you do communicate your clear and you're consistent and whatever principles you created, you stick with them on an ongoing basis. This should sound like what the board and management should be doing anyway, right? Difference here is how difficult this can become and the result, right? Boycotts, reputational harm, total disruption of your strategy and inability to implement it, right? Which is what we're trying to avoid. Absolutely. You know, what I think is unique about the category of issues that you've raised hillary that could lead a company to speak out on these issues voluntarily is the source of the feedback that's coming into the company. It's from all different kinds of stakeholders. And that perhaps is something new for companies to be dealing with in light of the availability of social media and other ways to communicate very rapidly at even arguably, not stake holders. In other words, not everybody on Twitter is your stakeholder. Very true. That complicated things here. I think. Companies have asked for a long time, for various reasons, for the ability to consider all of their stakeholders and the long-run planning and implications of choices. What this space tells us is careful what you ask for. Because now you have room to move and it's very clear. But now we expect you, We, your shareholders or your employees or others to actually make these choices in a thoughtful manner, right? All I want to turn to you. I've seen some recent research that the Conference Board has conducted in the area of environmental and social issues. I wonder if you could comment specifically about shareholder proposals relating to those sorts of issues and how they've evolved over time and where we stand today. Sure, happy to do so. And again, delighted to be here with everyone. And if I could just pick up first a little bit on what Hillary and European talking about. I think what we're facing in this area of environmental and social issues is what we're seeing is a subset or a microcosm of what's happening more broadly in governance these days, this is the third great wave of governance. You had the reaction to Enron and WorldCom and Sarbanes-Oxley. Then you had the financial crisis and Dodd-Frank. And now about ten years later, we're seeing a whole new era of both ESG, the focus on the what and stakeholder capitalism, the focus on the home. And in this environment, boards have a lot. This isn't being driven by regulations so much as by market forces, right? Capital markets, labor markets, consumer markets. So boards have a much greater degree of flexibility here. So approaching this whole area strategically and with flexibility in mind is what you need to do. I think this is a very interesting example of what boards are facing across the board in this current era. So what's happening with investors? Well, to put it in perspective, a lot of the pressure for taking stance on social and environmental political issues is obviously coming from employees these days. E.g. the survey we did in the response to the Supreme Court decisions on abortion and guns this past summer, of those companies that felt pressure, 78% said it was coming from employees. 57% said from employee resource groups. 25% said it's coming from senior management itself. So investors were only 3%. But that's only one vehicle that you have for hearing about social issues. Obviously, shareholder proposals are huge interests, your question, sorry for that prelude, but I wanted to everything else we're talking about. But investors, so environmental and social issues, policy issues where the subject of 399, let's round up to 400 proposals that came in the door. Us public companies in 2021 that grew by over 20% to 512. So 399 to 512 shareholder proposals coming in the door in 2022 because the SEC really opened the floodgates. As long as you're not violating some technical role, you're gonna get your shareholder proposal and it won't be excluded from the proxy statement. So a lot more came in. Interestingly, average support decline on environmental and social proposals going 21-22, it went from 32% to 26 per cent. That's the mean. We pretty well set passed. Know these have all proposals that were voted on. Average support declined. The percentage of proposals passing decline even if more proposals passed because it was such a larger pool of proposals coming in, the support rates, they pass rates declined basically across the board. So why is that? I think what you saw is there were proposals that were, particularly, it's the proponent. And this is tricky for honeybees. You saw a tripling of proposals coming from anti ESG groups. Those proposals tended to get 11% support that drew down the average. So proposals coming in from folks who are sort of anti the progressive ESG side, right? You also saw, oh sorry, going. Well, what's an example of that? How is that foot forward? Okay, so it's like we want you to do a racial equality on it. But the point of that odd is make sure that white guys aren't, that are not discriminated against, okay? Okay. And it's done from that. So it's really, it's same resolution. But the whole rationale is sort of call it non traditional, if you will or can only anti ESG. So you saw the client because the proponents were different. The proposals often were overreaching. Last year, ban all fossil fuel investments while he got an award in Ukraine and energy shortages, those aren't going to pass. And then finally, sometimes the companies targeted