#bestpractice #boards #chairs #corporategovernance | INSEAD International Directors Network (IDN)

This is the third of a series of interviews intended to help our IDN members grapple with the ESG topic.
In this episode, we delve into the experiences of a seasoned ESG executive, exploring the insights she imparts to non-executive boards regarding ESG-focused interactions.

Kiku Loomis

Kiku Loomis is a seasoned ESG professional bringing 20+ years of expertise in business and sustainability. Guiding global Fortune 500 companies, she strengthened sustainability programs and managed PVH’s human rights supply chain. Kiku directed traceability and certification at the Rainforest Alliance, later integrating Rainforest Alliance and Utz Certified. In 2000 she co-founded World Monitors, and launched the Fair Factories Clearinghouse, acquired by Worldly in 2023. Kiku is a director for the New York Solar Energy Society, former Foundry Theatre director, and on the Advisory Board for a biodiversity research project in Maui. She’s also a member of the ExCo of the INDEVOR Global Club and a founding member of the INDEVOR student club.

How do you perceive the significance of ESG for overall company governance and success?

My inclination is distinctly biased toward the complete integration of ESG into a company’s strategic framework. Over my 25-year career in sustainability, which began in my early 30s, I’ve consistently viewed ESG issues as pivotal business risks. Whether it’s human rights concerns or historical challenges like pollution, these have been part of our discourse for decades. ESG, in its current form, provides a more systematic and advantageous approach for companies, addressing risks while presenting new opportunities.
My focal point has always been ensuring a harmonious alignment of board strategy with the diverse opportunities encapsulated in ESG. For instance, aligning strategy with opportunities like electric vehicles or solar power significantly enhances the prospects of success. As we navigate the challenges of surpassing planetary boundaries, understanding dependencies becomes paramount, especially concerning supply chain risks. ESG serves as an invaluable framework, extending beyond immediate financial considerations to encompass societal values crucial for long-term health and value creation. While it may not yield immediate gains, I firmly believe that ESG plays a pivotal role in shaping a company’s medium and long-term success. This encapsulates the high-level, theoretical perspective I bring to the discussion.

What’s the key ESG misalignment between executives and non-executive board members, and how can non-executive boards effectively address and bridge this gap?

To start out: it is worth noting that not every board is the same! Boards may lack specific ESG knowledge, despite a noticeable rise in ESG discussions, especially in Europe. While board members may be aware of ESG matters, their proficiency in operational aspects could be limited. If an alignment gap exists, it might stem from a divergence in expertise between the board and the company. Turning to the second part, the ongoing discourse on ESG and the board’s agenda has prompted various training opportunities, though current materials often remain foundational. While non-executive board members may have a reasonable ESG understanding, the current imperative is to delve deeper into issues specific to their organizations. We’ve moved past the introductory stage, requiring executives and board members to engage in more profound discussions and tailored learning experiences aligned with their organizational nuances.

What crucial gap must boards address to achieve ‘ESG fitness,’ and how can they efficiently enhance skills in this area? What should Board Chairs prioritize to foster ESG competency among directors?

A significant source of strategic tension derives from a systemic conflict between traditional make-take-waste business models and ESG imperatives, and it calls for a reconsideration of practices, particularly in sectors like apparel, where a shift from linear to circular models is crucial. The challenge also involves the misalignment between financial incentives in capital markets and ESG principles, leading to decisions where financial interests clash with ESG perspectives.
Managing this tension falls to CEOs, who must present these complex issues for collective deliberation. Achieving complete alignment between ESG goals and financial objectives is a broad challenge requiring political attention, with the European Union’s regulatory initiatives seen as a potential model. For board chairs, the recommendation is to foster inclusive conversations across the organization, steering clear of siloed approaches. Integrating ESG considerations into the overall governance framework, whether through committees or alternative mechanisms, is crucial for a holistic and effective approach.

As 2024 approaches, what are the main ESG challenges for non-executive boards, and how can companies strategically address them?

