Transcript | The Board’s Role in Building a Culture of Sustainability

Corporate culture, once a rather squishy, hard-to-define concept for organisations, increasingly is a top-of-mind concern for leaders looking to create a desirable workplace for innovation, and one where employees who have many choices want to remain long-term. The challenges are especially acute amid the current war for talent and the need to attract and retain the best people. Part of building a strong culture is focusing on sustainability, an issue of particular interest to multi-generations of workers who have varied interests and concerns, including those related to ESG, human rights and climate change.

This is Kevin Donahue, a senior director with Protiviti, welcoming you to a new edition of Board Perspectives. In this episode, I had the pleasure of interviewing Protiviti’s Fran Maxwell and Kim Lanier about the board’s role in building a culture of sustainability. Fran is the global leader of Protiviti’s Workforce and Organisational Transformation segment within the Business Performance Improvement solution. Kim is a director and leader in this group.

Kim, thanks for joining me today. It’s great to speak with you.

Great to be here, Kevin. Thanks for the invitation.

Fran, it is great to speak with you as well.

Thanks for inviting me, Kevin.

If you rewind five to seven years ago, boards and the C-suites of organisations rarely talked about culture. It was squishy. It was hard to define. It was hard to measure. As we’ve moved through the pandemic, and even prior to the pandemic, we’ve seen organisations focus on a broad range of cultural topics, all the way from cultural transformations where organisations that maybe were risk averse now need to become more innovative.

A culture shift is a change in behaviors. So, what are the behavior changes that need to go with a cultural shift like that? We’re also seeing basic cultural work now that we’re hybrid, or organisations have been fully remote for a period of time, and how do we do that care and feeding for our culture that makes us unique? We’re seeing the broad breadth of it. It’s important for boards to address because it’s, at the highest level, what behaviors do you want your people to show in your organisation? How do you want them to behave? That’s something that should be driven top-down.

Kim, what are your thoughts on this?

Well, building on what Fran was sharing, what I want to put an exclamation point on is that culture has become a defining issue in this era of the Great Resignation for employees who have a choice. They’re looking for an organisation where it has the right workplace policies — remote, hybrid, in-office work. They want flexibility. They’re looking to align themselves with companies whose purpose and values match their own, and they’re looking for places where there is an employee experience that demonstrates that the company cares about them as individuals.

That’s never more important than when you start segmenting the workforce, and you start looking at Generation Z and millennials that are becoming more and more part of the workforce and getting into that management level. They are tired of being resilient. They want support and genuine change. They’re struggling with financial concerns. They’re burned out. They have mental health challenges, and they’re pushing for more purposeful and flexible work. They want their work to also help extend their social goals, like in climate change. They’re focused on the cost of living, climate change and mental health issues. So, in this era of the Great Resignation, where employees have a choice, it becomes more and more of a leadership issue than it even has been in the past, as a key driver of being able to attract and retain the very best talent for the organisation.

Kim pulled out something important, which is the generational divides in the workforce right now. It’s not unusual to have multi-generations in the workforce. That’s pretty common. What’s unusual in this time is the vast differences in what’s important to those various generations. So, the Gen Z folks, the millennial folks, are much more socially conscious than the baby boomers and the previous generations. That ties importantly back to sustainability. I’ve certainly interviewed a number of early-in-their-career folks, and they ask questions around, “What are you doing around ESG?” “What’s your environmental policy?” “What are you doing around human rights globally?” — a very different mentality than generations before.

Well, Fran, just to accent that, I recently read a study by the World Economic Forum stating that 58% of employees now consider a company’s social and environmental commitments when deciding where to work. That’s a staggering amount. That’s well over half, and three times the number of employees are more likely to stay if they are aligned with organisations with strong ESG principles. So, it’s not only an element of attraction. It’s an element of retention as well.

You’ve underscored perfectly why boards should care, especially with the war for talent. If you want the best talent in your organisation, you need to care about these things.

Yes.

What I find interesting is that this has been on boards’ radar for a while, even though it’s been magnified as of late. Protiviti has participated in a number of board member roundtables and discussions. We’re talking about the top strategic risks for the organisation and, far more often than not, attracting and retaining the right talent. Succession plans was up on their radar. This clearly is something boards have been a paying attention to, and now even more so.