had already done a lot, or they were dual class shareholder companies, so they didn't prevail. It's interesting. So E is E&S proposals a lot more declining support, but this does not mean by any means that companies can stop worrying about what's coming in from shareholders because there are a number of proposals really need to climate political activity. Racial Equity Audits, gender and racial pay equity that all show up in what we had the conference board called the red zone. Which means those proposals are likely to go to a vote and likely to get more than 30% support. So a lot of proposals are showing up in that red zone. And so I think we're playing free proxy season. Going to be even more complicated for companies because they're gonna be damned if they do and damned if they don't. Because there will be a lot more proposals coming in from the anti ASG groups. So companies are gonna be forced to take a stand and even sometimes say, we're against this resolution, not just because we don't like the resolution, but we're against it because of the rationale behind the resolution than Hillary nods on that. Yeah, this is, this is, this is much companies are, and what investors are open for that discussion. Yeah, it's a director. What's, what's interesting about that is that it is in writing. You must respond and you must provide your rationale to it in a very public forum. So I think that's a really nice segue to our leader discussion about how to get organized for this and what are the factors to consider. Paul, Before we move from that, can you give us a couple of examples of social and political issues that are coming in through the shareholder proposal route. So this is a social slash Human Capital Management. So racial and civil rights audits, what's your company's impact on racial equity? That's a big one. Arbitration is another political activity. So this is something that was a surprise to us in 21. But in 21.22, we saw corporate political activity as far more likely than climate related proposals to show up in the red zone of likely to get, to go to a vote and get high support. And so last year it was health-related lobbying, the prior year was climate-related globbing. So this is, this is something that companies need to be acutely aware of. A lot of companies are focusing on taking stands on democracy, election, and voting rights. A lot of them are taking stands about, yes, we agree with the Paris Accords and so forth. You can get into trouble both by being hypocritical about what your lobbying is versus what you're saying. And also, if your own transparency of your political activity isn't that high, you can be called out like, who are you to be holier than now? So if you're going to take a stand on democracy, we want to make sure you're on the corporate political activity. House is in order. I hear you. And so the issues can come in from an ESG positive standpoint or an ESG negative standpoint. It's just a nature, the nature of what's being asked and what's the rationale for it. Yeah. I just say overall, we did a convening with investors representing 20 trillion in assets under management. While they're taking a harder line on governance issues today than ever before voting. It's more board members than ever before. They are really opened. This is important for US companies to keep in mind. Particularly, they were really open to hearing the full story from the company on environmental and social issues. They're open to common ground and common sense. That's good to hear And it's certainly my experience as well. Hillary, did you have something together? Well, I was just going to say one of the tricky things about the Pro and the anti is if you're really well-versed in as you know, who's driving that one. But if you're not there kind of like ballot measures in the US, I think there's sometimes written to get you to pull the yes when you would really prefer the note. And this is kind of tricky about the way these are going. Some of these racial equity audits, it sounds like something you wanna do. It's maybe actually aimed at something you don't wanna do, right? And again, many of these are preparatory, meaning their requests for action. The board doesn't have to take the action, but the next step is to push back on the existing directors if they choose not to take the action and there's an overwhelming vote in favor. Understand that? Yeah, makes sense. Let's now turn to some of the situations that we've observed in the marketplace and maybe some lessons learned from that. I wonder if one of you could give us an example of a case where accompany spoke out on an E or an issue. I'm sorry, I'm getting this poll here. And with widely applauded for the way that they handled it. And we don't need to necessarily name the companies if you're not comfortable doing that. But what we're trying to get at is, what are some of the lessons we can learn from companies that have done a good job on one of these issues. Volunteer. I'm happy to start. I'll follow with one. Go ahead. Okay. So I just think it picks up on some of the things I said in the introductory point, right? Which is, think about this in advance, have some principles that you're going to apply on these issues and then think about applying them consistently. Try not to be ad hoc. And one of the things that I think companies feel right now, they've, over the last couple of years, there's been a lot of pressure to speak. And it was unusual for a lot of