As Seen In: Chief Executive

— By Omar Divina, Maestro CEO

This article was published in Chief Executive in January 2021.

The beginning of a new year typically comes with the usual reflections of the year just ended. Reflecting on 2020 is bound to keep us busy for a while.

In confronting what we can only hope is a once-in-a-century global pandemic, we were forced to adapt to massive changes in our daily lifestyles, almost overnight. Preparing to go to the supermarket became an exercise in germ warfare. Working from home was no longer an employee perk but a necessity for continuity of business. Seeing friends and extended family was suddenly too dangerous.

In the throes of shutdowns and quarantines, 2020 demonstrated just how complex and interconnected the world is, and the extent to which decisions we make affect others – whether it’s where we shop, how we socialize or what we choose to wear (or don’t wear) on our faces. The pandemic has renewed a recognition that, even in isolation, the choices we make have broader impacts, and that challenging practices and conventions designed to benefit the greater good has consequences.

As we begin a new year that offers hope of a return to some sort of normalcy, the renewed recognition of our interconnectedness will have implications for global business leaders as well.

Even before the pandemic arrived, the concept of stakeholder capitalism – defined as the belief that organizations need to prioritize societal, environmental, and governmental initiatives that benefit all, not just immediate investors, shareholders, and executives – was gaining steam. Today, corporate focus around ESG (Environmental, Social & Governance) and DEI (Diversity, Equity & Inclusion) initiatives are rapidly becoming the norm.

Last year, 181 CEOs of large U.S. companies – members of the Business Roundtable – agreed in a policy statement that “businesses can’t flourish over the long term or appropriately reward their shareholders without investing in the stakeholders who make success possible.” Prominent voices, BlackRock CEO Larry Fink among them, are now on record stating directly that “stakeholder capitalism is the way forward.” Salesforce CEO Marc Benioff has emerged as a lead evangelist for the movement.

But while there has been big talk around stakeholder capitalism, for the most part, companies have “failed to deliver fundamental shifts in corporate purpose in a moment of grave crisis when enlightened purpose should be paramount,” according to a KKS Advisors study published in September.

As we continue to grapple with the pandemic, alongside a deteriorating climate crisis, escalating demand for real social reform, and an ongoing, stark need for greater diversity in the workplace, chances are good that expectations for companies to deliver on their pledge to contribute more positively to society will grow. CEOs will face greater scrutiny as they are challenged to ensure that their organizations deliver more than just investor rewards, without compromising shareholder value. As this happens, leaders will be equally challenged with gauging and demonstrating the impact of their respective stakeholder initiatives. Doing so will require a rethink in the approach to measurement.

Why? Because measuring good, old-fashioned shareholder value is a relatively straightforward proposition. Corporations have a trove of real-time, historical, empirical data and established processes for collecting, capturing, analyzing, and publishing financial results. Investors, analysts, board members, and executives know where responsibility for financial operations resides within the company.

However, initiatives intended to affect broader stakeholders are more ambiguous, less obvious, and require input from well beyond the CFO’s office. They are, therefore, more difficult to measure. The International Business Council has taken significant steps to provide organizations with a uniform set of measurement guidelines for progress reporting. After a year of development, the IBC presented a series of “common stakeholder metrics” at its Summer Meeting in August 2020, and secured support from a majority of participating members.

But even with this guidance, the onus is still on individual companies and senior leadership to ensure they have the capabilities and processes needed to measure their efforts and demonstrate impact. To do so, organizations engaging in ESG and DEI efforts must ask, and honestly assess, the right questions:

Do I Have the Right Data?

As stated, when it comes to shareholder value, there is no shortage of tangible, financial-based metrics captured by companies and accessible to investors and analysts. The data needed to appropriately measure stakeholder-focused initiatives will be different. Identify the data you will need, determine if you have the ability to capture it, and, if not, identify from where it can be sourced.

Are the Right People and Offices Engaged?

Whereas financial performance is the domain of the CFO, performance against ESG and DEI initiatives requires participation from elsewhere in the organization, such as human resources, legal, IT, etc. Determine who, within the company, needs to be involved to measure impact holistically, and ensure they understand their role and responsibilities in the measurement process.

Do I Have the Needed Resources?

In addition to human capital, determine if your organization has the technological capabilities required to appropriately and accurately capture data and enhance collaboration from disparate sources and corners of the organization. Can the “new” data streams be effectively combined with your existing analytics to generate useful and valuable insights?

How Do I Action It All?

You have the data, the resources, and the insights. Now what? It’s time to determine if you have the ability to convert all this intelligence into actionable behavior. Consider the feasibility of creating a cross-operational role responsible for launching new programs, interpreting data, and, as needed, redirecting resources or implementing course corrections.

Time will tell if 2021 will be the year that enlightened business leaders with a renewed respect for our global interconnectedness and an understanding of the inextricable link between stakeholder capitalism and shareholder value will actually make a measurable impact. As we head into a hopeful new year, the organizations that act on their values will create value for everyone. Effective measurement will be crucial in demonstrating the impact of those efforts for all constituencies.