The Acronym Hijacking

Have So-Called Acceptable Beliefs Pushed Governance?Aside?

(Originally appeared in the October 23rd, 2024 'Across the Board' digital publication, a Board Director, Board Advisor, C-Level, and Business Leader publication reaching 48,000+ exceptional business leaders in over 70 countries with articles focused on leadership, strategy, and governance topics - sign up here)

Many years ago, a great mentor of mine provided salient advice?- "Have the courage to relentlessly pursue what you know to be right, no matter how uncomfortable or isolating it may be, but know it will require much more data and proof than normal."?He also stated quite often, "Don't waste your time arguing with idiots!" He was right in both instances, but let's stick to the first quote for now. Those words still resonate strongly with me today, especially the part about courage, something seriously lacking in today's leadership realm. This article falls into this exact category of discussing?a topic that may be uncomfortable for many. Maybe even eliciting certain emotions. However, know that although this topic may not be on most?public-facing agendas, it is indeed a discussion happening?often behind closed doors and in 1:1?Director discussions. It is absolutely worth talking about...

Board Directors have an insatiable appetite when it comes to gathering?information to make the most impactful decisions. I like to believe that layered within this?"data" component required for great decision making, savvy?Directors also consider the values/culture overlay for a holistic and long-lasting outcome. This combination is quite powerful in enacting positive outcomes while simultaneously empowering the organization to further the momentum. However, in recent years, many Directors feel stifled as it relates to openness and honesty on several important topics that are ubiquitous in today's leadership realm. These relate?to the acronyms* of ESG (environmental, social, and governance) and DEI (diversity, equity, and inclusion) ...and we must address the elephant in the room no matter how uncomfortable, potentially upsetting or?"triggering"?the conversation may be. After all, as officers and leaders of organizations, this is our job and unwavering responsibility. So what is going on in boardrooms around the world? Are the tough discussions taking place? Have needed discussions been hijacked by politically correct speak along with the policing of acceptable beliefs? The answers may surprise you.

One Director I advise and coach monthly said she felt "...like [her Board] was in a van filling with carbon monoxide (CO) where thoughts and reason have been blurred by an invisible fear of offending or agitating others, including fellow Directors on the Board, on topics relating to DEI and ESG. How can we effectively perform our roles when open and honest communication is not welcomed?" She is right - this is not what Boards were designed to do. Effective leadership calls for challenge, debate, respectful dissent and eventual alignment behind every decision. This includes topics that some, by today's standards, may find "offensive" to their beliefs. We can commonly group the tough discussions in many organizations into the topic areas of politics, gender, diversity, equity, and environmental concerns.

Some Boards avoid these discussions altogether, or simply apply broad brush strokes in an effort to check the box of the agenda item "complete," succumbing?to caution to not go?too deep - all in an effort to lessen any?triggering mechanisms that could send a message of turmoil or misalignment at the top of the organization. Other examples include the lack of courage to pursue risqué topics. Where does this all lead? Let's first look at an example of the ESG fervor causing major disruption when the blinders are applied and otherwise reasonable questions and due diligence?are ignored.

Hertz, one of the four largest car rental companies in the world, replaced?its CEO after the company reversed its bet on electric vehicle (EV) rentals over increasing costs. Essentially, the car rental company's investment in electrical vehicles failed due to high costs and low demand. Following Hertz'?announcement of?its biggest quarterly loss since pandemic times, Stephen Scherr stepped?down in March 2024 as Hertz Global Holdings Inc.’s CEO?and member of the company’s Board of Directors. Scherr's resignation, having led Hertz for just over two years, came?as the car rental company announced in financial filings that it had made the strategic decision?to "...sell approximately 20,000 EVs from its U.S. fleet, or about one-third of its global EV fleet, and to instead invest in gas-powered cars."

But how is this possible? Had environmental fever initially clouded their collective corporate strategic vision? Had not one Director proposed a regional test to see how strong the market was for EV rentals? Were long-term customers not asked their opinion on whether or not they would request EVs over their traditional gas-powered rental cars? Was there an ease-in period to monitor performance? Was the CEO not required to present studies and investigative findings on this strategic approach? What about reporting and trending? These are all obvious questions. What may not be so obvious is the question of whether or not individual Hertz Board Directors felt comfortable to challenge the proposed?strategic ESG direction and go against the "acceptable?opinion." There are some initial indicators that point to "not doing this was not an option."

Ironically, the Biden administration had?previously lauded Hertz for its investment in EVs as the U.S. President made an aggressive push to broadly electrify the transportation sector as part of his climate agenda. This proved costly as the desire for a quick transition was?not realistic in a post-pandemic market reeling with?lessened consumer disposable income to apply to increased EV auto purchase costs,?and the formidable EV?"range anxiety"?still harbored by many drivers today. Again, we should ask if the Hertz Board was aware of these challenges in advance and how did the answers guide their decision making, if at all?

