The recent report "Changing the Climate in the Boardroom" presents the results of a survey conducted by Heidrick & Struggles and the INSEAD Corporate Governance Centre. The headline results note there is a clear disconnect between what board members say about the importance of climate change to their companies and what the boards execute on.
The report’s recommendations include adding climate change to the board’s competency matrix and integrating climate change objectives into executive compensation and search strategies, especially for the CEO.
To find out more about how boards are becoming more climate-aware, I talked with Jeremy C. Hanson, a partner in Heidrick & Struggles’ Chicago office, a member of the CEO and Board of Directors Practice, and co-lead for the Global Sustainability Office. Below are some key takeaways from our conversation.
John Davies: Before we start talking about what’s changing for boards of directors and the C-suite, tell me about your work.
Jeremy Hanson: We provide global leadership advisory and on-demand talent solutions and help leading companies find CEOs, their direct reports and many of their board of directors. Our strategic searches are very dependent upon us forming a strong partnership with an organization. Our clients hire us to solve a problem. We spend a lot of time getting to know the organization, understanding the culture and values, helping them think through the needs for a particular position. And then we spend 100 percent of our time going after people who likely fit the bill.
Davies: How do those efforts connect to the Global Sustainability Office?
Hanson: For most executive searches, there’s what we call a practice. We have a CFO practice, an industrial practice, a consumer practice and more. ESG and sustainability are different. They provide a lens through which all of our work is being done, and that’s why we established the ESG and Sustainability Office. We have people doing ESG work who sit in our industrial practice, who sit in our consumer practice, in regional practices like in Europe. Then there are a handful of us who guide and support and help build out our overall capability within the ESG and Sustainability office.
Davies: The report you developed with INSEAD recommends adding climate change to the board’s competency matrix. What led you to that conclusion?
Hanson: We’re trying to help clear up confusion about what’s at stake over the next year or two. Companies are starting to figure out how to report and disclose ESG data in a meaningful way, but they really haven’t felt the teeth in their back yet. Our sense is that within the next year or two, companies that don't measure, disclose and report run the risk of losing their employees. We're already seeing that pressure. Right now, all companies are thinking about how do to attract and retain employees. So that's one thing that's at stake.
Customers are exercising their point of view at a scale we haven't seen before. We see this with consumers but perhaps even more so in a business-to-business context.
Customers are exercising their point of view at a scale we haven't seen before. We see this with consumers but perhaps even more so in a business-to-business context. For every RFP we fill out for a major client, we're required to disclose our greenhouse gas footprint and what we're doing about it, and what we're doing as a professional services firm from a diversity and inclusion perspective.
The third thing that’s at stake is going to be access to capital, and that’s when the teeth start to grind into your back. Regulators are beginning to require more transparency around ESG for investors. The investors look to make money and they can’t do that if a company is losing employees or can’t hold onto its customers. If investors pull out, it can limit access to capital.
Davies: OK, so what’s the board’s role in all of this?
Hanson: Boards are scrambling right now to get their arms around what’s happening. They’re asking the questions. What is our responsibility? What are the implications? And what does it mean from a succession planning and preparation perspective? The question of what is at stake is becoming clearer for them. From a reporting and disclosure perspective, they’re starting to understand that ESG data is going to be viewed with the same rigor as financial data.
That’s why we are advising boards to integrate climate change objectives into executive compensation and search strategies, especially for the CEO. We’re also stressing that boards need to increase their climate knowledge and understand climate change’s implications for financial performance.
In the report "Changing the Climate in the Boardroom," we urge boards to define a clear chain of executive accountability — starting with the CEO — for setting and meeting climate change goals, and to tie hiring and compensation decisions to it. We’re applying that same lens to our own executives and operations.