Avoiding a Punch in the Mouth: Shifting some (or more) board focus to stakeholder interests sounds good in principle, but ...

• Author: Shaw, David
• Position: ENDNOTE - Editorial

Throughout this year, Directors & Boards is devoting space in every issue to discuss and analyze "The Character of the Corporation." We're looking at the corporation's (and board's) roles and responsibilities to employees, the local and global community, and other stakeholders through a variety of lenses: ESG (environmental, social, and governance), human capital, the impact of technology on stakeholders, and the desire for longer-term thinking and planning in the face of quarterly reports and guidance, and outside pressures from short-term activists and governments.

This corporate character discussion is being driven by a variety of factors, including large institutional investors, social activists, and the changing demographics among the employee and customer bases of public companies. Politics, especially in the runup to 2020, will certainly rear its head even more than it already has.

Many of us--though certainly not all--would agree that public companies can do more to reflect the interests of stakeholders, and that ESG and human capital initiatives can create benefits to the long-term sustainability of the social and business ecosystems in which corporations operate and from which they profit.

But can these initiatives really take hold in corporate America? Will the few companies that are making commitments in these areas end up like the pioneer, lying face down with arrows in the back? Can boards really commit here, or will this end up being just a short-term exercise in public relations? As boxer Mike Tyson famously said, "Everybody has a plan until they get punched in the mouth."

I think boards are at an inflection point, perhaps the most important inflection point they've faced in the history of corporate governance, since this one isn't (currently) being driven by legislation or a financial crisis. And that inflection point revolves around many of these questions:

* What exactly is the corporation's broader responsibility, if any?

* What exactly is ESG (or Corporate Social Responsibility)? Does it emphasize the E, the S, the G, or all three?

* How should corporations report their ESG initiatives?

* How should management be compensated and incented on ESG performance?

* What are the human capital risks and opportunities of ESG? How do you make a stakeholder focus flow...