Having a purposeful purpose: Governance outtakes

If you missed the Air NZ Power Breakfast session on the ‘S’ in ESG at the 2023 IoD Leadership Conference, we’ve captured some outtakes. The ‘Social’ breakfast featured Tania Te Rangingangana Simpson CFInstD, Jackie Lloyd CFInstD, Craig Stobo CFInstD and Dr Helen Anderson QSO CFInstD.

Their discussion highlighted some key themes and raised questions for directors to consider about how they are addressing social impacts in their organisations.

There’s no better way to start the second day of a conference than with a hot coffee and a hot topic. The Air New Zealand Power Breakfasts offered up food for thought around social, environmental and governance matters and their relationship to long-term performance and value creation.

The Covid-19 pandemic sharpened our collective focus on many social factors that impact on our organisations – health and safety, culture, CEO succession, remuneration and rewards, employee relations, talent management and retention, and more. Similarly, investors and stakeholders are increasingly scrutinising and challenging businesses on areas including supply chain integrity, staff safety, modern slavery, gender equality, human rights, and engagement with mana whenua.

In essence, social is all about people – inside and outside of your organisation – partnerships, contractors, employees, customers, suppliers, shareholders, stakeholders, investors, advisors – our organisations are inextricably connected to people.

Research undertaken by the British Academy in 2018 concluded that the purpose of business is to be purposeful; to solve the problems of people and planet profitably. They argued that purpose should be at an organisation’s core, and that a purposeful business will organise itself on all levels according to its purpose.

In the IoD 2022 Director Sentiment Survey, changing customer and community expectations were front of mind for directors and boards, as was their organisations’ social impact. 60% of directors said changing customer expectations was the most important future trend their boards were paying attention to, and 69% of directors reported strategically discussing their organisations’ social impact and values. With changing customer and community expectations, organisations are increasingly reflecting on their purpose, value proposition, social license to operate and business model.

Converting these discussions into action requires leadership from directors and boards. While some of these discussions and actions might be uncomfortable or even costly, such as changing suppliers or reporting pay gaps, doing nothing is no longer an option and potentially could have bigger financial impacts. Given shifting stakeholder expectations around stances on social issues and the potential reputational and financial consequences of poor decisions, directors must consider their organisation’s capacity and strategy for addressing these issues.

Tracking the benefits of social impacts can be hard. Despite the lack of international standards or frameworks to support reporting, many organisations are using the UN’s Sustainable Development Goals, Treasury’s Living Standards Framework, or their own metrics. However, organisations are under increasing scrutiny and organisations are being called out for “social washing” – presenting themselves as more socially responsible than they are in practice. Tokenism or attempts to conceal, such as place of production of goods, can lead to consumer dissatisfaction, decreased trust, reputational damage, problems attracting and retaining employees, and even legal repercussions.

For a community to value a business, the business must value the community, and this starts from the top. Organisational culture is set by the board. Directors lead through high standards of ethical behaviour, commitment, candour and integrity, and is characterised by effective relationships between directors and with management, shareholders and stakeholders.

Is your board regularly discussing social issues most relevant to your organisation, stakeholders and industry?

Some practical guidance for boards:

Purpose: Does your organisation have a meaningful purpose that your stakeholders can genuinely connect with? Is it transformational, striving for something better, solving societal problems? Do social impacts align with your purpose, mission and long-term vision?

Supply chain: Have you conducted an assessment of your suppliers and partners? Do you promote responsible sourcing practices throughout your supply chain and hold suppliers accountable for meeting standards? How are you supporting local and/or creating additional value out of your purchases of goods and services?

Investments: Are your investments aligned with your values and those of your shareholders and stakeholders? Are there opportunities for socially responsible investing? How well are your investment managers integrating responsible investment?

Employees: Have you considered your employment and labour practices? Is staff well-being, mental health and work-life balance being prioritised? Do you provide a safe workplace, compensate workers fairly, remove barriers for people with disabilities, provide training and development opportunities, and treat people with dignity?

Stakeholder engagement: Do you actively listen to the needs of your stakeholders? Do you promote and provide opportunities for them to engage with and provide feedback to you?  Are you telling your story to your stakeholders? Are you tracking, monitoring and publicly reporting on key social metrics?