companies to engage. Companies started engaging. Now they're getting a lot of pushback. Stop speaking. We don't want to hear from you. Do business, don't do politics. And I think the lesson is, you actually can't separate them. You're going to have angry stakeholders on multiple sides. Assuming that some of the people who are pushing back on you are actually your stakeholders, right? And that's a more complex issue. But there are going to be loud voices no matter what you decide and the question is being clear, navigating straightforward, and communicating clearly. What do you think? Well, So I think, you know, you may not be applauded for what you've done, but you may avoid controversy and you may be doing the right thing while avoiding controversy. And that may be the best, the greatest success you can possibly have. So I would say e.g. CVS. When in response to the Supreme Court's decision, they addressed the question of abortion and health, reproductive health. Largely internally, they did have a public statement and they didn't make the news. And I think it's because tomorrow I already use that general counsel there is brilliant. He also oversees public affairs, so it's nice to have legal and public affairs under one roof. The board is really on top of this. And so they've taken approach where they've looked at and they're not unique among companies, but they have clear criteria as to figuring we should use to take the stand on. And then tiers of how they're going to take a stand. There are ones where they will be making public statements. There are others, like a lot of companies, will it just be doing it internally? They'll communicate internally or they won't actually have a statement, they'll just have an action. And then those issues that they just steer clear of, they've got clear criteria. They've got a clear process for making the decision as to how they're going to approach it. And we can talk about how companies are engaged in words, but they're doing that appropriately as well. So I think the clear criteria, the clear process, and then understanding that there are different levels that you can take. Whether it's public leadership, Public Education and Engagement, talking through your employees, or it really engaging through third parties. A whole lot of avenues you can consider here. And I think that's a company, among others that has a really good framework for approaching. Thank you. Helpful. Mike, did you have something to yeah. I kinda picking up where Paul left off and maybe we're getting into our next topic a little bit. But as he described to you how CVS handled this with my kind of Delaware hat on. It's really all about and planning and planning how you're going to handle these situations. You have some of them you can see coming from a mile away and some of them are surprises and you have to have procedures and processes in place for the surprises to identify. Are we speaking on this or we're taking a stance on this or we're not going to make that decision, is is it a committee? Is it senior management? And it's really, it's really all about process and thinking these things through in advance so you don't hit a crisis. One thing I was going to work in talking about stockholder proposals in the comment and the question that's in the chat is in this goes to process as well as I think you do need to listen to what you're hearing through your investor relations department about things and not just from stockholders through stockholder proposals. You need to have processes in place to get as much information from as many places as possible about what your various constituencies think on certain matters so that you can. Make the right, the right choice. And you're not only going to hear from stockholders through through stockholder proposals and calling your investor relations department. If there's if there's some crisis relating to social and political matters, the CEO makes racial statements or whatever it may be, some kind of crisis happens. You're gonna be hearing from the stockholder plaintiffs bar to result in harm to the bottom line of the company. And you're going to get it to 20 books and records demand. And then you're going to catch stockholders suits all over the place. And that's certainly another way that we're going to hear about at least some faction of stockholders input on these matters in the not-too-distant future, I believe is through through litigation and I'm never a proponent of boards necessarily having, let's avoid litigation as the forefront of their decision-making. But it needs to be it needs to be in the back of their mind and process is the way you protect yourself. Frank, particular future litigation liability. Well, I think this is also a good time to just reinforce the importance of walking around management by walking around and for the management team to have forums to talk to employees about what's on their minds. And I'll just share that. As a director, I like to go on field visits out in the field and just talk to employees about what's on their minds. And we also have town halls where a director will stay back after a board meeting and talk to employees. And it's really interesting what sorts of questions are asked of directors. They often do fall into S, I'll say S and G matters. And sometimes E as well. I'm sorry, Go ahead. Just the leslie on that. That's such an important point. I just want to underscore that there's a real risk here of senior management. And