How Boards can guide company strategy on social issues

Shifting stakeholder expectations around companies having a stance on social issues is increasing. Leading more Board responsibility to make decisions regarding when to act and when not to act. Ultimately to protect the company from reputational and financial consequences of poor decisions on social issues in Australia. This article is a share from Harvard Business Review.

 

How Boards Can Guide Company Strategy on Social Issues

THIS ARTICLE’S KEY TAKEAWAYS:

  • Board directors must focus on their company’s capacity and strategy for addressing social issues.
  • Ask the right questions about alignment, stakeholders, track record and competition (see ‘2. Ask the Right Questions‘)
  • Boards should create a framework for assessing the relevance of social issues to their organisation and ensure it is aligned with their goals.
  • When deciding whether to act or not act consider the backlash which will arise. Assess your companies contradictions with what it stands for, what it is doing and its actions towards specific issues.

 

C-suite leaders are finding themselves under increasing pressure to engage in and take public positions on social issues that their companies would have considered outside their purviews only a few years ago. Recent research, including Edelman’s Trust Barometer, suggests that this pressure is likely to persist and possibly increase.

Directors are now asking:

  • “Should we get involved in determining what social issues are relevant for our executives to speak on?”
  • “What are the circumstances in which the CEO and company should take a public stand?”
  • “What questions should we be asking management to properly oversee relevant risks?”

 

Understanding expectations of Social Issues in Australia

Companies are being expected to weigh in on topics like economic inequality, racial justice and climate change. A company’s position, or lack thereof, can therefore lead to material impact on customer perceptions and in turn business results. And yet, PWC’s 2022 Corporate Director Survey found that most Boards are not discussing social issues as part of their work. This needs to change.

Here are six principles to guide directors as they help their organisations navigate the current environment:

 

1. Avoid Ad-Hoc Decisions

Boards should demand from their CEOs a thoughtful decision framework to cut through the noise and ensure their companies’ words and actions are grounded in purpose, authentic to the organisation, and risk-adjusted. The goal should be to create a consistent approach that helps the leadership team prioritise or weigh issues critical to their stakeholders and determine corresponding actions that ultimately support a business objective.

 

2. Ask the Right Questions

Directors should ensure their CEOs are considering the following:

  • Alignment: How closely aligned is the topic to the company’s purpose, vision, and strategy?
  • Stakeholders: Does the topic affect stakeholders broadly or only a specific audience? Is the issue polarising to certain stakeholders?
  • Track record: Does the organisation already have a credible voice and/or history of engagement on the topic? If it has been silent, what has been the reaction to date?
  • Competition: Does the issue represent an opportunity to differentiate the organisation from competitors?

 

3. Survey Stakeholders

It’s important to survey employees as internal sentiment has driven many of the corporate reputational challenges we’ve seen in the past few years, such as Disney. This kind of research and analysis can provide empirical background to drive more informed decision-making.

 

4. Consider Objectives and Tactics

Identify the goal you hope to achieve by taking a position. These might include raising awareness, exerting economic influence and/or shaping political policy.

 

5. Use a Diverse Advisory Team

Companies doing this well are bringing together a diverse group of stakeholders to regularly assess the questions above and develop issue strategies. Directors can help in providing an “outside” perspective, identifying blind spots that may be overlooked, and encouraging management teams to consider unintended consequences of how certain stakeholders may react and how their company may be exposed in the process.

 

6. Identify Contradictions

If a company takes a position, makes a commitment, or launches an initiative, it’s critical to understand if any of its other activities are inconsistent with those actions. Directors and executives should be aware of where the organisation is vulnerable to criticism and prepared to manage the scrutiny.

 

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