The sense is for boards to take a long-term view, cut through the noise to identify enduring trends, and to be guided by what is in the best interests of your company, writes AICD CEO Mark Rigotti MAICD.
ESG (environmental, social and governance) and DEI (diversity, equity and inclusion) certainly are the acronyms on everyone’s lips. Much of this has been triggered by significant movements in the United States. President Trump rolled back executive orders from the previous administration, targeting areas such as decarbonisation and DEI. Time will tell if these movements are enduring or temporary proclamations.
Leading up to the presidential inauguration, companies like Meta, Amazon and Ford dismantled their DEI initiatives, retreating from programs once considered business imperatives. There have also been high-profile corporate withdrawals from the voluntary UN-convened Net Zero Banking Alliance (NZBA). The Net Zero Asset Managers (NZAM) initiative has also been suspended.
What all this means for Australia’s economy and organisations is unknown. However, it is hard to see how it would not have an impact. I’ve spoken to many directors about these issues over the past few weeks and, as you would expect, there has been a range of views. For some, it represents a marked shift in community attitudes, while for others, parallels between the US and Australian environments should not be overstated.
How should boards respond?
Many have pointed out that the role of directors includes working with management to see through the noise of today to identify the enduring trends of tomorrow, and then decide how to respond to them. The role of boards is to discern what is in the best interests of the company. In practice, I see this as directors taking a long-term view of what builds value in their organisation, cognisant that strong stakeholder relationships are crucial. However, the law is clear — shareholders must be front of mind for directors.
Boards are constantly scanning the external environment for changes in regulations, evolution in stakeholder attitudes and what the broader community considers important. That doesn’t mean business should zig-zag to match societal or political winds. It means they should be aware of the broader operating environment and how trends and attitudes can impact their own business.
Directors I have spoken to recently are considering the impacts of the current ESG and DEI discussions on their organisation. Taking a fresh look at approaches is healthy. For some, that review might reveal some elements were having unintended consequences. For others, it will reinforce the importance of that work.
It’s also crucial to remember boards don’t have an unfettered ability to shift direction just because community attitudes are shifting or because newspapers are devoting pages of column space on a given topic.
Firstly, boards must ensure their organisations comply with the laws and regulations applicable to them. Secondly, they should consider what additional activities they may take on.
My hunch tells me the current discussions will trigger a calibration of DEI efforts, but probably not as dramatic as some would predict. Similarly, the global net zero transition continues, with both major parties committing to net zero by 2050.
As an example, much of the discussion on the need for greater board diversity has come from the fundamental belief that more diverse boards make for better performance.
The AICD will continue to be a champion for diversity on boards. What we want to avoid is a result that is compliance-driven, tokenistic or diversity through box-ticking. These approaches don’t deliver better performance and can be rightly criticised.
On climate, the most mature businesses are looking at the net zero transition through two lenses — firstly, how to safeguard their businesses into the future, and secondly, looking for opportunities to invest and grow, given this major economic shift.
Boards will need to continue to carefully manage the range of stakeholders interested in their approach to climate and consider what, if anything, needs to change as the external environment changes.
All of this is more complex in practice. The sense is for boards to take a long-term view, cut through the noise to identify enduring trends, and to be guided by what is in the best interests of your company.
This article first appeared under the headline ‘Shifting Sands’ in the March 2025 issue of Company Director magazine.
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