By Nicholas P. Manganaro, Esq., Vice President
At a recent NACD New England event, Sharon Merrill CEO Maureen Wolff moderated a panel discussion about stakeholder capitalism, why companies should take notice, and the risks of inaction. We asked her what she sees as the key takeaways.
Q: “Stakeholder capitalism” sounds like another IR buzzword, what are we really talking about?
A: Stakeholder capitalism is based on the idea that value creation should be about more than financial returns and should include the interests of a range of stakeholders, including customers, employees, suppliers, the local community, even the natural environment. Companies are under increasing pressure from various publics that can mount sophisticated PR and IR campaigns, including activist attacks.
Q: If a company is still getting up to speed with respect to environmental, social and governance (ESG) matters, what does management need to do about stakeholder capitalism?
A: The biggest differentiator between companies that effectively address stakeholder capitalism and those that are falling behind is proactive engagement. Leaders look for ways to engage and foster relationships with their stakeholders. Doing so can identify misconceptions and even opportunities for cooperation. How well do you know your stakeholders? How well do they know you? A public spat is no time to discover that you are simply talking past each other.
Q: That sounds like a big investment of time. What’s the best approach and what are the risks otherwise?
A: Neglecting your stakeholders can result in reputational damage in all kinds of ways. A disgruntled employee might turn to social media to air grievances, or an NGO might launch an activist campaign. Proactive and honest conversations with stakeholders, be it in a town hall or a private meeting, can demonstrate a company’s willingness to listen and can minimize your IR and PR blind spots. Companies should think of the risks of inaction in those terms. But being proactive does not necessarily require a big investment in time and resources. As a threshold matter, ensure that you are following IR best practices, including being open, candid, and responsive in your communications. Ideally, you should identify a board member who could serve as a spokesperson in special situations, such as a sit-down with an activist. A director who knows your story inside and out and who understands basic IR can truly distinguish your company and help to disarm an activist before a campaign takes root. Of course, the time for planning such a response is before an activist comes calling. An ounce of prevention can really go a long way.
Q: How do you counsel clients about that sort of preparation?
A: It starts with the basics that too many companies ignore. Look at your board bios and skills matrix, when were they last updated? Are there obvious weaknesses? Does your board have expertise in critical areas like cybersecurity, digitalization, and risk management? What about diversity? Companies often know their own weaknesses. Rarely do we counsel someone who has been caught totally by surprise when an activist starts lobbing criticisms. The problem is the failure to address shortcomings proactively. Experienced activists have seen it all before and know what to look for in a potential target. Right now, ESG represents the biggest battleground because so many companies are playing catch-up.
Q: What do you say to business leaders who believe ESG is just a “fad” and that eventually the pendulum will swing back?
A: “ESG” risks becoming an empty buzzword, but companies should stay focused on the underlying priorities that ESG represents and not be distracted by its political baggage. Anyone still dragging their feet with respect to change is falling behind. The proxy advisory firms and major institutional investors are already on board, so it is just a matter of time before your key stakeholders start asking pointed questions about your ESG strategy, if they haven’t already. Break down each component and evaluate how your organization stacks up. What are the climate-related risks to your business and industry and what are you doing about them? What are your values as an organization? Does your corporate culture, including governance structure, support those values? Do your actions match your words? If your leadership team does not have answers and insights in these areas, just know that your employees, customers, and investors already have their own opinions about you.
With a national reputation as a preeminent investor relations firm, Sharon Merrill partners with IROs, GCs, and the C-suite to drive stakeholder value through strategic investor relations and ESG communications. Contact us to help you tell a strategic ESG story that builds credibility, transparency and trust.
Maureen Wolff is CEO of Sharon Merrill. She has more than 35 years of success counseling C-level executives and directors to raise the level of their communications, build credibility and maximize shareholder value. In her role as a strategic ESG advisor, Maureen helps companies to identify key ESG material issues and opportunities, develop a compelling ESG messaging framework, and then integrate that narrative in a holistic way across communications channels to a broad range of stakeholders.