Effective leaders understand that for businesses to thrive in any environment, they require stewardship – the careful and responsible management of assets, liabilities, intangibles and equity. As such, they act as corporate stewards to preserve, protect and increase value over time.
Climate|ESG and Sustainability|Work Transformation|Health and Benefits|Inclusion-and-Diversity|Employee Experience|Benessere integrato
ESG In Sight
Amid a backdrop of uncertainty and disruption, investors increasingly are pressuring boards and management teams to be more effective long-term stewards of the enterprises entrusted to them and more responsive to the constituents they serve. Some of this pressure has led to debates about the efficacy and wisdom of ESG; while these debates are important, they focus on a limited range of topics within the broader context of stewardship and can be fraught with ideology (on both sides).
Leaders of successful organizations are responsible for a much broader range of issues and focus on objective performance and protection priorities (in addition to purpose, people and planet) that are essential to fully capture the business fundamentals needed for long-term resilience, viability and growth.
As such, stewardship today has evolved into an overarching principle that incorporates five key elements: performance, protection, people, planet and purpose.
Performance: Strong, consistent and sustainable financial performance and value creation are essential for an organization to responsibly serve all stakeholders and pursue a broader purpose. Given the legal structure in which companies operate – publicly traded companies in particular – organizations must satisfy ownership interests to remain viable. Those that fail to fulfill such interests do so at their own peril and at the peril of other stakeholders. Effective leaders put performance first not because it supersedes or dominates other elements of stewardship but because without performance, no business can survive.
Protection: Today’s boards and leaders are more attuned to risk and have higher expectations and requirements for effective risk management. Over the last several years they have experienced multiple low-frequency, high-impact events arising near-simultaneously: cyberattacks, a global pandemic, financial shocks, spiking inflation, a series of “hundred year” weather events, social and political disruptions, supply-chain imbalances and significant labor shortages. Managing risk means constantly identifying and anticipating threats, preparing for the unexpected and being ready to act decisively when needed. Enterprise risk management is as important as performance to the long-term sustainability of most organizations.
People: Effective leaders understand that a healthy, diverse, skilled and engaged workforce is essential for long-term business viability and success – and is therefore a key element of stewardship. Effective stewardship requires at least as much focus on people as has historically been placed on physical assets, products and brands.
Research demonstrates the strong connection between company performance and human capital measures, with companies that score high on key human capital metrics consistently outperforming their peers on financial and value measures. Stewardship of human capital requires increasingly sophisticated and meaningful data and metrics, including such measures as demographics, cost, turnover, productivity and diversity. More sophisticated measures analyze the quality and condition of people assets – employee experience and engagement, pay equity, benefit access, opportunity for career and pay advancement, key skill levels and gaps, dimensions of wellbeing and succession planning.
Planet: Leaders face new challenges in terms of climate change and the transition to a net zero economy. The frequency and concurrence of climate events continue to increase, and the demands for climate transition goals grow. Stewards act to understand and quantify their organizations’ environmental impact as well as to address the multi-dimensional and multi-temporal aspects of climate risks in their strategies. Examples include physical and liability risks to people and property arising from extreme weather events, biodiversity challenges and transition risks emerging from the impact of changing strategies and operations during the move to a low-carbon economy.
Effective leaders understand the impact of these risks to people, operations, financing, capital allocation and enterprise value and take steps to mitigate them. Climate analytics enable leaders to make robust decisions by enhancing transparency and reducing data gaps. Because people are critical enablers of both sustainability and risk management efforts, stewards focus on people-oriented interventions to help achieve climate goals.
Purpose: Effective leaders understand that purpose and profit are interdependent as investors increasingly emphasize intrinsic value and long-term economic health. They also understand that being purpose-driven does not mean abandoning business principles for social issues. Rather, they acknowledge that corporations generate profits and long-term value by creating benefits to society, developing new vaccines and drugs, distributing essential goods, providing capital, providing nourishment and powering cities. Organizational purpose drives constancy in company culture even while markets, business models and daily operations transform. The purpose-driven action of stewards helps connect employees’ and customers’ values to those of organizations. It includes creating cultures, programs and experiences that help employees achieve their health, wealth and career priorities.
Effective leaders serve as stewards to support the essence of capitalism, with leadership actions focused on both short- and long-term value creation, viability, stability, financial performance and growth.
A version of this article originally appeared on Forbes.com on November 30, 2022.