it generally is the CEO and senior management who are making the decisions on these issues based on all of the surveys we've done. Those are the folks who are doing it and it's good that it's not just the CEO, That's the senior management team is involved. But there are also, as I mentioned, they're the ones pushing to take a stand. There was a real risk of the senior management team living in an echo chamber, right? They may be from the same socioeconomic background. They may all work in the same place and things like that. They may have similar political views. And they may be a few who are outliers may feel afraid to speak up. So that's why it's so important to have lines out there both in terms of data. This is what employee engagement surveys tell us, but also the human interaction. To really make sure that that echo chamber is broken open and that you're aware of what people expect you to do and what the reaction is. We've found over half the companies we surveyed had no idea where they're taking a stance on environmental, social issues has helped or hurt them. Well, as the recipient of a number of employee satisfaction surveys or culture surveys. And for the person who asked the question, boards do get reports on the outcome of those surveys on whether they're with employees or with investors, because we do investor's satisfaction sorts of surveys as well. But having open-ended questions, is there anything else on your mind or open commentary about any of the root? I'll use the term routine. What I mean, It's more sort of the standard sorts of questions that you would ask. That commentary is extremely helpful and can give you a leading indicator of what's on your stakeholders minds. So we've talked about some of the success factors and I think in the interest of time, what I'd like to do is maybe summarize the inverse of that. Which would be how, how do well-meaning companies get themselves into trouble on these issues? It sounds like it would be if you're unprepared for major changes in the political or social landscape. And you try to approach these issues on an ad hoc basis or in an echo chamber to use pulse term, in other words, not with input from your broader stakeholder group. And then secondly, inconsistency between what a company is saying and what they're doing, whether it's direct or indirect. We can talk about that some more. Any, any final thoughts on that before we move into our discussion of practical guidance for management and boards. Oh, sorry. Go ahead, please. Go ahead. And just, just to build on that. Right. It goes to the unprepared. But again, I'm not sure one can prepare for every one possibilities because they're evolving faster than I know what to do with. You can't take forever to respond. That's where having principles about how you're going to make these decisions matters. Because in the end, if you take a really long time, you would've been better off taking one or the other stand and being controversial than just sitting and waiting. And that is because we're in a world where not speaking is not allowed, right? It's legally allowed. Operating outside the legal realm. We're operating with our stakeholders and social media now. That's awfully important for companies that get to the point where they are comfortable saying, these are the principles. So this is our view of environmental and social issues generally, by the way, pointing to that when you've got a crisis that buys you a few days to then respond specifically is helpful. The other thing companies can consider doing, and maybe this is getting where you're going next page, it just actually being transparent about what your criteria in your process are, right? That's another way of buying yourself some timing, letting people know, Oh, this isn't just the C, The head of communications walking to the CEO's office and say, Oh, let's do this. The other area, leslie, the companies get into a lot of trouble with is when they're taking a stand. Doing so in a way that's tone deaf to a variety of different constituencies. Acting like not doing it in an empathetic way. Because sometimes the people who are most affected by the issue had been dealing with it for a century or decades, right? And if you just suddenly waking up to anti-Asian violence, it kinda some tone deaf, right? That's one way to do it. The other way is not by being inclusive or by being polarizing in response. And so how do you take a stand is very important. And then how you deal with the people who, you know when you don't take a stand or who didn't want you to do because Dan, listening to them is also important. So we can get in all of that. But there are lots of ways, even when you're taking a stand, you gotta do it right? And we're not taking a stand. You got to make sure to listen to people nonetheless. Alright, so let's try and unpack that a little bit. There was an awful lot there. We've all agreed that it's important to be prepared, right? So what does that mean? How do you go about deciding what issues are central to your company? Which are the issues our company really does need to engage in. How do I decide that there's a big world out there? Lots of different issues. Some of them are important to any individual, but maybe not necessarily for the company as a whole. Paul, can I can I start with you? Sure. How does a company go about that? Well, I'll rattle off some of the criteria. The first one is inadequate by itself, but it is sometimes the only