The first imperative is fully integrating ESG into a company’s core strategy to avoid conflicting objectives, going beyond compliance to create a seamless integration into the broader strategy—a crucial safeguard amid evolving ESG landscapes.
A top challenge for multinational companies is to conform with emerging reporting requirements, including developments like the European Corporate Sustainability Reporting Directive . This is a substantial challenge for global companies grappling with various jurisdictional reporting requirements. While it entails significant investment and meticulous processes, it’s vital to perceive it as more than compliance—viewing it as a catalyst for progress and valuable strategic insights. This era compels companies to collectively comprehend and fulfil ESG commitments for transparency and accountability.
Then, as we approach 2030, the focus must extend beyond climate commitments to effectively implementing them. Despite substantial challenges, the innovation spurred by collective ESG focus, particularly in climate action, presents significant potential.
For governance, fostering innovation and welcoming solutions aligned with ESG goals, especially in climate-related initiatives, is a strategic imperative propelling progress and integration into the core of business.
Lastly, one emerging concern for boards is the emerging prominence of Biodiversity and Nature loss, with a “nature positive” movement addressing the alarming loss of biodiversity and the impending sixth extinction.

The interviewer:

Dr. Pamela Ravasio, Shirahime

Dr. Pamela Ravasio is the founder and managing director of Shirahime Advisory, a Corporate Responsibility Governance boutique consultancy. She serves as fractional Chief Sustainability Officer for companies and advises boards on ESG and governance. With a background in roles like Global Stakeholder Manager, she played a key role in making the European outdoor industry a leader in future-proofing.
She currently sits on the boards of Polygiene AB and INSEAD’s International Directors Network.

A discussion with INSEAD Professor Stanislav Shekshnia and IDN President, Helen Pitcher OBE

By Christiane Schloderer IDP-C, IDN Middle-East Ambassador

The role of a board’s chair is not new. Yet the picture of the “grand old man” making autocratic decisions of a company’s fate has long vanished. In times of unprecedented change and transformation requirements, the Chair’s role is gaining complexity – it resembles more a conductor who is “First among Equals”. Overall, the changes are substantial: faster, shorter, with more Zoom, especially with Covid putting a huge pressure on boards.

In an inspiring web session, Professor Stanislav Shekshnia, Affiliate Professor INSEAD presented the findings of his latest research around Chair best practices, with comments by IDN President Helen Pitcher OBE.

An effective chair

Focuses the board
Adjust the board’s processes and structures
Organizes the strategic process.

Focusing the board

Boards tend to get more pressure from the outside, but have limited time, energy and attention span. The chair’s role is to establish ways to determine how the board fucuses. Focusing a board is less about what to focus on, but rather how to focus.

Professor Shekshnia identifies four levers to establish focus:

Board purpose
Board agenda
Discussion questions
Evaluation

Purpose

Boards need a clear answer to a few fundamental questions like “Who do we work for? What do we try to achieve? What functions do we exercise? What are the Do’s and Don’ts for this board? And how do we measure ourselves?”.

Around 33% of survey participants during his research said they have discussed the purpose, half of them said they have changed it during the pandemic.

However, even more important than the actual purpose is to have a shared purpose. It’s the chair’s role to generate this by ensuring space for a healthy discussion around the board’s purpose. Putting the purpose in writing allows to continuously refer to it, it’s a yardstick for discussions, decisions and the agenda setting.

Agenda

A board’s agenda reflects the “right” issues: it fits the board’s purpose and its strategic. The topics under discussion should be material, they should have a long-lasting effect and should allow for a meaningful discussion. If the discussion topic cannot be handled within the time given in the board meeting, it should not be on the agenda.

Typical core topics of the board’s agenda are leadership, strategy, company configuration (where to invest in, what to divest), risks, ESG and sustainability and stakeholders (what, when and how to tell them).

Agenda setting can happen in various ways: the CEO proposes the agenda, the (very involved) secretary draws it, or the boards gives its own agenda. However, no matter who proposes the agenda, an effective chair owns and feels responsible for it. The chair has the last word.

