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How boards are adapting to social, climate responsibility

Broad business and stakeholder focus on ESG means that board directors may need to update their skills with courses on evolving areas
The consideration of social and environmental impact is increasingly considered part of a board’s fiduciary duty

American billionaire Nelson Peltz was named one of the most influential people in global corporate governance three years running – from 2010 to 2012 – by the National Association of Corporate Directors. He is a also long-serving director and chair of the board for Wendy’s.

So what did Disney CEO Bob Iger mean when he suggested Peltz was not qualified to sit on Disney’s board of directors?

“There’s a qualification level that is required to sit on the Disney board,” Iger reportedly said at the 2023 DealBook Summit. “And the board makes decisions about who’s qualified and who isn’t qualified to be on the board.”

Peltz serves, or has served, on the board of directors for 11 major corporations and eight non-profit organizations. Clearly, he is “qualified” to serve as a director.

Specifics and boardroom politics aside, the battle over the chairs in Disney’s boardroom raises an interesting question: What qualifications and skills does one need these days to serve on a board of directors?

The fiduciary duties for directors of both corporate and non-profit boards used to be pretty straight forward. McKinsey and Co. describes a board of director’s three principal duties as hiring and firing of CEOs, providing “high-level strategic direction,” and guiding the company’s culture and ethics.

It’s this latter category that has become a lot more complicated, thanks to the increased importance placed by shareholders, customers, ratings agencies, employees and governments on ESG (environmental, social and governance).

“The biggest shift is ESG is no longer a nice-to-have, it’s a need-to-have, and it’s not a separate part of your business,” says Tessa Jordan, program head for sustainable business leadership at the British Columbia Institute of Technology (BCIT).

“Now boards of directors have to consider the social and environmental impacts of their business – it’s not optional. In fact, increasingly boards of directors need to see this as their fiduciary duty.”

According to a 2021 PwC survey, 83 per cent of consumers say companies should be “actively shaping ESG best practices.” And ratings agencies increasingly look at how companies are addressing things like climate risk.

Captured within ESG are climate accountability and carbon accounting, DEI (diversity, equity and inclusion) and Indigenous reconciliation and relations.

“ESG, as we’re talking about it today, was a very different conversation 15 years ago,” says Rahul Bhardwaj, CEO of the Institute of Corporate Directors (ICD). “Diversity on boards? Twenty years ago, it wasn’t much of a topic.”

Evolving issues that boards of directors may need to wrangle with include the changing nature of the workplace and the rise of artificial intelligence.

“We’ve got a hybrid workplace – that’s changed a lot of things on culture of organizations, the economics of some companies and industries,” Bhardwaj says. “Everybody’s got issues with commercial real estate in their footprints. You’ve got to worry about talent retention, talent development. This is in a completely new environment, following the pandemic.”

One of the fiduciary duties of a board of directors, whether it is for a business, a Crown corporation or non-profit, is managing risk, including reputational risk. Social and cultural movements such Me Too and Black Lives Matter attenuated focus on gender and race issues, which have put more pressure on board members to up their ESG chops, says Geoff Pegg, global sustainability and ESG executive for Telus.

In addition to being Telus’ in-house expert on sustainability and ESG, Pegg sits on a number of non-profit boards and is one of the corporate experts brought in to talk about board governance for the ESG fundamentals courses at BCIT.

“Skills required for board members … have changed in the last number of years – probably put on steroids here in the last half a dozen years or so,” Pegg says. “If you are wanting to serve on a voluntary or a paid board, you would be increasing your value if you had some ESG skills or your ICD background.”

He recommends that directors complete some kind of foundational training through organizations like ICD, which is a national non-profit association with 17,000 members, and is a member of the Global Network of Director Institutes.

“We make sure we stay fully abreast of global issues that are relevant to boards,” says Bhardwaj.

The ICD Rotman Directors Education Program is a designation program that is offered across Canada through a number of business schools, including the Sauder School of Business at the University of British Columbia.

“I think it’s a great grounding, and it’s very well respected,” Pegg says of the ICD Rotman directors program. The program is delivered over four long weekends with an exam at the end. It costs $20,950.

“This is something for directors to help prepare them for more complex organizations,” says Bhardwaj. “The ICD’s governance essentials program (GEP) is for newer directors and directors who are on non-profit organizations. It’s a much shorter program, but it’s a real opportunity to get the nuts and bolts – the governance essentials of fiduciary duty – board roles versus management roles, how boards work, how they relate with management.”

The ICD also offers courses that focus on specific issues, like board oversight of artificial intelligence, climate accountability and audit committee essentials.

Another organization in Canada that provides training for directors and executives is Competent Boards, which is a professional development and advisory service that trains board members, C-suite executives and investors with designation and certificate programs.

“It gives a real practical overview of ES and G, with a lot of what I would consider expertise and hands-on practical guidance,” Pegg says.

Competent Boards offers ESG designation and certificate programs, as well as climate and biodiversity designation and certificate programs.

BCIT also offers a microcredential course on ESG fundamentals. This is not specific to board members: It can be taken by anyone in an organization, although about 10 to 20 per cent of those who have taken the course to date have been directors or senior executives, says Amy Fell, corporate training lead at the BCIT School of Business + Media.

The Greater Vancouver Board of Trade (GVBOT) has sponsored a number of BCIT’s ESG fundamentals courses for its members. The course is offered a half day a week over five weeks.

“In our program, we actually frame it in a way where we’re looking to reduce harm and do more good for people on the planet,” Jordan says. “So we’re looking at what are the environmental factors, social factors and governance factors that we can change in our organizations to do more good and less harm.”

Three cohorts of the program will be offered in 2024 through GVBOT.

“We can also deliver this within an organization,” Fell says. “If a large organization wanted to offer it to their employees, we could do that as well."