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Global economist Dambisa Moyo said corporate boards are "critical" in helping businesses adapt to the changing demands of the 21st century economy.
Rodger Bosch/AFP/Getty Images
The murder of George Floyd nearly one year ago and the nationwide racial justice protests that followed prompted many companies to initiate or double-down on efforts to address systemic racism, both inside their walls and in the broader community. These efforts often fall under the category of environmental, social and corporate governance (ESG) work – a phrase used to describe a company’s sustainability and social impact.
Dambisa Moyo, a global economist whose latest book “How Boards Work: And How They Can Work Better in a Chaotic World” addresses the evolving role of corporate boards in today’s economy, said that while many companies have followed through on promises to prioritize ESG work, there’s still more work to do.
“The good news is that corporations have a lot more levers in many respects. We are already looking at broadening our definition of how we think about issues around diversity — not just about employees, but about subcontractors, suppliers,” she said in an interview with Marketplace’s David Brancaccio.
Moyo, who currently sits on the boards of 3M and Chevron, said that a big part of a corporate board’s power regarding a company’s ESG work is related to their selection and compensation of the CEO.
“Boards have two leavers,” Moyo told Brancaccio. “Who we hire is critically important as the CEO. The other lever is obviously through compensation. And, already, a large proportion — upwards of 30%, in some cases 50% — of how we determine someone’s compensation is now based on these ESG issues: How are they addressing racial and gendered diversity? How do they think about climate change? What is their ethical compass?”
The following is an edited transcript of the conversation.
David Brancaccio: I know you’ve thought a lot about this: How much do you think private companies can do to address social justice issues?
Dambisa Moyo: A lot — well, certainly a lot more. When you think about what corporations have done, even before the tragedy of George Floyd and beyond the ESG (Environmental, Social and Governance) movement over the last half decade, corporations have been great citizens. They have been participating in job creation; participating in infrastructure build out. They provide a tax base to the public sector; government — as well as being at the tip of the spear in innovation. So clearly, there’s a lot we can do in terms of social aspects, not just in terms of health care, but also in education and in helping to create more jobs and opportunities for people regardless of what they look like.
Brancaccio: I mean, let’s stipulate that many have done, as you say, but certainly there is more work to do, right?
Moyo: Yes, that’s right. And the good news is that corporations have a lot more levers in many respects. We are already looking at broadening our definition of how we think about issues around diversity — not just about employees, but about subcontractors, suppliers — making sure that, as we think about our relevance and responsibility, we’re using that for the good of society around the world.
Brancaccio: This latest book of yours is about the role of company boards. You have studied them; you’ve sat on the top boards. At a time that stakeholders are demanding that companies get more involved in making the world a better place, what is the role of the board? Because often those boards are focused on shareholder value.
Moyo: That role is critical. And the truth of the matter is that it is evolving and will always be evolving. Just to give you an example, six months ago I had no idea that today we would be dealing with issues around voter rights, but now that [has] become an issue in which boards have to opine. I don’t know what, six months from now, we will be dealing with. But certainly we do need a process of evaluating these challenged issues which is transparent, it’s consistent, it’s sustainable and it’s also flexible enough to continue to ebb and flow in the way that the world is changing. We play an enormous role in areas of climate change, worker advocacy, data privacy — and so all of these are areas that the boards are dealing with, and there is no right answer. What we do have is to think about trade-offs and what the consequences of these issues are longer term for the success of corporations, and also the global economy more generally.
Brancaccio: What improvements could we make to how boards are run? Because you have boards that take their duties very seriously to be an independent voice and push back against management where that is seen in the best interests of the company or other stakeholders. But there are some boards that are kind of rubber stamp.
Moyo: I should hope not. I think it’s very hard to be a rubber stamp board now with all the scrutiny that exists. But look, I talk about the role of ethics. I think traditionally, whether it was recruiting the CEO or thinking about board membership, we’ve tended to look at conventional metrics: How good is this person in operations? How good is this person as a leader? But we haven’t really put a lot of effort in really understanding a person’s moral compass or the ethics and values that they uphold. And I think that’s one area where there’s a lot of opportunity.
Brancaccio: Among the things you’re saying is reflection, if not scrutiny, about the ethics of individual board members? Being sure they’re upstanding citizens?
Moyo: Yes absolutely, as well as the CEO. One of the key jobs of the board is to pick the CEO. We have to oversee strategy, pick the CEO, and basically provide oversight on the cultural frontier. Those are the three key responsibilities of the board. And what I’m suggesting is that this ethics piece is critically important. As you may be aware, in 18 months we had over 400 CEOs and other senior business leaders lose their jobs because of issues around #MeToo. I think a little bit more effort and work around trying to probe and understand how people think about these moral quandaries is going to be much more important and a bigger piece of how we evaluate candidates.
Brancaccio: I think you’re being polite. You said a little bit more; sounds like a lot of bit more.
Moyo: Well, I will tell you this: We use the levers that boards have already. So boards have two leavers; I just mentioned one: hiring. Who we hire is critically important as the CEO. The other lever is obviously through compensation. And, already, a large proportion — upwards of 30%, in some cases 50% — of how we determine someone’s compensation is now based on these ESG issues: How are they addressing racial and gendered diversity? How do they think about climate change? What is their ethical compass? Those areas are absolutely front and center. And they’re certainly much more art than science, but really a key piece of where we are today and moving forward.
Brancaccio: Now this will seem like a lifetime ago, this reference, but the summer before the pandemic that club of CEOs called the Business Roundtable came out with this pledge that companies should serve not just their shareholders but also their communities, their employees, the environment. From the point of view of the board of directors — none of that happens, this different view of capitalism, unless the board is on board.
Moyo: And the boards are on board, I can assure you of that. The Business Roundtable proclamation was critically important in planting a flag in the sand to say this is the way we think that society should move forward. There are many aspects of it that are going to be challenged as we take that lofty goal and try to implement it using metrics in a measurable, trackable way. And, of course, there’s a bigger issue that we have to contend with, which is: we’re being asked as corporations and as boards to step into public goods; areas that have traditionally been the purview of government. But we are not elected officials. And so we have to navigate that very thin line in a way that recognizes that we shouldn’t overstep our responsibility and start to opine in areas [where] government really has an upper hand.
Brancaccio: Well, thinking about what you just said, does that leave you somewhat uncomfortable that companies are being asked to step in to this public issue of voting rights?
Moyo: I wouldn’t say uncomfortable. I think where we have an opportunity for progress is, as I said, to really think about metrics that are not implemented in a hasty way. We need innovation; we need to make sure these things are sustainable. But also, very crucially, corporations cannot survive and thrive without government. Government has to provide the regulatory environment. It also has to, in many ways, be visionary — in much the same way that, in the United States, the government really led the Manhattan Project, DARPA, the rollout of Silicon Valley — we need government to respond and be data driven; really focused on measured outcomes. And that kind of partnership, as we just saw with the rollout of vaccines, can be critical and really life transforming in many different ways.
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