Discussion questions

Once the board meeting is on, the chair’s role is to frame the discussion by formulating the question – a very powerful tool.

Effective chairs solicitate ideas from other board members before and after the board meeting, they provide context around the situation and the challenges involved, they frame the question to make it understandable to all board members and reframe if required. They also give each director enough space to develop their opinions, while ensuring that each director gives enough input.

Evaluation

The board’s evaluation ties up with the purpose: how does the board perform against the purpose and why is the board making decisions the way it is. Further evaluation topics center around the quality of the agenda, the board’s process, its decision making and the board’s fitness.

A combination of formal and informal evaluation proofs effective. Whereas a formal evaluation is conducted once or twice a year, after each meeting, informally it should be decided what to keep and what to change for the next meeting.

The core questions a board should ask itself is if it has collective time and energy to lead the company going forward. If the answer to this is no, drastic changes become necessary.

Adjusting the board’s processes and structures

As a consequence of focusing the board, adjustments to the board’s processes and structures might need to be required. Again, the chair should own the adjustment process, after taking input from other directors, the CEO, shareholders or other stakeholders. Changes to the external environment should be taken into consideration.

Emerging trends for adjusting the process are a hybrid form: face-to-face for substantial debate and virtual for more straightforward issues. The pandemic has forced shorter notice meetings with a more flexible agenda as well as shorter and more frequent meetings.

Emerging practices for adjusting the structure are an annual board competency mapping, temporary board committee, a nomination committee closely cooperating with the chair and drawing in experts.

Boards should match the strategy with the competencies of its board members whereas the chair would be strongly involved in building the board composition.

Organizing the strategic process

When looking at the strategic process between boards, chairs and the CEO, there is no one model. It depends on the context of the industry, the company and its competencies and the individual situation. The most common forms are as follows:

Board provides guidelines and approves strategy developed by management
Board develops strategy with heavy management input
Strategy committee proposes strategy
Joint board-management effort
Continuous strategic conversation at the board
Chair: leads, facilitates, makes sure it happens, supervises

Some boards define that strategy is being considered in a one-off meeting, other say that strategy never stops. The chair’s role drives, supervises, facilitates – it depends on the company. It is important that the chair, but also all other parties involved are clear and agree about each participant’s role.

The role of the chair

Covid has put a huge pressure on boards. It has often required a lot more of interpersonal contact between the chair and the rest of the board. Accordingly, the chair role has become more onerous in terms of time commitment as well as crucial role outside the organization with stakeholders.

A chair’s workload is probably double to other board members; yet chairs need to be careful not to overstep the boundaries into the executives. Chairs have the privilege of more information and thus find it easier to guide the executives. Being a chair requires a different skillset. “Nose in, hands out” is a good guideline, although there is a tendency that chairs work more according to “nose in, hands on”.

Follow on discussions

During the IDN call’s polls, the breakout room sessions and the following Q&A, generally similar views were exchanged:

Only 38% of participants responded positive about having a yearly discussion around focus, whereas 48% responded they do not have a yearly discussion around focus
However, 31% disagreed when asked if they have a yearly discussion around adjusting board processes and structures and 44% responded they do have a yearly discussion.
An impressive, yet not surprising majority of 86% are significantly more involved in strategy development since the pandemic started compared to earlier years, with only 3% disagreeing.
The new norm of short, but frequent video conferencing does not prevent drastic corporate restructuring from happening. Although a face-to-face interaction is likely preferred in that situation, results from a virtual format can be impressive too.
An active chair leads to inactive board members and vice versa. Not too weak, not too strong, not too cozy for the directors. A chair needs to keep the distance yet be available. Push, yet, let others drive. She or he should seek a healthy balance.
Yet, the chair role is pivotal to setting the right dynamic, keeping the board on track, ensuring the board remains functional.

After all, being a chair is a balancing act. It’s never straight forward.

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Tag Archives: #bestpractice #boards #chairs #corporategovernance

ESG x Governance (3): An ESG Executive’s Insights