In the latest installment of the Informed Board podcast, Skadden partner Ann Beth Stebbins leads a discussion about political and social issues in the workplace, responding to evolving employee expectations and the increased scrutiny of corporate political contributions. The panel also discusses how political and social issues may affect director elections this proxy season.
Skadden partners Ann Beth Stebbins and Ki Hong, Joele Frank partner Jamie Moser and the chief people officer of Duck Creek Technologies, Courtney Townsend, discuss the demands companies face to take positions on political and social issues and growing scrutiny of corporate political contributions.
Corporate culture is important to today’s work force, and employees often expect their employers to speak out on political and social issues that are important to them. Employees are also increasingly aware of a company’s political contributions.
Understanding employee perspectives on issues that are important to them is vital, says Townsend. Management can stay in touch with the employee base through surveys, round tables or on-to-one conversations, for example. What is important to employees has become important to the business.
It is increasingly difficult for a company to avoid weighing in on political and social issues, even if those issues do not directly affect its operations. But a company needs to have a policy to guide decisions about which issues it will address.
Four factors are driving the pressure from employees, says Joele Frank partner Jamie Moser. First, a new generation of workers wants to produce and consume products and work in an environment aligned with their values. Second, social media has increased the visibility of political and social issues and made the need to respond seem more urgent. Third, political polarization has intensified the emotions around issues. Finally, the rise in importance of ESG factors across society has heightened employee interest in such matters.
When it comes to political donations, scrutiny has increased dramatically since 2015, Hong says. Companies therefore need to balance the views of stakeholders with the consequences of making contributions and taking positions on controversial issues. He notes that taking positions on social and political issues, if not carefully thought through, could cause the company to lose business.
Moser and Hong emphasize that businesses need to anticipate the types of issues on which they may be asked to take a position and decide which issues warrant a public position and which do not. Advance planning is essential. You do not want to be formulating your strategy in the middle of a media storm, they stress.
Sometimes responding to a political issue requires a company to first research logistical questions, Moser points out. That was true when the U.S. Supreme Court delivered its decision in the Dobbs case regarding abortion rights. Companies had to sort out insurance and various legal questions before responding to employees’ concerns about the decision’s impact on them. In such circumstances, to maintain credibility, leadership should communicate that the company is addressing the issue and, if possible, how the company is approaching the matter even if it cannot immediately provide answers, Moser advises.
Companies can face very different business consequences for their positions on political and social issues depending on the jurisdiction, Hong notes. For example, Texas passed a law barring the state from doing business with companies that take positions in opposition to fossil fuels, and Cook County, Illinois may require its vendors to offer abortion coverage to their employees.
On any given issue, satisfying all stakeholders may not be possible, Hong warns.
Related to these issues, directors who come up for election soon could find more attention being paid to them as individuals — not just as members of a slate — because of the introduction this proxy season of the “universal proxy card” , making it easier for shareholders to choose individual directors, Moser explains. That could lead activists and others to conduct research on the statements and political contributions of directors, in an effort to challenge their board candidacy.
From Skadden, you’re listening to The Informed Board, a podcast for directors facing the rapidly evolving challenges of a global market. A complement to our newsletter for directors, our aim with this podcast is to help flag potential problems that may not be fully appreciated, explain trends, share our observations and give directors practical guidance without a lot of legal jargon. Join Skadden partners who draw on years of frontline experience inside boardrooms to explore the complex issues facing directors today.
Ann Beth Stebbins (00:34):
In today’s competitive labor market, corporate culture is increasingly important to employees. They often expect their employers to speak out on political and social issues that are important to them, and they’re increasingly aware of a company’s political contributions, and whether the candidates have views that are consistent with the values and mission of the company.
I’m Ann Beth Stebbins, a partner in Skadden’s M&A practice and a frequent advisor to boards of directors. Joining me today to talk about these issues are Jamie Moser, a partner at Joele Frank Wilkinson Brimmer Katcher, a leading public relations and investor relations firm, Courtney Townsend, the chief people officer of Duck Creek Technologies, Inc., a Nasdaq-listed company which develops software for the insurance industry, and Ki Hong, my partner from Skadden’s political law group based in Washington, D.C.
Welcome, and thanks for being with us today. Courtney, you’re the chief people officer of a public company in the software space, where retention, hiring and attrition rates are absolutely mission critical to the success of the organization. What changes have you seen in the employee population, and how is Duck Creek dealing with this changing environment?
