Risk has always been tricky. Understanding new and emerging risks to business during a pandemic that impacted the lives of so many globally has added a new layer of complexity. Transitioning entire workforces to remote working, building resilience and business continuity while transforming business models, and solving societal challenges – all pressing matters unearthed by the COVID-19 pandemic – raised the question:
Q: “Have businesses’ responsibilities to society changed – and, what do you see as the role of the board in response to this?”
Robin Stalker, supervisory board member and member of risk and audit committees, including for Commerzbank -
“Boards need to be much more aware of the responsibility we have to society. And if we don't do that practically, society will force us. For example, since the pandemic there’s been an increased recognition of the responsibility that businesses have for not only their direct employees but also those in the supply chain. So, there will be heightened focus on wages and working conditions across businesses’ entire supply chains. Boards can ensure management takes this into account by, for example, making executive bonuses contingent on looking after their global workforce, reducing carbon emissions, or other factors that address society’s challenges and ensure the long-term sustainability of the business.”
Jillian Broadbent, non-executive director of Woolworths Limited and Macquarie Group Limited -
“COVID-19 has made boards recognize what I call true value and the importance of social responsibility. I am the chair of a large supermarket and because everyone had to be fed, they really tried to assist people in meeting their basic needs, while protecting employees at the height of COVID-19. The general public’s understanding of the essential role that companies can and should play in supporting the social structure has increased.”
Francis Small, non-executive director, including for the British Business Bank -
“Now is a great time for businesses to revisit their purpose. In particular, the importance of looking after employees has risen, as they’ve been hugely affected by COVID-19. Part of this is about basic health and safety, but looking after employees goes much further. It’s about creating a great employee proposition, such as allowing them to work from home for longer periods in the long-term and providing them with adequate training and counseling.”
Alfonso Gonzalez Migoya, board member, including for Volaris -
“COVID-19 has made boards realize that they need to do more to look after their employees’ health; and not just their physical health, but their mental health too. This means taking measures to reduce stress and improving peoples’ work-life balance. Employees that are happier in their work more effectively contribute to enriching the business as a whole.”
The days are gone of boards thinking about risk purely in relation to shareholder value. Directors today must consider their role in mitigating risks to a broad set of stakeholders, including employees, customers, suppliers and wider society, with a distinct purpose in mind. This is vital because societies demand greater responsibility from the organizations they work for, buy from and invest in. We call this long-term value creation.
Encouragingly, the insights from board directors indicate purpose is now firmly on the boardroom agenda, with COVID-19 bringing into sharp focus the interdependencies between business and society. Any boards previously not paying attention to long-term value must now put it front and center of their discussions, or risk capital and talent shifting towards businesses that do.
With management likely focused on recovery and survival in these uncertain times, boards have a vital role to play in instigating conversations about long-term value. They should start by working with management to define a purpose that underpins the business. Then they need to establish ways to measure long-term value creation. This, as Robin Stalker mentioned, may include rethinking management KPIs.