Given shifting stakeholder expectations around corporate stances on social issues and the potential reputational and financial consequences of poor decisions, board directors must focus on their company’s capacity and strategy for addressing these issues. They should demand a framework for determining relevance; ask smart questions about alignment, opportunity and risks; gather feedback from stakeholders, especially employees; consider objectives and tactics; consult with a diverse advisory team; and look for potential areas of contradiction so as to avoid or prepare for criticism.
For the past few years, we’ve been fielding calls from CEOs and other C-suite leaders who find themselves under increasing pressure to engage in — and take public positions on — 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.
Companies are starting to recognize that there can be as much risk in inaction as there is in action, and a wrong move can have significant reputational and financial consequences. Changing expectations around corporate social responsibility and governance only increase the uncertainty as to how stakeholders will react.
Given a board’s oversight responsibility, directors are now also calling us to ask:
“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?”
The 2022 Edelman Trust Barometer specifically tested whether people believe business is doing enough or overstepping on social issues. We found that — on every issue and by a large margin — there is call for more engagement, not less. According to new workforce data, both Republicans and Democrats increasingly expect companies 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 organizations navigate the current environment:
Avoid Ad-Hoc Decisions
When CEOs or companies determine whether to issue statements on social issues or stay silent, it’s often based on judgment calls made by a few people in the C-suite. They’ve agreed it’s the right thing to do. But too often these decisions are susceptible to the emotions in the room rather than rigorous analysis and a 360-degree analysis of stakeholders, particularly employees.
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 organization, and risk-adjusted. The goal should be to create a consistent approach that helps the leadership team prioritize or weigh issues critical to their stakeholders and determine corresponding actions that ultimately support a business objective.
Ask the Right Questions
In a hyper-partisan world, it’s tough for any company to find a position on a divisive issue that satisfies all stakeholders. It’s also unrealistic to speak out on every issue and still run a business. Determining whether to take a stance on an emerging issue — either proactively or reactively — should be based on several key factors. 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 polarizing to certain stakeholders?
- Track record: Does the organization 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 organization from competitors?
There are various ways to better understand stakeholder views, including which issues are most meaningful to them and which they deem relevant to the company. It is especially 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 employees who protested company silence over anti-LGBTQ legislation in Florida. This kind of research and analysis can provide empirical background to drive more informed decision-making.
Consider Objectives and Tactics
It’s also important to identify the goal you hope to achieve by taking a position. These might include raising awareness, exerting economic influence and/or shaping political policy. Similarly, there are multiple tactical approaches — such as communicating narrowly to employees, providing a statement to the media, issuing a press release, or updating company policy — each of which can result in different reactions from stakeholders and yield different outcomes.
Use a Diverse Advisory Team
Companies doing this well are bringing together a diverse group of stakeholders — including the general counsel, CHRO, division leaders, community relations — 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.
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. For example, companies that have taken strong stances in support of LGBTQ+ rights may find themselves criticized if they have simultaneously contributed to political candidates running on anti-LGBTQ platforms. Similarly, any external statement must be first viewed through the lens of existing company policies. Ideally there is full consistency but at a minimum directors and executives should be aware of where the organization is vulnerable to criticism and prepared to manage the scrutiny.
The Board’s Agenda
Considering shifting stakeholder expectations and the potential reputational and financial consequences of poor decisions, board directors must focus on their company’s capacity and strategy for addressing social issues. They should demand a framework for determining relevance; ask smart questions about alignment, opportunity and risks; gather feedback from stakeholders, especially employees; consider objectives and tactics; consult with a diverse advisory team; and look for potential areas of contradiction so as to avoid or prepare for criticism.
People want corporations to take the lead on solving society’s biggest problems. It’s time for boards to put these issues on their agenda.