Courtney Townsend (01:55):
We needed to have a different mindset and approach after the pandemic. For starters, ensuring that candidates that you’re considering are aligned with your values and purpose. In our case, we also have a culture code that we take very seriously. Employees and employers need to align on all of this in order to have transparency, for the employees to understand why companies are making the decisions that affect them, and that they truly belong there, and that we’re showing them, not just talking about inclusion, but doing things to show them that we are trying to be inclusive of different viewpoints.
Ann Beth Stebbins (02:28):
How important is this to employees? How important is it to retention? How important is it to new hires?
Courtney Townsend (02:35):
We’ve created a DE&I council this past year and some new ERG groups. And I will tell you that it is beyond important. It’s more important than compensation. In exit interviews, you have those candid conversations and everyone thinks people are leaving for the higher salaries down the street and whatnot, but it also has to do with do they feel like they belong here? Are we listening to them? It’s very important to employees these days.
Ann Beth Stebbins (02:59):
And is it limited to the workplace environment? When you talk about inclusivity, they want to feel like they can bring their whole self to work, they want to feel like they’re being authentic, but how do you see their expectations changing about what the corporation should be doing externally when it comes to topics that might not be directly related to the business?
Courtney Townsend (03:23):
I think that the expectations from a lot of employees is that we do take a stance on certain things that are happening out there. I think that companies alike need to decide what is important for them to speak about externally, specifically, and what is not. But understanding what’s important to your employee base by round tables, engagement surveys, whether it’s one-off conversations, the company itself though needs to understand what is important to the employees to then filter through what kind of stances we’re taking externally.
Ann Beth Stebbins (03:56):
So what is important to the employees becomes important to the business, even if it’s not directly in the lane of what would typically be thought of as important to the business, for your company, something that’s important to insurance companies, software companies, tech companies. But you have societal issues, political issues that might not be directly related. Do they now become part of the business model?
Courtney Townsend (04:22):
Sometimes. I think as long as your ears are open and you’re understanding from your employee base what is important to them, that sort of becomes how you form the lens you take on it. There’s obviously no point in putting out statements and doing things that don’t resonate with your employees, and by staying in touch with them and understanding, then hopefully those two align.
Ann Beth Stebbins (04:44):
So, Jamie, what do you think is driving this?
Jamie Moser (04:48):
I think there are a number of factors that are driving these shifting behaviors and expectations. I think if I would break it down, probably into four different buckets, one is the generational shift. I think we’re looking at a group of people rising up through the professional world who want to feel, more so than ever before, connected to the brands that they’re buying and the employer that they are working for. And they’re looking to them to ensure that they’re upholding their values as individuals. I think there it’s really important to recognize that there is a wide range of values that will permeate businesses on any number of levels. So the communications, and more so the actions that companies take, have to be really thoughtfully and carefully constructed because they will have varying degrees of impact depending on where people sit on the value spectrum.
You also have the rise of social media. The nature of communications has shifted pretty dramatically and continues to evolve. Think about the ease of use of social media and the lack of consequences for people using it. I think it intensifies the visibility of issues and the urgency with which people feel as though companies and executives need to respond and/or engage on the issues.
There’s also pretty heated political environment that seems to continue to intensify. So as look to emotions on any number of issues, people are feeling more emboldened in this moment to take a stand on issues and ensure that their employers are speaking out and on behalf of them.
And finally, I would say, as it relates a little bit more to external influences on internal actions and statements, is the continued rise of ESG and its importance in our society, from an investor perspective, but also an employee perspective.
So I think those four issues, I think, really are core to the driving forces behind the changing sentiment.
Ann Beth Stebbins (07:02):
So Ki, we’ve been talking about corporations expressing a point of view on societal issues, on political issues. You’ve been advising companies for a very long time on political contributions. Employees are much more tuned in, as are customers, as are shareholders, in the political contributions that corporations are making. Talk about the changing landscape that you’re seeing.
Ki Hong (07:30):
Sure. There has been a sea change on the type of scrutiny around political contributions. If I were to go back prior to 2015, there would always be some ad hoc or sporadic criticism of contributions that corporations would make. The response used to be, “We make political contributions solely based on our business purposes, whether the legislator votes for policies that support our business and we don’t weigh in on social issues.”
What changed in 2015 was the gender bathroom bill in North Carolina. We saw an increasing level of scrutiny, and most of the criticism was coming from employees, as well as executives and board members of the corporations. That level of scrutiny has increased over the years, steadily, and during COVID, it expanded to BLM issues, as well as LGBTQ+ and other D&I issues. And then January 6th happened, where good governance and governance integrity became the issue of the day, as well as the voting bills in Georgia and some of the other states.
So the level of scrutiny now is at a point where it is getting very difficult for corporations to have the line that they had before, where, you know, we only give for business purposes. There has to be some recognition of ESG issues that are out there. The question is, what’s the right balance for corporations to strike. And I think everyone here today in this podcast is trying to answer that same question.
