Measuring environmental impact, driving change & embracing diversity

Increasing diversity in your organisation, ensuring you understand the environmental impact of your business operations, and carrying out proper corporate governance are now essential, not optional, for companies’ survival, says Marianne Curphey.

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Marianne Curphey

21 September 2023

This article is taken from the Autumn 2023 issue of

Think Global People magazine

Click on the cover to access the digital edition.

View your copy of the Autumn 2023 issue of Think Global People magazine.

In January last year Aviva Investors warned the directors of 1,500 companies in which it held shares that they needed to show greater urgency in tackling issues including the climate crisis, biodiversity, executive pay and human rights. It said it would seek removal of company board members in the upcoming Annual General Meeting (AGM) season if they were not making progress.Regulators are also getting stricter about how organisations collect and publish data around their environmental, social, and governance (ESG) goals. As evidenced by Aviva, institutional investors are becoming more assertive with executives over their ESG credentials and customers want to know the provenance of the goods you sell.In an era of greater governance and awareness of green and environmental issues, companies need to think carefully about their purpose and impact. It is not only regulators who want to know that a business is taking ESG seriously – investors, customers, suppliers and staff are also taking a greater interest in governance credentials.“There is a growing importance of ESG in the business world, driven by investor focus and potential consequences for companies,” says David W Duffy, co-founder and CEO of The Corporate Governance Institute, an authority on corporate governance.“Investors such as Aviva are demanding positive developments in ESG from the companies they invest in and may seek changes in board or CEO positions if progress is not made,” he says. “Executive pay and compensation are also being linked to ESG performance.”Diversity, equity and inclusion (DE&I) criteria are also important considerations for managers and executives. There are new laws being implemented in Europe which require at least 40% gender diversity on boards – something which has been in place in Scandinavia for years. In November 2022 the European Parliament formally adopted the new EU law on gender balance on corporate boards. By 2026, companies will need to have 40% of women among non-executive directors or 33% among all directors.

Why are companies falling behind on diversity goals?

DIAL Global has now launched its ‘Annual Diversity Review’, revealing how some of the largest companies have increased their focus on diversity and inclusion, yet many factors including age, gender parity, socioeconomic status and sexual orientation are still lagging behind. The report found that there remains a 1:4 split of ethnic minority to white leaders.

Only 34% have 50/50 gender representation in senior levels.
Only 58% have LGBTQ+ representation on their leadership team.
84% now have a chief diversity officer or equivalent in place.

The report highlighted positive progress in lots of areas, with 84% of participating companies now having a chief diversity officer or equivalent role in place, and a significant increase in the number of companies with at least one member of their senior leadership team classed as being from an ethnic minority background. When women make it to senior leadership level or to a board of directors, on average they are still in the minority with only two out of five members being female. Leila McKenzie-Delis, CEO of DIAL Global, says businesses are recognising now that tracking and measuring diversity seriously ensures a more successful business performance.“It also allows them to see their reputation amongst current and prospective employees, customers and shareholders improve,” she says.

What can companies do to improve diversity?

Clarissa Valiquette, SVP of customer experience and solutions for DIAL Global, says organisations need to look carefully at their leadership culture and data, and then take action.“Throughout your employee life cycle, who is getting promoted, raises, and who is being overlooked? Who is making those choices? Take concrete action to fix the gaps you uncover and communicate often – be honest about what you found and what you plan to do about it and keep updating on progress.”Based on DIAL Global’s Impact Assessment study, employees are 70% more likely to stay at an organisation if they feel like they belong. But creating that sense of belonging across cultures, time zones and remotely is tough and she says active listening, honesty, humility and leading by example are the key skills that leaders need to manage and engage with staff.“Gen Z and younger Millennials will make up over a quarter of the workforce in the next two years, and this new breed of employees cares more about purpose and social impact than any generation before,” she says. “Diversity matters, not just because it is the right thing to do, but also because it fuels innovation, creativity, and growth. When we surround ourselves with other voices, we leave our echo chamber, become more flexible, and see solutions in a new light. Plus, we start connecting with others (clients, customers, etc) in a new way, and are able to meet them where they are – not where we assumed they would be.”Jon Holt, chief executive of KPMG in the UK, says building an inclusive and diverse workforce delivers better outcomes for clients, communities and colleagues. “We were one of the first businesses to publish our socio-economic background pay gaps, while also setting ambitious socio-economic background representation targets for leaders,” he says. “Last year we went further, publishing the largest analysis of career progression by a business, which found that social class is the biggest barrier to career progression, compared to any other diversity characteristic. The pioneering study reinforced why we, and every UK business, cannot afford to overlook socio-economic background in our mission.”

What is the importance of corporate governance in globally mobile companies?