criteria that companies use, which is consistency with your values. Well, you can drive a truck through that one. We've got to narrow. You can write them in. The employee said, Well, why isn't that like? Why my value is not the company's value? So you gotta go beyond that. So you look at the connection between the issue and your business. If you look at the connection between the issue and your existing sustainability or CSR strategy color which you will, because there should be some correlation there. You look at internal and external expectations relating to it. So butter your stakeholders, how are they going to react the significance of the issue to society? And here's a super important one. Well, I think along with the connection with business, this is the other one that's probably the most important to my mind for companies to consider. Which is, what's the impact we have spoken with doing a stand, right? Like like the impact in this area it should kind of work can accompany have impact and its products and services buys and sells its own workplace. It's an operations and in this public space where you make these statements, well, your public statements shouldn't wag the rest of the dog, right? It's like this. This should fit in with your broader picture of where you can have impact. And Hillary, It's going to add one thing that I hadn't focused on, but have been paying more attention to lately is that a lot of companies have ESG or CSR or other reports that the boards aren't paying attention to because they're not going through the disclosure process. They're being done with coms and HR. And it's fraught with legal parallel, but that's not what we're really talking about. I think that's changing to be fair. Yeah. Okay. The reason I say it is that as the content of those reports becomes the focus of regulators and other very interested parties. I think companies have realized that it needs to be prepared with the same level of care as other other financial reporting. And by the way, I wasn't talking about sloppy here. What I'm talking about is the board wasn't discussing them, right? Because they weren't coming up through the normal process where a board might look at the disclosures the company is making. These are huge disclosures. In some cases, no date attached, which is kind of important for liability reasons, but also more important for observers to try to understand a track record, e.g. and those reports are important to what we would call social license, right? There's a lot of legal license out there, but no company operates just because it's legal. It's operating in the super legal context all the time and should be. But if you lose your social license, if you lose your legitimacy, if you lose your credibility and you lose some of that trust that's out there with your stakeholders, actually not gonna be able to operate well, right? So just to add to this piece, I think we need to really think about how we're verbalizing it. I loved the criteria that Paul just laid out, right? Things you can think about as you make those choices, the important thing is you make those choices and when appropriate you articulate them. I think this helps with an intersection between how do you decide what are the issues that are most germane to our company and where we could have the most impact. And the materiality assessment of what you should be talking about in your report, right? And so I think that increasingly that's becoming a focus of how companies are proceeding here. Mike, did you want to jump in, I should say, in addition to the criteria, I think an important thing for preparedness is who's, who's evaluating and applying that criteria. Not all of these issues, our individual issues, our board level issues, not all or even CEOs issues, but the board and the CEO have to exercise leadership and make sure there are procedures, systems, whatever you want to call them in place for who's dealing with in making these decisions and which ones are important enough to be CEO decisions, which ones are being important enough to be board level decisions, and making sure that's in process as well. The who, who, who makes is almost as important in my view as the criteria that you apply to a point that Hillary made earlier, you can't be prepared for everything. Very true. But what you can be prepared for is if an emergency happens or something like that, who's dealing with it in place. And all of these issues are in addition to your management team, are going to require really good PR teams, both internal and sometimes external. Advise you as Paul was saying on all these things, what are the consequences of the stand we're going to take and consequences of the way we're phrasing, whatever rephrasing. You need very good PR professionals. And it seems to me the same sort of readiness that you would want to have for some sort of a cyber incident where it's very common to have the game plan done well in advance and tabletop exercises periodically in case you've had changes in leadership and et cetera. So they get all if and when it happens that everybody knows what to do and how to proceed. I'm just keeping an eye on the clock. And so I want to just quickly inquire on one topic that was really the focus of the investor panel on this discussion and that was political spending. And Paul, you, you did mention it before. But one of the things that I thought was most interesting coming out of that panel was how much focus political