Environmental, Social & Governance Briefs

Latest Research from the Governance & Sustainability Center

May 14, 2019

During the last month, the Governance & Sustainability Center released five pieces of research that cover corporate board practices among Russell 3000 and S&P 500 companies, business media perspectives on the director’s job description, the idea of extending ethical business principles to digitalization, how ESG raters miss rating governance and how standardized social outcomes can measure the impact of societal investments.

This research is available to all members of The Conference Board and its newly named Governance & Sustainability Center.

Corporate Board Practices in the Russell 3000 and S&P 500: 2019 Edition (April 2019)

This annual benchmarking report documents corporate governance trends and developments at boards of 2,854 companies registered with the SEC that filed their proxy statement between January 1 and November 1, 2018 and, as of January 2018, were included in the Russell 3000 Index, as well as select findings from 494 companies listed in the S&P 500.

Here are some insights from the report:

• Directors are in for a long ride: their average tenure exceeds 10 years. About one-fourth of Russell 3000 directors who step down do so after more than 15 years of service. The longest average board member tenures are seen in the financials (13.2 years), consumer staples (11.1 years), and real estate (11 years) industries.
• Corporate boards remain inaccessible to younger generations of business leaders, with the highest number of directors under age 60 seen in new-economy sectors such as IT and communication services. Only 10 percent of Russell 3000 directors and 6.3 percent of S&P 500 directors are aged 50 or younger, and in both indexes about one-fifth of board members are more than 70 years of age. These numbers show no change from those registered two years ago; nor do the numbers on the adoption of retirement policies based on age: only about one-fourth of Russell 3000 companies choose to use such policies to foster director turnover.
• While progress on gender diversity of corporate directors is being reported, a staggering 20 percent of firms in the Russell 3000 still have no female representatives on their board. Moreover, even though women are elected as corporate directors in larger numbers than before, almost all board chair positions remain held by men (only 4.1 percent of Russell 3000 companies have a female board chair).

Just What Is the Corporate Director's Job? Business Media Perspectives (May 2019)

The latest installment in the corporate director job description stakeholder perspective series focuses on the business media. Members of the business media have an idealized view of how the board should conduct itself, so they are frequently disappointed by what they perceive to be the reality. 

Here are some insights from the report:

• Creatures of the CEO The media is disappointed by many of public company board actions. They believe most board members are creatures of the CEO and vice versa. They believe CEOs have the most power to choose who sits on the board.
• Board staff The possibility of corporate boards having their own support staff has been raised by many public company stakeholders. Such a resource would help boards better vet and complement the information they receive from management.

Sustainability Matters: Beware the 80/20 Governance Trap: Focus on the 'G' in ESG (May 2019)

In this Sustainability Matters edition, the author analyzes the Pacific Gas & Electric (PG&E) bankruptcy filing as an example of how ESG raters missed the governance impacts of the California wildfires while focusing on the environmental and social impacts. The report’s author calls it the 80/20 governance trap. Companies may be able to measure 80 percent of environmental and social impacts but only 20 percent of governance impacts, according to the report.

Here are some insights from the report:

• The PG&E climate-change related bankruptcy shines a spotlight on what should be obvious: managing climate risk (or any environmental or social risk) is predominantly about governance. The problem with governance is that few people seem to understand it.
• Almost all companies today manage environment, social & governance (ESG) at the periphery. They treat ESG as serious stuff, assign C-suite oversight, publish sustainability reports, invest time with ESG raters, discuss the stuff at the board, and lots more. But ESG is still managed at the fringe.

Sustainability Matters: Responsible Digital -- Extending Ethical Business Principles to Digitalization (April 2019)

In this Sustainability Matters edition, the author provides an overview of issues that companies need to consider as part of their digital transformation journey, including upskilling and retraining the workforce; health and well-being issues related to constant connectivity; ethical data practices to build trust; transparent and trustworthy artificial intelligence; and managing environmental impacts of digital and technology.

Here are some insights from the report:

• Technology is advancing faster than regulatory constructs. With government regulation lagging, technological outcomes depend on how businesses develop and apply them. It’s important that companies fill that gap by complementing their digital transformation journey with a governance arrangement that drives ethics and builds trust.
• Will technology and digital transformation alleviate environmental problems or exacerbate them? Companies need to be aware and mindful of resource use and the environmental impact of bringing technology and digital into existence. Electronic waste (e.g., products) and energy use (e.g., data centers and cryptocurrency) are two key areas where companies can affect environmental outcomes.

Toward Standardized Social Outcomes for Companies (April 2019)

This new pilot study from The Conference Board and the Impact Genome Project^® introduces standardized social outcomes to help measure and compare the performance of societal investments. The standardized outcomes allow for benchmark metrics, including efficacy rates and cost per outcome. The study used data from 16 companies whose funding contributed to nearly 650 nonprofit programs. The benchmarks provide new insights into the effectiveness of corporate societal investments.

Here are some insights from the report:

• Most nonprofit programs supported by companies in the pilot benchmark are effective All 14 social outcomes returned an efficacy rate of over 60 percent, meaning that most participants in the programs achieved the targeted outcome. Eleven outcomes returned efficacy rates of over 80 percent, demonstrating strong success.
• Education is the social impact area in which companies pursued the broadest array of social outcomes Companies have shown interest in investing in a range of different levels of education, as they seek to spark interest in topic areas such as STEM (science, technology, education, and math) and develop the next generation of talent. Combined, these investments account for the largest portion of most corporate philanthropy budgets.