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October 26, 2022

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BDR positions ESG for prominent seat at decision-making table

By M.V. Greene

Back in person for the first time since the pandemic disruptions, Billion Dollar Roundtable Inc. deliberated the most urgent agenda topic these days confronting supplier diversity — ESG — at its recent annual summit in Jersey City, New Jersey. ESG — which stands for environmental, social and governance — has emerged as a go-to orthodoxy for judging corporate behavior, presenting socially conscious investors with a set of criteria on which to evaluate companies. 

On environmental criteria, companies defend how they protect the environment; on social criteria, they explain how they foster their relationships with key groups like employees, suppliers and customers. On governance criteria, companies justify their corporate leadership — including matters such as executive pay, internal operations and shareholder rights.

As examined at the summit, the urgency for supplier diversity — which falls into the social category — is to ensure the function has a prominent seat at the ESG table. Corporate leaders speaking at the summit said it does, although specifics are evolving. They pointed out that ESG involves measuring goals and progress, which historically has been fundamental in the supplier-diversity area. 

Caroline Litchfield, executive vice president and chief financial officer at BDR member company and summit host Merck & Co. Inc., said ESG and the supplier-diversity component command the attention of executives in the upper reaches of the company. 

“It is governed at the top of the house by our board,” she said during the summit’s View from the Top fireside chat session with BDR Chairman Shelley Stewart Jr. “Our board takes ESG very seriously. They are the ones that oversee our strategy for the company. They are the ones that are making sure we’re on track with that strategy and delivering what we say is important to deliver.” 

As a multinational pharmaceutical company, Litchfield said ESG is designed to be embedded into every aspect of Merck’s business and that a dedicated group at the company examines all elements of ESG and how it impacts the company both internally and externally. She noted that the Merck executive team meets monthly with CEO and President Robert M. Davis on ESG progress to “uncover issues and remove roadblocks in order to have impact.” 

She also said that ESG is so intertwined into Merck business operations that it is not only linked to executive compensation, but also to employee reward structure. 

ESG road map

Litchfield’s comments could have served as a road map for diverse suppliers seeking guidance on how they will need to adapt their firms going forward to meet the ESG requirements of corporations. “We are really working as best we can with our suppliers to try and help them be their best selves and help our company be its best self,” she said. 

Stewart noted that BDR has been examining supplier diversity’s alignment with ESG over the past year, including formulating a framework through its standing Global Committee that will be incorporated into the advocacy organization’s strategy. The framework is being positioned to educate diverse suppliers on how they can strengthen their knowledge and approach to ESG and create a standard for how to incorporate ESG requirements for suppliers. 

BDR also commissioned a study on ESG to assist its 32 member companies with insights to better understand ESG reporting. 

The summit’s deep dive into ESG deliberated various facets of the practice, and discussions with experts from BDR member companies outlined the landscape confronting suppliers in the social area of ESG. 

Monica Neufang, vice president, enterprise ESG program office, Johnson & Johnson, addressed a summit panel that examined how ESG has evolved from being a corporate functional requirement to a commercial imperative, urged suppliers to think of ESG as their “hygiene” that dictates how they run their businesses. 

Paul Sim, senior director of supply chain business transformation at The Boeing Co., said ESG is not about giving preferences, but creating opportunities. 

“It is moving beyond doing the right thing because it is a business imperative,” he said. “We need to have access to that diverse-supplier base in moving beyond supplier diversity. It’s going to be core to the way that we think.”

Nick Hamulak, head of supplier sustainability and executive director, sourcing at JPMorgan Chase & Co., said his company currently is engaged heavily with analyzing data to ensure it understands where ESG is headed.

“Particularly when you are talking about the environmental side of ESG, we have to get a really strong understanding of where we are,” he said. “We need to know where our suppliers are, and they need to know where they are — because without measuring it and measuring it robustly, we’re not going to be able to make those improvements.” 

Further, the speakers noted, in the environmental area it is supply chains that generate most greenhouse gases attributable to corporations. 

Governance and ESG

Noted supplier-diversity expert Reggie Williams — whose company Procurement Resources Inc. consults with Fortune-level companies on diversity and inclusion management and strategies — moderated a discussion that looked at trends in the governance area of ESG, including creating shareholder value. Joined in the discussion with Byron Loflin, global head of board advisory at the NASDAQ stock exchange, where he leads board assessments and boardroom training for Nasdaq Governance Solutions, Williams described the dearth of minorities and women occupying seats on corporate boards.  

He noted the work of Atlanta-based Herndon Directors Institute, a program seeking to expand minority board member participation. Black directors comprise only 3% of the 4,000 directors on the boards of Standard and Poor’s 500 or S&P 500 — which tracks the stock performance of large companies, according to Herndon Directors Institute. In addition, the Institute reported that 37% of S&P 500 firms have no Black board members.

“This begins with governance. It begins with having a seat at the table. The essence of stakeholder capitalism is inclusion,” he said. 

Williams praised Nasdaq Inc. for pushing a proposed rule with the U.S. Securities and Exchange Commission requiring companies whose stock is traded on the exchange to have diverse board members or disclose why their boards are not diverse. 

Loflin outlined a timeline for how governance criteria began its development within ESG, which he said was coined by late Ghanaian diplomat Kofi Annan in the mid-2000s when he served as the seventh secretary-general of the United Nations from 1997 to 2006.

Williams asked Loflin how companies can move to be more proactive in the governance area of ESG. He advised that diversity fuels better corporate leadership and better business. 

“When you throw together three acronyms like environmental, social and governance, people kind of roll their eyes, and they probably think it is kind of boring. But it is intrinsic to what we do in business if we dive into it more deeply,” Williams said. 

Advocating for disability inclusion

The summit drew more than 300 attendees, including corporate executives, policymakers, advocates, academics, supplier-diversity professionals and diverse business owners. One key moment of the event was the appearance of Lachi, a blind, award-winning recording artist, songwriter and inclusion advocate, who delivered the summit’s keynote. 

Through humor and song, she urged attendees to ensure disabled business owners have a prominent place under the supplier-diversity tent. She is the founder of Rampd.org, an organization advocating for disability inclusion and access in the mainstream music industry, and thanked BDR for recognizing certifications for disability-owned business enterprises in 2018.

“There are a lot of disabled-owned companies that are amazing, so keep your eyes intentionally on our disabled owners and entrepreneurs,” Lachi said.  

To learn more about the Billion Dollar Roundtable visit BDR.org. 

Read about ringing the closing bell at the New York Stock Exchange at mbnusa.biz/detail/.