You don’t want to just look at one aspect, or one issue, or one level of scrutiny that you’re getting, you want to look at the whole picture. I think that’s the key to balancing all of this out, is to look at all the stakeholders, and get input from all the stakeholders within your company. That includes the D&I interest and affinity groups, as well as your businesses, who are dealing with the actual customers that might care about this, as well as the shareholder. There’s been increasing scrutiny from shareholders as well on contributions, as well as your board members.
(09:55): And the important thing is to get them all in a room together, in advance, and come up with a line where you’re going to weigh in and what you’re not going to weigh in on, and then stick with it. You don’t want to be making this decision during a media storm. That’s when some of the bigger mistakes get made.
Ann Beth Stebbins (10:16):
You mentioned balance. And that seems to be key for boards that are thinking about balancing the interests of various stakeholders. Jamie, how do you advise boards when they’re thinking about messaging and the consequences of decisions they may be making?
Jamie Moser (10:35):
I think it’s a really important question. It is at the core of all of these issues. Often we find that boards and management teams have thought through many of the issues and many of the scenarios that do arise, or arise in similar but slightly different ways, and it is a matter of being prepared, both from an internal process and protocol perspective, but also in terms of the message and how it’s delivered.
So I would say, as we’re talking to boards and thinking through being prepared for any number of issues that could arise, there are a few key tenants of preparation, and I think Courtney touched on this earlier, which is, make sure, as a board member, you understand what management is hearing from their stakeholders, not just inbound inquiries and sentiment, but also, is the management team proactively going out and asking questions, making sure they’ve got their finger on the pulse of the issues that matter to the various stakeholders.
Ann Beth Stebbins (11:40):
Let’s pause there, Jamie. Courtney, what are you doing to make sure that you have your finger on the pulse of what’s important to employees?
Courtney Townsend (11:47):
So I mentioned earlier, we have this DE&I council, we have our different ERG groups, we’ve done some round tables with people to get their thoughts on a slew of different things. We’re about ready to form an employee experience council, which I’m very excited about because that will be cross-functional and anything is game to talk about, what means most to them, an engagement survey that should be table stakes, but some of the avenues to really understand how are your employees feeling about what we’re doing as a company, we see our values the same way they do, or our culture code the same way they do, and aligning, and then really being able to give the board those quarterly, or how often you speak to them, those updates on what’s happening internally and what you’re doing with it.
Ann Beth Stebbins (12:29):
Jamie, I think that’s what you are saying. It needs to get communicated up to the board, the board needs to have their finger on the pulse of the employee population and what’s important to the employee population, so you’re not faced with a crisis.
Jamie Moser (12:42):
Well, I think that’s absolutely true, but most importantly, because surprises are never good, if you haven’t had the dialogue and thought through what the issues are and how to be prepared to respond, who’s the spokesperson, what do you want to use to communicate, how does it get shared internally and externally and when, what are those trigger points. And I would say even more importantly than determining the process and the message, is figuring out what actions need to be taken. I think, using one example, working with a lot of clients, boards and managements teams to think through responses to the Russia-Ukraine situation, and how people were feeling, and again, reactions and actions and statements made by companies and boards can vary based on the impact to the business, where your employees are located, the safety and well-being of your team members, all of that factors into decision-making.
I have a client now that is working through a really comprehensive simulation exercise with the leadership team, that then gets elevated to the board level, on preparing for if China invades Taiwan. The implications of that to the business we’re working with are greater than the Russia-Ukraine scenario, both from a people perspective and a business consumer perspective. If there is an invasion, what is your position on the matter, but also what actions are you going to take to back that up? Because at the end of the day, as we think about board position on matters like this, you really have to be authentic. And to be authentic, your actions have to back up your words.
Ann Beth Stebbins (14:27):
So Russia invading Ukraine, planning for actions that China may or may not take with respect to Taiwan, that feels very different to me than the recent Dobbs decision. And we’ve seen a lot of clients dealing with pressure from employees to take an external position on something that’s not as clear cut as, it’s bad that Russia invades Ukraine. How are you advising clients on those types of issue issues, which are really politically charged?
Jamie Moser (15:02):
I think it’s important for companies to create somewhat of a heat map as they think about the various issues — the social, the political, the internal, any number of issues that could impact how employees engage and interact with their employer, and how they feel about their company, and therefore how they project to the world how they feel about the company.
This goes back to what Courtney is talking about, understanding what issues matter to your team members and colleagues, and what their expectations are for the company’s position on it. You’re going to have a whole range of emotions, especially on topics like Dobbs.