spending is getting from the investment community. I just wonder, Have any of you, any recommendations for companies to consider making sure that there is consistency between what they're saying in terms of their values and beliefs and then where they're spending money on candidates or lobbying organizations, et cetera. I think first step is for the board to make sure that management has done a full inventory of all the ways in which the company engages in politics. So that's lobbing directly, lobbying indirectly, it's indirect contributions that the state level, the state and local level from your treasury. It's money coming out of your employee funded pack. Now that's employee money, but it's still going to be the company is going to live with it, right? So you do a complete inventory. Management should also be able to explain what the processes for making decisions and how the company's values play into that. The one thing is you're, you're always going to be doing something in the area of politics where you're giving money or you're supporting something with the person on the other side, isn't going to abide by your values, right? It's hard enough for a company to live up to its own values. It's impossible to expect everyone you give money to live up to your values, but you can have some bright lines. You can have some things like will support people who are to believe in democracy and are open to bipartisanship and so forth. So I think the management should do the inventory. Management should be able to explain quite clearly what it's criterion process for governing it. I think the other thing that boards can do in this area is, and management should consider as well, is seek some degree of simplification. The more you're giving money to third parties that they get to run with, especially if it's this dark money organizations. You are just running a whole load of risk right there. And so simplification, right, be your best friend here because it's going to avoid the knock-on effect. Like you gave money to this association and you didn't even know what they were what they were doing or what they were going to do because they didn't tell you that we're going to do it. And it's not necessarily about the amount of money. All right, so doing the cost-benefit analysis is key because you can be hard for a long time to write like there's also no statute of limitations on this one, right? For sure. I just want to echo what Paul said there, right? So first of all, picture and soundtrack have to match. Then second of all, this complete audit that he said, It's vital because as you just said, a small amount can be just as bad as a large amount. And if you're not paying attention to some local candidate contribution that went awry, you're going to spend weeks and months cleaning it. Makes total sense. Cleaning it up, get it all in one place, and then do the same thing. Use your principles that you've already defined and apply those here and ask yourself, why in the world would we make an exception and have a darn good reason for doing it, including none of those reasons include we won't get caught. When you're reviewing that activity. Don't just have government relations look at it because they're going to think that they've been doing it just right, right. You wanna make sure that other parts of legal, that your corporate social responsibility people and others review it and also gonna wanna do when you're thinking about the people you give them money to. You've got to stay up-to-date on what's happening, especially the so-called state and local level, where they can be a lot of wacky miss, right? Suppose you want to, you want to stay up to speed on the folks who are giving money to and see what they're up to because you don't want to know about it, at least as fast as the rest of the world knows about it. For sure. We have about 10 min left. So if you're in the audience and you have a question for us, please send it in quickly. But now I'm going to just move to questions relating to the board of directors. I know we have some directors audience. Hillary, let me start with you. Can you suggest a couple of practices for boards of directors or even just good questions to ask to help directors oversee what management is saying and doing on these sorts of issues. Yeah, So I'll just say first of all, this is where data matters. And honestly, I think one of the best things board members can do over and over again, regardless of the topic, is to say, bring the data into the room. Let us see the year over year. How can we compare we did this year to prior years that applies across the strategy that here it really matters. So having once you get that really good audit, then you'll have the data, right? And the regular cadence is at some point on an ongoing basis, a committee reviews this and reports to the board, and you leave room on the agenda for real discussion. And then whenever something blows up, you have a real conversation about it as sort of after-action review on the backend. What did we miss? Why did we miss it? How could, excuse me, How could we have done that better? What we're not paying attention to, what did we miss? Yeah. And just to add to that, It's helpful to have an inventory of which issues are germane to your company because they can fall into different committees of the board. Right? So I like that suggestion and then just maybe have a mapping of what's going to go where at least initially. Sorry. I'm