GCs navigate a growing and evolving range of stakeholder demands and ESG targets
Society’s continued focus on sustainability is “rewriting the rules of global capitalism”, forcing general counsel to increasingly serve as a bridge to a more diverse range of stakeholders, according to a new report.
Lex Mundi’s annual thought leadership report which features findings from its most recent General Counsel Summit, determines that the pandemic has created a “catalyst for the simmering fragmentation of the business landscape”.
The 2022 report entitled Enterprise Values vs. Enterprise Value: Governance in an Era of Sustainable Transformation includes three key areas of focus: The Management Squeeze, The New Capitalism, and Supply Chain Integrity. Amongst the key findings:
- Corporate governance is less dictated by the board of directors and more by a range of stakeholders from varying backgrounds with wider interests and goals. This wider pool of stakeholders has resulted in an expanding number of key performance indicators coming to the forefront, including social and sustainable targets, which need to be balanced carefully with financial targets and regulatory compliance.
- The evolution of environmental, social & governance targets in corporate governance is unique in how quickly it has developed from being a voluntary internal standard to full legal requirement. GCs also noted the importance of recognising the infinite nature of ESG – there is no set end, and therefore it is important that they can look ahead of the curve for the next big flashpoint.
- Traditional Corporate compliance is one thing, but increasingly supply chain integrity is taking on equal importance – particularly as COP26 targets create greater exposure to the risk of modern slavery: The report highlights that supply chain compliance issues are at the heart of the ESG agenda and addressing these will significantly add to the responsibilities of general counsel.
- Fundamentally, commitments to sustainability cannot be perceived by employees to be simple talking points or “greenwashing” attempts by the board. All of this means that more responsibility falls on the board to have the competence to set the tone from the top – leadership is key to driving corporate culture and a company’s commitment to sustainability.
“The preeminence of the sustainability agenda is setting in motion an overhaul of the rules of global capitalism,” said Eric Staal, vice president (global markets) at Lex Mundi. “As part of the new economic paradigm, we have identified in the report how the model of corporate governance is giving way to a new model stakeholder governance.
“Much of the responsibility for managing this transition will lie with the general counsel, who will help corporate leadership teams balance this pressure with other business imperatives such as meeting financial targets and basic compliance. The real world trade-offs involved will naturally presuppose a heightened awareness of, and strategy to proactively manage the competing priorities of diverse stakeholders.”
The report concludes with guidance for GCs and their teams on the information and tools needed to balance the competing pressures whilst navigating complex risk management.