Countless additional examples abound. In?a similarly hasty rush to jump on the accelerating "accept or die" ESG bandwagon, Volvo had previously announced that it planned to go 100% electric on all of its car models by 2030. Now, in a turnaround announced in September 2024, Volvo stated?that it is dropping its goal of making only electric vehicles by 2030, saying it now expects it will still be offering some hybrid models as part of its lineup at that point. The Swedish company, which boasts China's Geely as its largest Volvo shareholder, along with other automakers - including?Chevrolet, Ford, General Motors, Honda, Mercedes-Benz, Porsche, Aston Martin & Bentley (some of which have already lost billions of dollars on their failed plans) - have seen slowing demand for EVs as price-conscious car buyers turn to hybrids and gas-powered vehicles over affordability concerns as well as access to charging stations. Queue the same questions for the these companies' Boards of Directors?mentioned earlier...

DEI has been an even more challenging topic to navigate for?proper governance discussions in recent years. The fear of misspeaking or offending is palpable. For many Directors, challenging anything in this realm can quickly get you labeled as a racist, misogynist?or bigot who is?"missing the bigger picture." Most surprisingly, Boards in global public companies had already fully accepted and adopted the inclusion of historically underrepresented populations within their boardrooms - and were enacting their Nominating Committee guidelines in multi-year strategies to ensure success. Most organizations realized early on that this required a deeply-focused effort as many Nominating Committees had become rusty in their end-to-end processes due to years of outsourcing the search, vetting, certain appointment aspects, as well as onboarding/orientation. This would indeed have to be done internally, as many Boards decided,?due to the importance and additional moving parts. So what happened?

Many Boards (albeit in confidence) mention the camaraderie of their Board has changed, admittedly due to a) pressures to speed up DEI initiatives across all levels of organizations, and b) underestimation of the additional vetting efforts DEI requires and what is being described as the misappropriation of the "equity" component in DEI. Again, most organizations were already in lock-step when it came to the diversity and inclusion aspect of DEI, but were, and remain, woefully unprepared for what exactly the equity component represented. For example, Boards that got this right equated the equity component, following a rigorous Nominating Committee implementation, as a means to offer and apply additional training and education in areas that were lacking in an otherwise valuable Board candidate. In other words, leveling the playing field with an additional offering, at the organization's expense/investment, to elevate the equity candidate to the required operational level. This is a great example of properly applied equity measures for multiple reasons:

• The organization is truly understanding that equity is a means to elevate a candidate with opportunities either previously unavailable or unachievable for whatever reason.
• The organization is not appointing a candidate into a fail scenario where capability or experience undermine a potential appointee's authority or effectiveness well before they step into the boardroom.

In a surprising first-hand client conversation with a well-known and established minority female Director in August of this year, I was shocked to hear her plans to "...fully retire from public Board Directorship and resign my current 2 appointments at the end of my current terms." I had to find out more and subsequently asked the proverbial question, "why?" Her response was that she felt her hard work, endless preparation and years of painfully climbing corporate ladders had been undermined by equity in the boardroom. At this point I was on the edge of my seat waiting for more of the answer to be explained. She continued to state?that the Boards she is serving on "misappropriated equity" to mean the new appointments, in these particular cases, of other minority women candidates known to not have the needed skills or experience to serve effectively, was knowingly pursued. This, she said, was simply done "...in an effort to increase the percentage of minority women serving on these Boards, not to increase the Board's effectiveness. Diversity vs. equity is not fully understood by today's Boards." Her concerns, she said,?when mentioned to fellow Directors?and the Nominating Committees had no impact, with responses relating to how the public optics of new appointments were paramount and public markets demanded this.?In all honestly, I was not immediately sure how to respond to what I had just heard?other than to initially commend?her for her courage.

How did we get here and what happened to these well-intentioned initiatives??Many are coming to the conclusion they have been hijacked by fringe special interest groups and those with agendas spanning much farther than the corporate world signed up for. This is not to say that ESG and DEI are bad - they do indeed have positive qualities as far as their goals and intentions. ...But for organizations and their Boards, the ends don't?justify the means. The optics are simply too polarizing, both internally and externally.

Have the tough boardroom discussions been hijacked in your organization?

Do you have the courage to put the organization first?

Learn more?about our Board Director Education & Certification program, plus?Consulting &?Advisory?offerings,?and?International Speaking Tour topics.

(* Note: Yes, it is understood that ESG and DEI are not exactly acronyms - an abbreviation formed by (usually initial) letters taken from a word or series of words, that is itself pronounced as a word, such as RAM, radar, or scuba. The title of this article would likely have been more accurately stated as The Initial Hijacking rather than The Acronym Hijacking, but acronym sounded better!)

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About the Author: Mark A. Pfister is CEO & Chief Board Consultant of M. A. Pfister Strategy Group, an executive advisory firm that serves as a strategic advisory council for executives and Boards in the public, private, nonprofit, and private equity (PE) sectors. He is also the Founder & CEO of the International Board Director Competency Designation (IBDC.D) education and certification program, a Board Director certification course recognized globally. Mr. Pfister is a 'Board Macro-Influencer' and his success has been repeated across a wide range of business situations and environments. He prides himself on being a coach and mentor to senior executives and directors. In Board Director circles, Mr. Pfister has earned the nickname "The Board Architect."?Connect with Mark?on LinkedIn.

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