We dealt with a lot of companies working through communications on that, and there were very loud and chorus of voices, insisting that teams take certain actions. The practical reality of something like Dobbs is that companies — and Courtney can probably speak to this — had to work through certain logistical issues, like what the insurance allowed for in terms of making statements vis-à-vis permitting employees to travel or compensating employees for traveling to other states, if their state didn’t allow for certain procedures.
So, I think it’s making sure that you understand what questions, from a practical standpoint, need to be answered in order to deliver messages, because there’s a lot that goes into making even simple statements.
In the absence of being able to give concrete answers to employees on questions that are of great importance to them, we often like to tell people that it’s really important to make sure your team members understand how you’re thinking about issues. So, if you’re not prepared to make a concrete statement, make sure they understand that it is something you are working through, to the extent you can give details or information about what exactly you’re evaluating and that you will come back to them. One, watch out — we often find that our clients fall into the trap of setting deadlines.
Deadlines are just something to be missed. So to the extent, you can work with team members, build that credibility to say that you will come back to them, that you are carefully evaluating issues, the thought process, how you will get there, often be able to buy yourself a little bit of time, but this all is a virtuous cycle. So, understanding what matters goes into the how and when and what you will communicate.
Ann Beth Stebbins (17:39):
So Ki, as boards and management are thinking about messaging and when they will take a position on political or social issues, what else should they be thinking about as far as consequences? I’ve been reading about, Texas, West Virginia, actions that states’ attorneys general are taking in response to positions or actions that corporations operating in their states have determined to take. Can you comment on that?
Ki Hong (18:13):
Sure. It’s not just important to get all the stakeholders in the room, but also to make sure everyone understands all of the consequences of the positions you’re going to take.
For example, there is now a battle between the blue and red states to make sure that their vendors reflect that state’s view on some of the social issues. As you mentioned, in Texas, they have SB 13, which was passed late spring, where they say that they will not do business with you if you have any policies that discriminate against fossil fuel companies. Or SB, another bill that talks about discriminate against firearms manufacturers, similar laws that have now popped up in West Virginia, in Tennessee. They’re working on something similar in Florida. They have a law like that in Oklahoma as well.
At the same time, you’re seeing some of the bluer states trying to have vendors actually protect some of these areas. So you have the Cook County, that they announced they’re working on a bill that would require all vendors to guarantee access to abortion for their vendors. And Texas is working on a bill right now that’s opposite to that.
So, when everyone gets into a room here and does this balancing exercise, they have to consider all of the implications. And that’s something I am not seeing, in most cases. People are surprised that, “Hey, our climate change policy is actually going to knock us out of significant contracts in these states.”
Ann Beth Stebbins (19:59):
And when you say, get in a room, you don’t mean literally get in a room, you’re just talking about the board, in the boardroom, considering the views of these various constituencies, and weighing the business interests of the corporation, which might be retention of employees, continuing to do business with the state of Texas, keeping our investors happy.
Ki Hong (20:21):
That’s correct. And I can tell you, it’s super hard, because at the end of the day where you land, if you’re doing this balancing correctly, you’re not going to make everyone happy. There’s no way to do it. These are conflicting constituencies in many cases. And you have to come up with a position that may not make everyone happy. And in fact, if you do it right, it probably will not make anyone completely happy, right. A sign of a good compromise is that no one is completely happy with it, but everyone can live with it. And I think that’s the key to reaching this balance. And again, doing it early. This is one of those things where you’re either going to have to pay early or then pay later when you’re in the media storm. And even though it’s painful, you pay a lot less if you pay early, than later on when something’s happening.
Ann Beth Stebbins (21:15):
Is it possible to go back to the dark ages of 10 or 15 years ago, and just not take positions that are unrelated to the business of the company?
Ki Hong (21:27):
I actually have a few clients that are still holding on to that position, and they’re doing it successfully. I think it depends on the culture of the company, it depends on the industry that the company is in, as to whether they can hold on.
Now, the one thing that I don’t think you can do is go backwards. If you weighed into these issues, it’s really hard to say, “Well, never mind, we’re only going to give based on business concerns.”
The thing about political contributions that’s also a little tricky is that contributions are kind of a blunt instrument. As Jamie mentioned, some of these messages that you can nuance and you can fashion carefully. When you make a contribution to Candidate Smith, you’re essentially saying you support everything Candidate Smith believes in not just his or her policy on lowering taxes, which is the real reason you’re giving. But also his or her position on abortion. You’re essentially buying into technically everything that candidate believes.
And in fact, in the political contribution space, I see more and more clients backing off of the term values because if you say, “We’re making contributions consistent with our values,” that may not actually be true, because that candidate’s views on various social issues may not really align with yours.