sorry. Go ahead, Paul. And then I'll go to Yeah. I mean, generally when it comes to environmental and social stances and so forth, I guess. It's unusual for the board itself to make the decision. Now I will put an asterisk on that. In some cases, board should be more involved. So if you're making, this is a little different, but if you're making a commitment on climate, voi, your board ought to buy into that because if you're claiming you're gonna go after and be carbon-neutral by a certain date. And all of a sudden, carbon credits cost a whole lot more money. And the board saying, how did you make that commitment without actually talking to us? So in some areas the board will be making a decision if it's important to the business, it's got a financial impact. But generally the board, like a company, doesn't want to be a roving commission on social issues, right? So it can be really dysfunctional to throw a lot of these issues and say keyboard, you decide what we're doing. But I think having a presentation to the board where they are fully informed about what your criteria are, what your processes, you've broken things into the bucket. So this is where we're going to be a leader. This is where we're going to make a case-by-case call. And these are the criteria we use to make a case-by-case. Well, these are the this is the bucket that we're not going to touch as the company. The board has that as background. And then the sort of best practice is to tell the board if there's if it's big enough issue you Tom, before you're making this statement. So at least they're informed if not consulted with. And sometimes it may be the chair of the committee you're consulting with and we didn't have an indirect or just to make sure that there's some touch base beforehand. But because you don't want your board to get distracted by all of this, but they should, they should definitely be comfortable that management has got its act together on it. Just to build on that point, I don't know if people saw that today. Just Capital issued their top 100 companies. And it just makes me think of the other sorts of organizations that are rating companies on various topics, ESG topics. And I know as a director, I always asked to have my company pulled together those readings for us so that we can see, are we a leader? Are we, are we somewhere in the middle? And sometimes it's based on an unavailability or misunderstanding of information, but sometimes there's something to do there, right? I think that's a really helpful perspective, at least to know how you're perceived by others using certain kinds of criteria. Right? And this time I'll go to mind, what are your thoughts on this? Well, I mean, I agree at the board level, information is key. Information has to percolate up through management, but getting the viewpoints of all different constituencies and as many viewpoints as possible on ramifications of different issues. The board is going to have to decide what issues are a committee wants to deal with on its own in which are for management. But I think the most important thing for boards, as I said earlier, is just to make sure that someone's got this and that the policies and procedures in place are aligned with the overall values and goals, both short-term and long-term. The board has said, there's no company can deal with every environmental, social, political issue, let alone any board. And so someone's gotta determine the priorities. And it's really just a matter of to oversimplify thinking about this. The biggest mistake that boards can make is to just say, management's got this and we don't want to hear about it or left even think to ask management about it and things like that. So there is definitely a board role, but except for an extreme circumstances, it's the it's the higher-level board function that you see with respect to monitoring any kind of legal and regulatory compliance, e.g. or other aspects of the business. They're not getting into the weeds, but they need to make sure that those people that are in the weeds are the right people and they're doing it consistently with the overall direction and guidance from the board. Well, if needed, underscoring that practice of voting against directors or chairs of committees or the leadership of the board itself. When stakeholders are not satisfied with the company's approach to something really does. Highlight the importance of the board being engaged on these issues and showing significant leadership. We are almost at time. I'm gonna do a quick round the horn and just ask you to leave our participants with one important tidbit that could help them navigate the waters in this area. I'm going to start with you, Paul. As you're thinking about all these issues. Think about economic issues, the issues that matter most, the S issues that matter most to your end consumer sent to your employees actually tend to be economic opportunity, security, and fairness, health access. Companies actually could do a better job speaking up and speaking out about those topics. They often have a very good story to tell. Thank you, Hillary. I love that, Paul. I wish I'd said it. I'm just going to echo something we've said in different ways, which is plan. Don't be ad hoc. Be clear, consistent. Good. Well said, Michael, you get the last word. No, one size fits all. Every company is different size, operating in different markets in a different line of business and different issues affected differently. And