The ‘G’ in ESG: Governing for Sustainable Success - in conversation with Liz Lempres
Amidst constant conversation about ESG principles, the ‘G’ for Governance takes center stage in boardrooms and corporate discussions. In the intricate world of business, the significance of effective governance practices is resurfacing as a pivotal component within the broader ESG framework. Seasoned board directors recognize that governance principles underpin an organization’s long-term sustainability and triumph. We are in conversation with Liz Lempres, a seasoned board director. This discussion delves into the essence of ‘Governance’ within ESG, its pivotal role in steering organizations toward enduring prosperity, and examples of how these principles have been employed to usher positive transformations within boards and organizations.
With the widespread adoption of ESG (Environmental, Social, and Governance) principles, the ‘G’ for Governance has gained considerable attention. From your perspective as a seasoned board director and advocate for sustainable and profitable businesses, what does ‘Governance’ truly signify within the ESG framework? How do effective governance practices contribute to the overall sustainability and success of an organization, especially in the context of your work with large organizations? Can you offer any practical suggestions on how boards can ensure their governance approach is effective?
“ESG, or Environmental, Social, and Governance, principles have rightfully occupied a significant portion of recent discourse in the boardrooms and the broader business landscape. While much of this conversation has gravitated towards the ‘E’ (environmental) and ‘S’ (social) components, the ‘G’ for Governance remains the bedrock upon which an organization’s long-term success is founded.
“In my view, effective governance practices are based on three core principles that are indispensable for a board’s efficacy. Firstly, it involves defining the roles of the board in overseeing strategy, resource allocation, and long-term performance. Clarity in these areas ensures that the board is well-equipped to guide the organization effectively. Secondly, governance demands transparency in the information provided to the board, enabling informed decision-making. Finally, it necessitates a board that collectively possesses a diverse range of experiences and expertise, thereby ensuring well-informed judgments.
“While these core governance principles have remained constant, their interpretation and application have evolved- which is a very good thing for all stakeholders. The scope of resource allocation, for instance, has expanded to encompass not only financial capital but also human capital, emphasizing talent strategy and workforce diversity. Similarly, performance evaluation now extends beyond financial metrics to include a broader impact on employees, communities, and the environment.
“Another critical aspect is the composition of the board itself. Research consistently affirms that diverse boards, composed of members with varied backgrounds and experiences, are more adept at making sound decisions. For example, in the consumer products sector, individuals with insights into different geographic markets, an understanding of consumer segments, or experience from other industries can offer invaluable perspectives. Diversity adds to a board’s effectiveness, a principle that holds across industries.
“It’s important to evaluate how well a board is doing in living its commitment to good governance. Board effectiveness surveys can be very helpful. They’re typically done annually and often by a third party every few years to get an external perspective. I also have my own “governance temperature check” that I do for my own use. At the beginning of every fiscal year, I write down the most important issues for the board to focus on, and at the end of the year, I compare it to how we actually spent our time. This “look forward/look back” approach helps me identify gaps in the board’s agenda that I can then discuss with the CEO/Chair/Lead Director, share in an executive session, or raise through the board’s evaluation process. Most importantly, it’s a good reminder of what I can personally do to ensure to help the board stays focused on the most important issues..
“Taking a step back, I see the ‘G’ in ESG is the linchpin upon which a company’s objectives in the ‘E’ and ‘S’ realms hinge. Effective governance principles, characterized by role clarity, transparency, and diverse expertise, are the underpinnings of an organization’s resilience, sustainability, and long-term success.”
Thank you for sharing, Liz.
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A seasoned professional with a multifaceted career, Liz Lempres is currently a dedicated Board Director, specializing in cultivating resilient consumer businesses at scale. Holding the prestigious title of Senior Partner Emeritus at McKinsey & Co., her expertise in strategy, organization, and board governance is widely acknowledged. With a global footprint spanning over 20 countries, her international exposure has enriched her perspective, enabling effective collaboration across diverse cultural and business landscapes. Renowned for assuming pivotal roles in audit, governance, compensation, and CEO succession, she brings a wealth of experience to every boardroom. Committed to driving sustainable practices, her active involvement in shaping and implementing ESG strategies underscores her belief in positive change for long-term success in today’s dynamic business environment.