Jamie Moser (22:47):
I think that lends itself to another key practical piece of advice, which is to define the issues that matter. And there’s no time like the present, or when there’s a little bit of quiet, not just to define in the boardroom what matters, but figure out how you define that more publicly because you don’t necessarily have to comment on every single issue or every single event that happens, if you’ve articulated what you do plan to comment on.
Now, there will always be exceptions to the rule, but I think if you’ve figured out a mechanism by which you can communicate that to the stakeholders that matter, especially your internal stakeholders, you’ll build that credibility. Because again, this all comes back to authenticity. If you do comment on something publicly — and by publicly, I mean whether it’s an internal note or it’s an external statement — you really do have to back that up with action.
So if you’re not going to be willing to do that, I’d think really hard about whether or not you make a public statement that could ultimately be viewed as somewhat empty.
And building on that, one of the ways I think can help build authenticity, in a really natural way, is to live your values as board members and management team members. Is there an opportunity for someone from the board to participate, Courtney, in one of the ERGs you have set up? Is there a way for there to be participation that goes beyond a statement, but actually shows something in action, so that people can really truly get a sense for how the company is thinking about issues?
Ann Beth Stebbins (24:33):
Courtney, it sounds like that is the approach that Duck Creek has taken. We haven’t talked so much about internal and external messaging, but you have talked about actions. So is that another way to think about this? You don’t necessarily have to be putting out a press release as to what the company supports, but internally, the company can be taking actions that might speak louder than words.
Courtney Townsend (24:57):
Unless you’re going to take action, I’m not sure what you’re posting or why. What does this statement mean? It there’s a difference between this internal, if a school shooting or something had happened, and internally you’d say, “Our thoughts are with everyone,” and posting what your view is on Dobbs or something else externally. But I just don’t think if there’s no action behind it, then it’s just a simple statement, and your employees are going to read into that and say, “But what did we do to live into that? That’s nice that you said that, but where’s the action behind it?” I don’t think you should make statements that you can’t have action behind.
Ann Beth Stebbins (25:33):
Jamie, just to switch tacks for a bit. We’re coming into the next annual meeting cycle, and how should boards be thinking about these issues as we’re coming into proxy season?
Jamie Moser (25:46):
I think especially this upcoming proxy season, where the universal proxy is the rule of the land.... Ann Beth Stebbins (25:54):
Explain what the universal proxy is for those who are unfamiliar with the concept.
Jamie Moser (25:59):
Generally, the universal proxy means that, if a shareholder wants to put forth a nominee, a candidate for election to the board, unlike annual meetings passed where there would be two separate cards that got mailed to shareholders, now every nominee candidate for board election will be on one card, so everybody can pick and choose individuals, not just one slate versus the other, making it easier for dissident shareholders or shareholders to get their nominees elected than ever before.
So, people are going to be evaluating board candidates. It means, from a communications perspective that board members have to be more humanized. They are going to be evaluated based on their individual contributions and merits for being on the board, not just one slate versus the other, it becomes much more personal.
Remains to be seen how many shareholders will actually use the universal, and if we really will see a big increase in activism, so to speak. But I do think, regardless, we will have a much greater focus now in this upcoming proxy season on defining why individual board members are on a board. What skills do they bring? How do they align with the skills matrix that matters for your company to execute and oversee execution of the strategy to drive value for shareholders?
So I think as we think about this upcoming proxy season, especially through the lens of social issues on the rise, and stakeholders from employees, to customers, to regulators, demanding more of companies, to make sure that we are showcasing the talents, the expertise, and what everybody brings to the board for this upcoming meeting.
Ann Beth Stebbins (28:00):
Does it also mean extra scrutiny too? So if we’re showcasing board members’ skill, past experience, it also means that investors, activists might be looking at things that are out of step in a director’s past experience?
Jamie Moser (28:19):
A hundred percent. There are increasing numbers of activists or shareholders who are trying to advocate for change or agitate at the board level, to dig into an individual’s profile, what they stand for, what person, to tie into what Ki has been talking a lot about, where they show up in terms of political contributions, what organizations they’re part of, what might be part of their social media profile, any issues or statements they’ve made publicly as an executive at another company, as an individual being quoted somewhere. I mean, there are endless ways for people to gather a dossier on an individual, an individual board member, leading into this upcoming proxy season in particular.
Ann Beth Stebbins (29:10):
So we will have to have a follow-up after this proxy season to see if these all ring true. I’d like to thank each of you for being with us today. I think this was a great discussion, and really appreciate your time. Announcer (29:25):
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