Insights from “ESG in the Boardroom: A Guidebook for Directors”
Listen to Episode 84 on Apple Podcasts
Guest: Eileen Kamerick, NACD Board Leadership Fellow, SEC Financial Expert and experienced independent director, Peter Tomczak, Partner at Baker McKenzie
Hosts: Dottie Schindlinger, Executive Director of the Diligent Institute, and Meghan Day, Vice President of Marketing for Diligent ESG & Data Intelligence
In this episode:
- Inside “ESG in the Boardroom”: Tomczak discusses his recently co-authored book and the impetus behind writing it.
- The Changing Director and Shareholder Dynamic: Kamerick dives into the changing relationship and increasing communication between shareholders and the board, underscoring the need for director fluency around ESG.
- Operationalizing ESG: Kamerick and Tomczak give advice on how directors and corporate leaders can best act to operationalize their ESG plans and strategies.
In this episode of The Corporate Director Podcast, Eileen Kamerick, distinguished and experienced independent director, and Peter Tomczak, partner at Baker McKenzie, take us inside his recently co-authored book, ESG in the Boardroom: A Guidebook for Directors and discuss the evolving role of the board in the era of ESG.
Inside “ESG in the Boardroom”
Tomczak begins by giving some background on the book he recently co-authored, “ESG in the Boardroom: A Guidebook for Directors”: “The concept was to come up with a single guide for directors that compiled the areas of ESG in a practical way,” he says, “The sheer amount of materials coming out on ESG is nothing short of a tsunami of information. We wanted to put it all in one accessible, practical, and user-friendly place, and establish a doctrinal framework for approaching ESG litigation: What do I do? How do I prioritize this? How do I make it actionable to create value? Those were the kinds of questions we wanted to answer.”
And why write this book now? Tomczak explains, “In the last 3-4 years, the pressure around ESG has accelerated. It’s coming from regulators and the investment community, and no longer just from NGOs like the United Nations. It’s driving a lot of the discussions in boardrooms. That acceleration and increased pressure contributed greatly to the volume of information coming out. We wanted to cut through the noise.”
Kamerick adds, “One of the biggest challenges at the moment is that there’s no consensus. There is growing consensus now towards the main principles of ESG and what gets measured, especially given the SEC proposed rule change around climate. In the meantime, directors have to think about what is most important, and what really moves the needle.”
The Changing Director and Shareholder Dynamic
For many, the current focus on ESG is being driven by shareholders, particularly large index funds. This, combined with living in a more virtual environment as a result of the pandemic, has sparked a change in the way shareholders communicate with the board.
Kamerick expands on this trend, “The move towards these virtual shareholder meetings has been dramatic. Institutional and activist shareholders can now go to every meeting. Now, conversation begins with compensation and quickly turns to ESG. This is the challenge for directors: Who’s ready to do that? Who can the board appoint to do that? Who’s ready to be the spokesperson to deal with shareholders?”
Tomczak adds, “Disabuse the company of the notion that communication with shareholders is still so formalistic. This is occurring every day. Usually, the part of business strategy around ESG is going right to the hands of shareholders, who are hiring people to keep an eye on this and compare you to other companies, on quality, frequency, quantity of engagement. Who has responsibility for carrying the flag on ESG strategy? it won’t just be one person in a scripted call.”
For some directors, the ESG landscape might appear daunting. Kamerick provides some tips from her perspective as a board member: “It’s vital to self-educate. Understand the current state of play. You have time to work through that. Boards need to think about how they can prepare to be advocates for their companies, because can be a positive and a competitive differentiator.”
She goes on, “Understand what your liabilities and vulnerabilities are from an activist perspective. ESG activists are a bigger part of the world now. Think of it like an ESG hot map: What are the areas in which we could be vulnerable? How do we address this? Activists don’t come alone or unprepared. Boards need to understand the criticisms they could be subject to and have a plan to address them.”
Tomczak gives his perspective on what boards can do to better wrap their arms around ESG issues: “We are in the midst of a war for talent. We have to have an ESG strategy when it comes to hiring. The common theme is twofold: Use a time honored framework and assess. The hardest thing with ESG is where to start. You have to be able to prioritize, start somewhere and rank and address issues. Then, think about committee charters, minutes and standing agendas. If you say this is a big risk that is integral to your strategy, and you look at what you have recorded from a board meeting and you haven’t been talking about it and it’s not formalized anywhere, is that really correct?”
Also in this episode…
Kamerick and Tomczak give their predictions for the future of boardrooms: “I think the boardrooms will be more inclined to be virtual. We’re operating in a new world, and there are opportunities there, but also challenges that we have to navigate,” says Tomczak.”
Adding to this, Kamerick states, “People realized quickly in a virtual environment that you can’t be on a zoom call for 12 hours. This forces people to get to the essence of what is really important in board meetings.”
Resources from this episode:
- Heroic Leadership: Best Practices from a 450-Year-Old Company That Changed the World by Chris Lowney
- Noise by Daniel Kahneman
- Cristo Rey Network