Ignore this ESG revolution at your peril

AN overdue change is cascading through boardrooms across the Asia-Pacific. If you are a chief executive or a company director and you miss it, you could risk your career, your company's reputation and your shareholders' money.

This shift has gathered speed this year. In my two decades as an executive-search professional placing corporate affairs and communications leaders and advising multinationals around the region, I have never seen anything like it.

Every brief our firm has received from clients since December has called for leaders that can help them meet the expectations of "the wider community". Companies crave experts to help them navigate a new world in which their reputation with their multifarious stakeholders is more closely aligned than ever with shareholder value. It is part of a global, societal phenomenon that smart corporations are addressing fast.

This is my quick take on what has sparked this trend, why it is accelerating, and how can companies embrace it, thrive, and sidestep the pitfalls to reputational ruin.

Corporate reputation is at last being recognised by the vast majority of organisations as a primary asset. But more than two-thirds of senior executives agree that reputation is harder to manage than any other form of risk, and it is only getting harder, due in no small part to the following two trends:

First, there is "Environmental, Social and Governance" (ESG), the increasingly popular approach to sustainable investing designed to drive positive environmental, social and corporate social responsibility outcomes along with financial results.

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Secondly, a company needs a "social licence" to operate - an ongoing acceptance of its operating practices and procedures by its stakeholders, including employees, investors, the communities it serves and the public.

It turns out that increasingly, both of these ideas actually count.

A piece of research titled "Crisis Value Erosion", undertaken by UTS for SenateSHJ last year, found that major Australian listed companies that experience a reputation crisis with their stakeholders lose, on average, A$1 billion (S$1.03 billion) in market capitalisation and suffer a 30 per cent drop in earnings per share.

The correlation does not end there. The study also foundthat share prices took eight months to a year to recover; in some cases, they had still not returned to pre-crisis levels years later. Almost without exception, the companies that recovered quickest were the ones that handled the crisis best.

That meant much more than fine words; it involved tangible, concerted action led from the top by the chief executive, who, repeated studies show, needs to be the No. 1 source of trusted information in a crisis.

WISE COUNSEL

If a CEO in the middle of a company reputation crisis lacks the EQ (emotional quotient) or does not get wise counsel from trusted advisors who can assess the organisation and the crisis objectively, the new reality of ESG investors and vociferous keyboard warriors on social media will hit home quickly.

Indeed, if we can learn anything from some of the high-profile corporate reputational crises of recent years, it is that a company's response to a crisis has more impact on an organisation's value than the crisis itself. Today's stakeholders expect brave leadership, humility and integrity from corporations and the shared tragedies and challenges of the past 12 months have intensified this focus.

As Google put it in its "Year in Search 2020" Report: "The pandemic forced a global reset that is testing our humanity and values. By giving us all a common purpose, it has elevated the very idea of a company's purpose - shining a spotlight on the role businesses play in our environment and our wider communities…. When people find common ground with a company's values, it is more likely they will be loyal to the brand."

The pandemic, like previous global crises, has also kindled a resurgence in altruism. GlobalWebIndex says that people across the Asia-Pacific agree that "helping others before helping myself" is important, along with "contributing to my community".

Likewise, the region maintained its lead as the region that most expects brands to be environmentally-friendly; an incredible 86 per cent of local respondents said they have become more environmentally conscious due to the coronavirus.

Now, just as positive action to counter climate change has become compulsory for big corporates, companies ignore their communities' other priorities at their peril, be it diversity, equity, inclusion, mental health or indigenous community engagement. Such delicate topics require dedicated, experienced professionals with open hearts and commercial minds: leaders who can, as Martha Truman used to advise her son, the then-US President, "be good but be game".

As the surge in demand for this type of practitioner has revealed to me, it is vital that we begin to build pipelines of them because the radical change confronting boards across our region requires a radically new corporate skill set.

• The writer is founder and managing director of executive search firm Anna Whitlam People.