A warning to ESG business leaders
Good governance is a must for ESG business leaders. Without it, failure is imminent.
ESG is an abbreviation for environmental, social, and governance. ESG is a relatively new concept, beginning in 2005. Doing good for environmental and social outcomes creates favor and excitement within society. However, governance cannot be overlooked because ESG business leaders must engage and balance stakeholder interests and progress.
Faber toppled, not Friedman.
Emmanuel Faber is in the news. He was removed as CEO of Danone, a Paris-based global food products company, due to dissatisfaction from several large shareholders. Other stakeholders praised his ESG and Benefit Corporation certification efforts. Faber pursued becoming the first multinational company certified through B Lab and guided positive environmental initiatives. He even won nearly 100% shareholder support to move Danone to new legal status, an enterprise à mission, or purpose-driven company. When this shareholder initiative passed, Faber declared, "You have toppled the statue of Milton Friedman here today."
Premature "mission accomplished" statements lead to downfalls.
While Milton Friedman advocated for maximizing shareholder value as the sole purpose of a corporation, stakeholder capitalism has broadened the definition to shared value. Still, shareholders play an essential role, especially when it comes to governance. Faber seemed to get caught up in his public relations praises while shifting too far from shareholder concerns. The financial performance of Danone was missing the mark, especially when compared to competitors with similar purpose-driven initiatives.
Other misfires appeared. While Faber said he would not eliminate any employee positions, he later laid off 2,000 individuals. The worse offense may be ignoring the board's direction of adding an independent director to balance corporate oversight. Instead of bringing in someone independent, Faber brought in a loyalist.
Good governance matters in stakeholder capitalism.
Governance matters and ESG leaders face peril when the G in ESG is ignored. Governance is essential in stakeholder capitalism, and it takes added effort to collaborate with shareholders, customers, employees, communities, and partners. Consistently missing financial performance will derail any environmental and social good being done. Stacking oversight with loyalists is not responsible leadership. Good ESG leaders need to embrace robust governance while attaining environmental, social, and economic performance in a way that avoids arrogance and ignorance.
Good does not come first. An ethical balance between stakeholders does.
References
Abboud, L. (2020). Danone adopts new legal status to reflect social mission. www.ft.com. https://www.ft.com/content/1eff9241-ef11-4a38-8b5c-bb825fa108ca
Abboud, L. (2021, March 15). Danone board ousts Emmanuel Faber as chief and chairman. www.ft.com. https://www.ft.com/content/8e7ae718-eb18-4d2f-bd18-59e6349540f2
Danone: a case study in the pitfalls of purpose. (2021, March 18). www.ft.com. https://www.ft.com/content/668d9544-28db-4ad7-9870-1f6671623ac5
Kell, G. (2018, July 11). The remarkable rise of ESG. Forbes. https://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-rise-of-esg/?sh=6322a2116951
Moore, M. (202 C.E., July 7). The B Corp movement is accelerating during the pandemic. Fortune. https://fortune.com/2020/07/07/danone-emmanuel-faber-b-corp-movement