Corporate governance is challenging for directors, especially in terms of understanding their roles, compliance with regulations, and the growing importance of environmental, social and governance (ESG) factors.There has been a change in focus among nonexecutive directors, who realise that they are under greater scrutiny than ever before.“As a result of some recent corporate governance disasters, people are more circumspect about going onto boards and taking on executive responsibilities,” David W Duffy says. “We have seen in the US, and in many other countries including the UK, situations where corporate governance has gone wrong. Compliance and regulation is driving a lot of change in regulated sectors like financial services, healthcare and pharmaceuticals.”In all industry sectors ESG has become a significant concern for organisations, and this is especially true for companies with employees and business models that cross continents. The Corporate Sustainability Reporting Directive (CSRD) came into force in the European Union in January 2023 and it strengthens the rules concerning the social and environmental information that companies have to report. Large companies and listed SMEs will now be required to report on sustainability and the first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025.Global bodies such as the World Economic Forum have also been at the forefront of ESG, arguing that strong ESG polices create a more healthy and inclusive world in its April 2022 report, ‘Investing in Health Equality’.However, David W Duffy says collecting accurate ESG data and ensuring its veracity is a major challenge for organisations, and they need to be cautious and avoid greenwashing.

What are the pitfalls around corporate governance?

Tom Mercer, commercial director at GAIN LINE, is a leading tech and business growth expert and has helped hundreds of businesses evolve for the future providing bespoke services in digital marketing, tech advice and leadership management. He says there are a number of significant corporate governance pitfalls that companies need to be aware of:

Risk of fraud and corruption – Companies with poor corporate governance are more likely to be involved in fraud and corruption. This can lead to financial losses for shareholders, as well as damage to the company’s reputation.
Lack of transparency – Companies with poor corporate governance are less transparent about their activities. This can make it difficult for shareholders and other stakeholders to hold the company accountable.
Poor decision-making – Companies with poor corporate governance are more likely to make poor decisions. This can lead to financial losses, as well as damage to the company’s reputation.
Increased risk of shareholder activism – Shareholders of companies with poor corporate governance are more likely to become active and demand change. This can make it difficult for the company to operate effectively.

“Good corporate governance is essential for companies that want to be successful in the long term,” he says.“By following the best practices of good corporate governance, companies can minimise the risk of fraud and corruption, improve transparency, make better decisions, and reduce the risk of shareholder activism.”

Governance is about equality and a robust framework

On a governance level, companies need to report on the gender pay gap in the UK, as well as complying with new EU rules on ensuring that suppliers have paid their staff a living wage.“If you see a board with the same people for 20 years, that is concerning,” David Duffy says. “Diversity around the boardroom table is not just about gender or ethnicity, it is about getting the right minds and real independence of thought,” he says. “If you want your culture to change, then look at your staff, where they come from, where do your customers come from? Collect some data to try and figure out what skills you need to look after your staff and your customers. Diverse boards tend to make better decisions compared to all-male boards.”Tom Mercer says that whilst there are some risks to wrongly managed corporate governance, there are a number of examples of companies with good corporate governance. Some of these include:

The Coca-Cola Company has a strong corporate governance framework that is designed to protect the interests of all stakeholders. The company has a board of directors that is made up of independent directors, and it has a code of conduct that sets out the standards of behaviour that are expected of all employees.
Apple Inc. has a robust corporate governance framework. The company also has a board of directors, and it too has a protocol that outlines the necessary standards required.
Microsoft Corporation, like Apple Inc. has an impressive corporate governance structure.

“Microsoft’s corporate governance structure is designed to protect the interests of all stakeholders, and the company has a board of independent directors with a strict code of conduct in place,” he says.

What are the emerging trends in global corporate governance?

While regulations do differ around the world, there are a number of trends which board members and executives need to be aware of and plan for:Decoupling: some countries are reconsidering their business relationships with others, for example there have been ongoing trade tensions between the US and China. Countries that trade widely with other states may need to think carefully about their supply chain security, as well as the potential impact of tariffs, taxes and price increases for services and raw materials.Investor activism: Aviva Investors has warned that it wants to see positive developments in ESG in the companies in which it invests. It manages £262 billion in assets including savings and pensions and is a big shareholder in many leading companies.“There have been many recent examples of poor governance in UK companies”, David W Duffy says, “with Carillion, Patisserie Valerie and Kids Company among those which have hit the headlines. We don’t want to see the consequence of poor governance for the staff, which could put them out of jobs.”While this type of activism affects companies which are listed on the stock exchange, it also has implications for smaller private companies. Customers, employees, suppliers and stakeholders are increasingly aware of the importance of ESG and want to work for or deal with a company that can demonstrate its commitment to change.

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