Today the public expects to see greater corporate political responsibility on issues including climate change, sustainability, supply chains and gender and diversity. Staff, suppliers, customers and now shareholders have put pressure on companies to express their positions publicly.
This focus on corporate political responsibility is an indication of the move from shareholder primacy to the stakeholder capital model, a theme we explored in an article last year.
The call for public statements has to be balanced against:
- compliance with a company's current internal policies on, for example, political engagement, and
- the alignment of such policies with existing strategy, as well as guiding principles on investment.
As a first step, it is important for all policies, whether at the parent company or a subsidiary, to have input from every department likely to be affected by an issue, whether this is sustainability, ESG, human rights or something else. All policies need to be clearly drafted. They must also ensure consistency by taking into account a company's global practices and commitments.
In addition to operational policies, companies would benefit from putting in place specific guidelines on corporate political engagement. These should take into account scope, influencing factors and relevance, and should be flexible enough to allow for different national laws and restrictions. As a minimum, such policies require executive input and approval at a global level. Shareholders and affected local subsidiaries may be consulted.
As a second step, companies need to ensure that their teams – in particular those that address sustainability, ESG and human rights – are integrated with other practices.
In addition to meeting legal obligations and disclosure requirements (listed entities, for example), it is crucial that initiatives work with investing practices at all levels. This can be done in several ways, including ensuring that ESG and human rights teams report directly to the board, requiring those teams to have regular input into investing criteria, and the periodic mapping of internal policies to ensure consistency.
A principle of the UK Corporate Governance Code is that the board should establish a company's purpose, values and strategy, and satisfy itself that these align with its culture. Many governance codes elsewhere have similar principles.
When a company responds to a topical political issue, it can put its purpose and values at risk, and this may affect its brand. Given that purpose and values are fundamental to a business, it is vital that these align with policies on corporate political responsibility.
Any company that decides to embrace corporate political responsibility will also need to enhance its oversight of external communications. Companies must mitigate risk and protect their brands in ways they have not considered before.
White & Case LLP has partnered with the Financial Times on the publication of its Moral Money Forum reports, which explore key issues from the ESG debate. This article has been reproduced with permission from the Financial Times.
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