Peter Dey and Sarah Kaplan propose 13 guidelines for corporate boards to address the challenges of the 21st century.

In 1994, The Toronto Stock Exchange (TSX) accepted a new set of guidelines for board governance as developed in the report, “Where Were the Directors?” Triggered by the mixed response from the Canadian corporate sector to the stresses of the 1990-91 recession, the guidelines were meant to urge boards of directors to align with growing expectations concerning the manner in which boards are constituted, and the relationships between boards and shareholders.

In the face of climate change, rising economic inequality, systemic racism and the COVID-19 pandemic, it is once again time for a new set of guidelines. While the 1994 guidelines — which concern best practices around board independence and oversight — continue to be relevant, they served the governance needs of the 1990s. Two-and-a-half decades later, we ask, Where
is the leadership in a world in crisis?

The guidelines we have developed in response to this question are based on the principle that companies must account for the interests of all stakeholders — what we call 360º governance.
They also reflect a similar sense that, as in 1994, Canada must upgrade its corporate standards or risk being left behind.
New Era, New Standards

The year 2020 forced a reckoning about the role of the corporation in society, and along with it, the responsibilities of senior leaders to the corporation’s myriad stakeholders. It is increasingly
clear that corporations depend on a wide variety of stakeholders to function effectively: Customers, the planet, workers, communities and others offer the resources and markets required to grow businesses. And, while corporations contribute jobs, innovation and economic growth, they have also contributed to creating or exacerbating social problems like climate change, income inequality, gender inequality and the opioid crisis.

Too often, these social costs have been treated as ‘externalities’ outside of the scope of action for companies. At a time when a company’s primary responsibility has been to produce short-term
returns to its shareholders, these issues have been dismissed as ‘the cost of doing business’. Yet, for an accumulating set of reasons, stakeholder concerns are now corporate concerns.

The COVID-19 pandemic — and resulting health and economic crisis — has only exacerbated schisms in society. But it has also given us a prime opportunity to build back better. Rather than getting back to ‘normal’, we need to envision an economy that works for everyone.

REGULATION AND LEGISLATION. Given the severity of the many crises on our hands, governments at all levels are increasingly changing the rules of the game for Canadian companies. Recent examples include the Ontario Securities Commission (OSC) instituting ‘comply or explain’ regulations for women on boards and executive leadership in 2015, and this has been followed by federal legislation covering women and other underrepresented groups. In December 2020, the federal government announced additional carbon taxes. Proposed changes from its Expert Panel on Sustainable Finance and the Ontario Capital Markets Modernization Taskforce include corporate reporting that conforms to the Task Force on Climate-related Financial Disclosures (TCFD) guidelines.

Because many Canadian companies have international operations, they may also be subject to laws in other countries such as the UK’s Pay Transparency regulation. And, even if laws and regulations are not in place at the moment, they may soon be. The United Nations Principles for Responsible Investing (UNPRI) calls this “the inevitable policy response.” In their assessment, it is not a question of whether there will be greater government intervention on crucial issues for society, but when. Thus, executives and boards must anticipate and respond to increasing legal and regulatory constraints on their strategic decisions. 

THE WAR FOR TALENT. The new generations of workers in blue-, pink- and white-collar jobs are more interested in working for companies they can believe in. And even though Millennials and Gen Z are leading the pack in terms of a desire for their employers to contribute to social or ethical causes, Gen X and Boomers are not far behind. According to a LinkedIn survey, the vast majority of respondents would consider taking a pay cut to work for an organization whose purpose and values align with their own. 

Human resource consulting firms report that firms with higher environmental, social and governance (ESG) scores, lower carbon emissions and a greater proportion of women on their boards of directors also have higher employee satisfaction and are more attractive to young talent. In short, ESG has become a competitive advantage in the war for talent.

CUSTOMER DEMAND. Customers are also demanding that their suppliers respond to societal challenges. In the business-to-consumer (B2C) space, studies have shown that 64 per cent of consumers — Millennials and younger generations in particular — tend to buy products that have social benefits and are more trusting of and loyal to brands that are seen as socially responsible. And nearly half of consumers will walk away from a brand that does not align with their values.

As an example, in response to consumer awareness that food production accounts for nearly one-quarter of all greenhouse gasses, the World Resources Institute has created the Cool Food Pledge, which helps the food industry track its climate impact. The City of Toronto is the only Canadian signatory to date, but major U.S. food chains such as Panera Bread and Chipotle Mexican Grill are already labelling their meals accordingly in order to attract customers.

Increasingly, companies must use the same strategies to attract consumers as they use to attract employees. This is just as true in the business-to-business (B2B) space, where major buyers such as Walmart want suppliers to reduce emissions, adhere to worker health and safety standards, eliminate waste and cut toxins in their manufacturing processes.

Read the report for more information on the 13 recommendations.

PDF of the report here!