Seems the ASX’s draft Corporate Governance Principles has set the cat among the pigeons in corporate Australia.
Central to the controversy is the idea of a company’s social licence to operate.
One of the ASX’s new draft principles is on instilling the desired culture. It states that it’s important that ‘the board and management of a listed entity to have regard to the views and interests of a broader range of stakeholders than just its security holders, including employees, customers, suppliers, creditors, regulators, consumers, taxpayers and the local communities in which it operates 1.
From a corporate affairs point-of-view, this is the right thing to do. And amid the current media landscape – both traditional and social – and the political context, it’s easy to see why.
Given the power of social media, the rise of shareholder activism and the sophistication of NGO public campaigns, the loss of faith from stakeholders beyond a company can very quickly undermine its profitability and create a raft of headaches. We’ve seen seemingly trivial issues cascade out of control and blow holes in revenue streams to the tune of tens of millions. And they can take years to recover from.
The go-to tactic for many NGOs and social media activists is to not just attack their target company for its breach of social licence, but to go after their key stakeholders, including customers, regulators and political decision-makers.
Yet, given the ubiquity of social media and the ever present tsunami of activists therein, it can be difficult for organisations to decipher between the usual white noise and a serious problem.
Unfortunately, there’s no formula for knowing precisely when a particular issue or event is going to hit your company hard or if it’ll just blow over. It requires sound counsel from a corporate affairs expert with a wealth of experience and expertise to make the judgement call. And, in truth, managing the day-to-day issues facing most listed companies is a constant tug of war. It requires vigilance and continuous stakeholder engagement to actively stay on top of issues at an executive level through an effective corporate affairs leader.
Equally, however, having someone at a Board level with corporate affairs experience – who’s seen it all before, especially in the age of social media – can help the Board assess whether an emerging issue is worthy of additional scrutiny and resourcing by directors.
Another way of empowering Boards is through crisis preparation, which can play a key role in helping boards and the executive isolate issues and the risk they may escalate. It’s not only an important way of minimising the damage if a crisis does strike, it can help give the Board and executive peace of mind that they’re as prepared as they can be and that fear of breaching their social licence to operate is not a constant distraction.
While social licence to operate is a nebulous term and open to interpretation, it’s worth having in the Board’s lexicon. And there’s little harm in having it a focal point, provided you have expertise on the Board which has a feel for a pending crisis or the Board’s getting sound advice from a corporate affairs expert in the executive.
In our mind, the ASX’s is onto a good thing. Its focus on social licence to operate in its draft Corporate Governance Principles ought to be adopted in the final. If a Board thinks that it’s either beyond the reach of the public’s sentiment or that ensuring the executive is managing major strategic risks isn’t its responsibility, it may one day be in for a rude awakening.
1 ASX Corporate Governance Council, Corporate Governance Principles and Recommendations, 4th edition, Consultation draft, p.25.