while we've given some very broad parameters of types of things that companies consider know no one size is going to fit all again, I think it's just a matter of management and the board thinking about these issues, getting informed on these issues and doing what's right in their business judgment for this particular company and stay current on that. It's not a one and done sort of exercise. I thought this was terrific. Thank you all so much for spending your time with us this afternoon or today or wherever you are in the world. And with that, I will hand it back to Justin. Thank you so much, Leslie, and I will echo your thanks to everybody. My thanks to you for putting together such a terrific, terrific panel and moderating and in such a wonderful and stimulating way. And thanks so much to all of you panelists for your insights and I very much appreciate everybody who attended. It means, means a great deal to us. I you will get a survey after the program. Hopefully you'll take the time to fill it out. The information we get from it is very important to us. And then I would like to just remind you that we have some upcoming very interesting programs coming, coming your way in our way. On February 22, we're gonna do an ESG program in person here at the University of Delaware. Leslie was kind enough to participate in the one we did last year. This one also will be moderated by John White of crevasse and Sebastian aisles of of walk tell they're two of our advisory board members. And then in addition, on April 4 year also at the university, we will have a program entitled the chiefs. We will be featuring the current Chief of the Delaware Supreme Court and his, his predecessors. It will be moderated by Bill Lafferty, maurice Nicole's, and Jennifer Voss from Skadden. And as part of that program also, we will be presenting an update on some recent Delaware cases that'll be moderated by Blake roar backer of Richard's Leighton, who's also an advisory board member of ours. And with that, I will convey once again, my thanks to all of you. I think that this was really a terrific program and I'm delighted we were able to do two webinars from different perspectives. So thank you so much and have a good afternoon or evening depending upon what time zone you're in.
Navigating an Evolving Challenge: Role of the Board and the CEO in Navigating Political and Social Issues - 1/10/23 - Final
From Nicole Rich January 20, 2023
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Company boards and senior leadership are having to pay much more attention to external developments – social and political, local, and global. Driven by employees, investors, customers, interest groups, and other stakeholders, as well as their own corporate values, companies are increasingly at the intersection of politics, business, and culture. Expectations are rising for companies to take positions on or respond to these issues. How should companies respond? How do companies reconcile differing viewpoints? How do companies respond to a senior executive’s divisive statement or action unrelated to the company’s business? What are the Board’s fiduciary duties?
The discussion of this evolving governance challenge will focus on the respective roles of the Board, the CEO and senior management as they navigate the complex political and social environment. The panel will:
The participants were:
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The discussion of this evolving governance challenge will focus on the respective roles of the Board, the CEO and senior management as they navigate the complex political and social environment. The panel will:
- provide historical context
- offer recommendations for appropriate Board oversight of company preparation and activities
- suggest questions that directors and management should ask as they assess the pros/cons of taking positions
- suggest ways to handle situations where the company’s position, or a director’s or executive’s personal views do not align with company values, statements, or disclosures
- suggest potential disclosure implications of company activities\
- examine Boards’ and Directors’ fiduciary duties under Delaware law
- examine other legal obligations which might come into play.
The participants were:
- Leslie Seidman, an independent corporate director; member of the board and chair of the audit committees of General Electric Company and Moody’s Corporation; former Chair of Financial Accounting Standards Board (FASB) and Public Governor, Financial Industry Regulatory Authority (FINRA), Moderator
- Michael Pittenger, Partner, Potter Anderson & Corroon LLP
- Hillary Sale, Associate Dean for Strategy, Agnes Williams Sesquicentennial Professor of Leadership and Corporate Governance, Professor of Management, Georgetown University; member of the boards of directors of Cboe U.S. Securities Exchanges, Cboe Futures Exchange, and Cboe SEF; and former Public Governor, Financial Industry Regulatory Authority (FINRA)Associate Dean for Strategy, Agnes Williams Sesquicentennial Professor of Leadership and Corporate Governance, Professor of Management, Georgetown University; former Public Governor, Financial Industry Regulatory Authority (FINRA)
- Paul Washington, Executive Director, Environmental, Social and Governance Center, The Conference Board
- Tags
- Department Name
- Weinberg Center for Corporate Governance
- Date Established
- January 10, 2023
- Appears In
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