Most Chief Executive Officers recognize that they may be one high-profile social or political issue away from being the “Next Disney.” The angst is palpable. So is the confusion.
NO GOING HOME AGAIN TO MILTON FRIEDMAN
Yet, as The Wall Street Journal reports, they also recognize that in these volatile ESG times there is no circling back to Milton Friedman’s “shareholder theory.” That Friedman concept defined the CEO job as primarily returning value to the shareholders. The social responsibility of the corporation was to increase profits.
NO CONSENSUS
The exploding number of comments to that WSJ article underscores the wide range of points of view about everything from what is the function of the corporation to what should be taught in grade school. Among both the Republicans and the Democrats there is no longer an “official party line.” Both, which used to respect the role of business in society, have become unpredictable in their policy decisions about commerce. In Florida, the Republican Governor Ron DeSantis turned on the business of Disney.
IN-HOUSE LEGAL AS MULTI-DIMENSIONAL POWER CENTER
Meanwhile, no surprise, research by the Rock Center for Corporate Governance at Stanford found that those same corporations’ in-house legal departments have major concerns about the CEOs’ public stances on non-business matters. In addition, they are equally concerned about employee activists. Here is my analysis of those findings which O’Dwyer Public Relations published. Of course, as happened at Disney, the two – CEO official social/political positions and those of workers – can clash. With disastrous outcomes.
Obviously, in-house legal’s concerns are in the right place. They are, as Wall Street would put it, on the money. And the corporation can put its money, metaphorically speaking, on that internal power center.
In-house legal departments can transform the internal fear and chaos into a challenge with possible and doable solutions.
Last January in in Corporate Counsel, Wall Street law firm Paul Weiss outlined how that could be done.
Essentially the takeaway is: In-house legal can create the new mindsets and tools for identifying and implementing what corporate leadership needs to navigate the ESG ongoing upheaval.
APPROACHING AND DOING LAW VERY DIFFERENTLY
Paul Weiss Chairperson Brad Karp and the law firm's Chief Sustainability-ESG Officer David Curran provided a 4-point guide for much of that. The 4 are:
Reinvent Playbooks. The conventional ways are no longer adequate. That is primarily because ESG issues spill over to multiple corporate departments and lines of business.
They recommend:
"Legal teams must be involved with HR, investor relations, finance, and business units to encounter ESG issues. Lawyers are in an ideal position to coordinate disparate parts of an organization and fill important gaps."
Make Sure Department Members Understand the Unique Aspects of ESG. Because there are so many gray areas in ESG, traditional methods of conducting legal business have become anachronistic. Those old approaches, of course, are: researching precedent and applying law. What is needed is the ability to have an interdisciplinary mindset and experience leveraging that. Among other competences in-house lawyers need, hammer Karp and Curran are to:
" ... make sure public disclosures align with ESG goals, structure board committees to oversee ESG risks and opportunities, and develop systems for monitoring and measuring ESG progress."
Validate ESG Data. So much depends on that, ranging from conformance to ESG metrics to the criteria required for Sustainable Investments. The growth of that investment niche depends on how that data is configured.
Karp and Curran posit: "Lawyers can pressure test their data using many of the same models and compliance frameworks developed to ensure that companies are in compliance with anti-corruption laws."
Be Aware of ESG Risks in Mergers and Acquisitions and IPOs. Much of ESG is still new to lawyers. Therefore, it is all too easy for them to "not look" where the risks can be to corporations in this new era of ESG values. They could miss what might not have been a red flag in pre-ESG times. Essentially, so much has changed.
They warn:
"All it takes is one weak link in a supply-chain agreement or a board member's past bad behavior - to break the chain and put the company's reputation at risk."
SHIFTING THE NARRATIVE OUT OF SCARY
Usually business blames the media such as the WSJ for hyping a situation. However, when it comes to the impact of ESG issues on business, there isn’t much hyperbole. Not much is unthinkable.
However, the conversation can be reframed from crisis talk. Few institutions in America have the resources of a corporation. Among them is the in-house legal department. That power came through in the decisions at Coca-Cola and Starbucks to change the leadership of their legal departments. For those corporations that seemed to signal a fresh start.
Over the years Jane Genova has covered major corporations. Now and then she does freelance communications assignments for Paul Weiss and a number of other law firms, both defense and plaintiff.
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