More and more, Kevin, are. There was a time there where it might have had more of a token spot on the board agenda. More, you have a number of different factors converging all at once, between the Great Resignation, the emergence from the pandemic, the economic factors, but also the fact that investors are driving the need for enhanced ESG practices and programmes. There are more and more studies that indicate that those who do have them have a stronger financial performance. So, as Fran said, again, this circles back to why this is elevating itself, instead of being a footnote, to the top of the board agenda.

Kim, let me ask you this: In our Board Perspectives podcast series, we’re talking a lot about ESG and sustainability. Can you define for us what a culture of sustainability means to an organisation?

Yes. Kevin, it’s one of those things where it’s different for every organisation in terms of how it is put into practice, but for those who want to have strong ESG practices, they’re setting ambitious goals. A culture of sustainability means ESG principles are wired into the DNA of a company’s priorities, how they operate, how they make decisions. A culture of sustainability means focused efforts to engage all the stakeholders, investors, regulators, analysts, supply chain partners, leaders and of course the workforce. It impacts so many people inside the organisation.

It’s key that the workforce needs to understand, embrace, participate in and in some cases lead some of the initiatives. Set goals and apply metrics to be accountable, up through the organisation and to the board level. Most importantly, define the role and expectations the company has of all of its employees, because this is about setting the standard at the corporate level that we all have to take individual responsibility for our behavior, whether we’re at work or whether we’re at home. It’s having all of those elements wired into the DNA of the organisation. Fran, do you have any additional thoughts there?

First, I totally agree with what you just said. I would also call out that it’s a journey. It’s not like you can snap your fingers and one day have a full culture of sustainability. Developing a road map on how to get there over time makes a ton of sense, sharing what that road map looks like, having the right metrics in place to hold each other accountable. I do think the best place to land is ensuring that sustainability metrics are part of your senior leaders’ performance plans. So, going to the old adage, what gets measured gets done. If you measure your sustainability objectives and tie that to your senior leaders’ goals, generally, those goals will cascade throughout the organisation, and at some point, then you have that culture shift you’re looking for.

That’s a great point. One of the things that often gets overlooked is taking the time to also communicate those to every level of the organisation, from the janitor all the way up to the CEO. A lot of times, those metrics tend to be very important at certain management levels, but it’s important that the organisation as a whole can follow and track progress, and hold themselves accountable to contributing to those goals.

That’s great information. Although you’ve touched on some of these things, there probably are some practical areas that would be great for board members to hear. Fran, what are some key attributes to consider when creating this culture of sustainability that both of you were just describing? I also want to ask, what are boards doing, or what should they be doing, to drive that culture throughout the organisation?

One of the key attributes — and, frankly, it’s an area that organisations don’t spend enough time on — is aligning the leadership on what a culture of sustainability looks like, aligning on what success looks like. I can’t tell you how many times I’ve been consulting with the C-suite, and we’ve asked what success looks like to a room of four, six or eight people, and we’ll get four, six or eight different answers. It’s extremely challenging to be successful if you don’t know what success looks like. I know it sounds elementary, but starting at that basic level of alignment makes perfect sense for boards, and then to push that through the organisation.

That’s so key, Fran, in terms of not only defining what success looks like but also underscoring the right level of priority that the organisation should have on these ESG initiatives. Companies are drinking from a firehose in terms of all the different initiatives that they have going on, and it’s up to the board to establish and drive the priorities for the leadership and for the organisation as a whole.

Yes. I also think it’s important to know what you’re driving toward. Organisationally, we’ve done a fair amount of materiality assessments, which help organisations figure out where they should prioritise their ESG efforts. Not only alignment but also having an understanding of what’s important to your organisation’s success, what’s important to your stakeholders’ success, helps drive what that road map looks like. It helps drive where the organisation is heading. You want a destination. It is a journey, but you want to be heading in the same direction. Having answers to those variables is key to organisations so that they can head off in the right direction.

Fran, you just brought up a great topic, which is the materiality assessment. I’ve seen a number of them done for organisations. They’re a critical part of getting started down the right path with an ESG solution, because rather than a board imagining what the priorities should be, rather than leadership trying to randomly pick things that they think are important, a materiality assessment takes the time to assess what all the stakeholders think is important. That can inform the board to make the best decisions and then, hence, prioritise it the right way.

