Human rights, ESG and cyber-security among the emerging challenges
The increasing and evolving risks facing companies in areas such as human rights, ESG and cyber-security – and the demands they put on boards and their advisers – will be center stage at the Governance Professionals of Canada (GPC) annual conference next month.
The question of how companies approach human rights in locations where they operate ‘is a governance issue,’ GPC president Lynn Beauregard tells Corporate Secretary. This may include organizations’ activities either in foreign jurisdictions or in Canadian areas where they interact with indigenous people. In doing so, companies need to pay attention to local cultures, customs, traditions and laws – such as those on child labor - to make sure they are treating workers properly and not causing offense or committing other improprieties, she says.
From a governance professional’s perspective, ensuring a company’s good behavior in this regard is about risk mitigation – avoiding the bad press and reputational damage that can arise from a violation, Beauregard says. She notes that the growth of social media has increased the immediacy with which problems can enter the spotlight and means there is potentially much greater reputational damage that can be inflicted from bad operating practices. Governance professionals can inform their boards about these risks and help generate a focus on them, she adds.
One of the trends to emerge from this year’s US proxy season has been the growing success of climate change-based shareholder resolutions. ExxonMobil, for example, had a majority of shareholder votes press it to produce reports on how it will be affected by action taken to limit climate change, despite the board’s opposition (CorporateSecretary.com, 6/2).
Many Canadian issuers are also facing pressure from investors to report on climate change as a risk. Beauregard advises governance officials to engage with shareholders to find out what metrics they want to see, where they want disclosure to be made and how they want information presented. In terms of best practices in this area, professionals have more examples to look to among European companies than among peers in North America, she adds.
‘ESG is here to stay,’ and governance professionals should make boards aware that investors want this information, Beauregard says, noting that companies are starting to pay attention regardless of whether they have to comply with rules requiring them to report on climate change-related matters.
In terms of cyber-security, boards need to ask questions such as whether they have the right skills among their members to understand the risks the company faces and whether there is sufficient dialogue around IT, but it is not clear if this is being addressed adequately in most organizations, according to Beauregard.
That said, governance professionals are ideally placed to bring the board’s attention to the issue, she adds. Some of the steps they can take is to keep up to date on legislative and regulatory developments; help create a governance framework to assess and address the key risks the company faces; determine what level of preparedness is needed; and perhaps bring the chief information officer to engage with the board, she says.
Governance Professionals of Canada - 19th Annual Corporate Governance Conference
St. John's, Newfoundland
August 20 to 23, 2017