Yes. Again, it just helps organisations understand what the stakeholders want and need. It’s better than guessing, to your point, Kim. Having that information is powerful.

Yes. So many companies are just always concerned about, “How do I get started? It’s such a big topic. How do I wrap my arms around it?” It’s just a great tool to be able to do that.

Yes — I couldn’t agree more.

Fran, you mentioned sitting down with some clients, and they have four to six or eight different responses. Let me ask you this: What are some of your clients’ top concerns right now as it relates to developing this culture of sustainability?

Kim alluded to it earlier. Oftentimes, it’s not knowing where to start. There’s a consensus from organisations that we need to be doing more as it pertains to sustainability, whether it’s pure environmental or it’s social-related. There’s this theme of needing to do more. The top concerns are, are we doing the right things, are we engaging our stakeholders, are we engaging our employees, and then the how: How do we move from where we are now to more of a culture of sustainability? Those are probably the top themes that we’re seeing right now. Kim, I would love your thoughts.

I completely agree. It’s still early enough in the process. We see some clients that are a little bit further than others in the maturity continuum of implementing ESG. We see some that have made very ambitious statements about wanting to be in the top quartile or the best in the world at ESG. Those have more sophisticated needs, like, “How do I train my workforce?” “How do I get all my 30,000, 40,000, 50,000 people on the same page all at once?” So many of them, especially those companies that are just going public or that may be privately held that want to follow along and equally be committed to the concept of climate change, are struggling with that “How do I get started?” The tendency is to focus on those E factors and G factors that are more concrete, but it’s those S factors right in the middle that a lot of research shows will help elevate both the E and the G sides, because those are the people factors and that gray area.

This has just been a terrific conversation. Thank you both for your insights. I have one more question. Kim, I’ll pose this one to you. Many of the issues you’ve been talking about around culture, sustainability, what people are looking for, let’s face it: Not every one of those is going to be the day-to-day responsibility of a board member to manage, but they certainly set the tone, and they provide the oversight. So, with that understood, what are some of the key takeaways for board members on this topic?

Fran hit on some of those earlier in the conversation. Boards are interested in sustainability because sustainable business practices result in better financial performance. They’re interested because corporate leaders have to be able to explain now more and more to their stakeholders what role the company is playing in addressing societal challenges. Key takeaways for the board, since they enable sustainability in the enterprise, I can think of four of them.

One would be to be educated, whether it’s the company educating you or getting education from the right journals, the right articles, to understand material ESG risks and opportunities that the business has, and dive into understanding that for their organisation. The second is to prioritise ESG risks and opportunities appropriately. There’s a lot on the board agenda. There’s a lot on the company strategy and business plan. So, that’s why that education is so important, because it’s the board that drives the priorities.

The third is to oversee key ESG risks and the opportunities, and hold leaders accountable for the KPIs that have been established. That oversight is a core for responsibility. The last element is around disclosure — from an ESG perspective, what should be disclosed inside the organisation, what should be disclosed outside the organisation to different stakeholders, and the board needs to own those narratives that are being developed inside and outside the organisation.

Once a board decides it needs to act, directors often struggle on how to decide what to do and how ambitious to be. That partnership between management and the board, and those four elements, are what’s going to push forward ESG efforts inside of an organisation. I want to wrap up by going back to something Fran said, which is, this is a journey. There should be a road map. You’re not going to get all the way to great in the first six months, probably not even in the first year or two. It’s an ongoing journey.

You stole my thunder a little bit, Kim, but that would be the key takeaway. This is an area that’s continuing to evolve, so understanding that it’s a journey and not a destination. Then I love the idea of KPIs and measuring those. I wouldn’t get married to them, though. What I mean by that is, as things evolve, you want to evolve with them. That’s the part of the journey and not quite a destination.

I totally agree.

My thanks to Fran and Kim for joining me today. There are a number of great takeaways they offered. This is about the journey, not just the destination, and it’s about having a strategy and a clear road map, and it’s certainly about the boards setting the right tone and having the right discussions with their management teams. To learn more about ESG-related topics that Protiviti has covered in its thought leadership, please visit Protiviti.com/esg. I also encourage you to visit our organisational transformation and employee experience sections at Protiviti.com. Finally, I encourage you to subscribe to our Board Perspectives podcast series and review us wherever you get your podcast content.