Enlightened Enterprise Newsletter 06/22

Yesterday Alison Taylor alerted me to an excellent article, "To Divest or Not to Divest? Sometimes the Choice Is Made for You", by Katie Mackenzie for Bloomberg.?

In relation to BP's decision to withdraw from collaboration with Rosneft, as a result if the Russia-Ukraine situation, she said, "if investors had found their moral compasses earlier, they may have avoided losses" in the form of a writedowns. They are losses investors appear to be accepting as inevitable, but could result in investors taking legal action against boards. Many other firms have also withdrawn and made similar losses. If only they had also found their moral compasses earlier, they could also have avoided their losses.

These remarks strengthen the case that the firms concerned need to be guided by a strong moral compass in future. But, as Mackenzie notes, "There’s a lesson in this for investors and companies who have put money into other problematic oil exporting regimes, whether it’s buying Saudi Arabian debt or trading fuels that are extracted in ways that harm local and indigenous communities."

To this let me add, there are lessons for every company, and all should reconsider what they put heir money into, and where they operate. Failure to do so represents a massive failure of Risk Management, just one symptom of the broader Global Governance Crisis as I called it in one of my earlier articles of this year.

In short, as Mackenzie observes, "The space to explain away compromised investments as “business not politics” is rapidly shrinking." And she also observes, "compromised investments" include those that do not take account of damage to the environment. To this I would add that other consequences must also be considered, including social consequences.

Rather than ESG being a add-on, environmental and social should be at the heart of all governance decisions, and must be considered holistically along with political, economic, technical and legal issues. The framework PESTLE, has long been used to assess external risk. Note, it does not include "G." Governance which, rightfully, sit's above, is the way the issues are understood, assessed and managed.

Separating E and S out, and suggesting G sits alongside them, is extremely dangerous. All the issues in the PESTLE framework are closely connected and often interdependent. For this reason, solving the E and S problems will not happen without ensuring good holistic governance. And to achieve that we must address the Global Governance Crisis. A process that needs to start with acknowledging such a crisis exists rather than being wilfully blind to the scale and consequences of existing levels of governance failures.

E and S, like all the other elements in the PESTLE framework, are systems that needs to be managed, systemically. Governance is how we manage them. The fact they are not being managed well is due to the Global Governance Crisis, and that is the result of "the dangerous critical systems thinking capabilities gap," the focus of the Mind The Gap online conference this Thursday (Free Tickets)

Investors are approving the huge write downs as companies withdraw from Russia, which represents a massive loss of shareholder value. It is happening because the boards of those companies fear the potential cost of the reputational damage that could result from keeping their interests in Russia. And, in relation to this and other compromised investments, "investors who may have been able to shrug about the effects of their investments, citing returns and fiduciary duties — could find themselves at a point where, suddenly, they can’t," notes Mackenzie.

We may have reached a significant turning point, or tipping point. A point at which boards and investors finally realise the Governance Crisis must be addressed if they are to fulfil their fiduciary duties to both creating and protecting value.

This will require them to think about governance more holistically, and ensure they have the Critical Systems Thinking skills to do so. It will also require them to strengthen their moral compass, to make proactive rather than reactive strategic and risk management decisions. Only then are they likely to avoid the need to keep having to deal with corporate crises, stop taking huge financial hits, and avoid the threat of legal action by investors. And only then will those responsible for governing our institutions be able to say that are fit for the job they are supposed to be doing.

In addition to highlighting the critical systems thinking capabilities gap, the Enlightened Enterprise Academy has developed an executive program in Critical Systems Thinking and the Management of Complexity with an internationally recognised expert in the field. Brochure

Directors and executives will also find great value in the book by Elliot Schreiber. The Yin and Yang of Reputation Management: Eight Principles for Strategic Stakeholder Value Creation and Risk Management (Amazon). It could hardly be more timely. In addition to the principles it proposes concrete actions that can be taken to strengthen the moral compass and approach 'reputation management' in a radically better way.

I worked closely with Elliot on the book and it was published in late 2021 by our sister company Enlightened Enterprise Media. Elliot and I have also developed an executive program Reputation & Reputation Risk: A Strategic Approach to Creating and Preserving Stakeholder Value, to be delivered as 2 1/2 day retreat in May, and as an online program starting in June. The APPLICATION PROCESS IS NOW OPEN. Details

We are also planning the launch of the related Strategy and Stakeholder Value Institute, "for leaders that know collaborative relationships create more success, greater value, stronger reputations and less risk."?

The Enlightened Enterprise Academy is also advocating a way to improve the moral compass of businesses and organisations. Leading with Dignity is the name of a program we have developed with Dr Donna Hicks of Harvard University, author of two books, Dignity and Leading with Dignity. Dignity Consciousness - appreciating our own inherent worth and that of other people, other beings and any thing (such as the environment) - will help make better decisions and risk management assessments. It forces consideration of the impact our decisions will have on the real or perceived worth of the people and things impacted by the decisions we make.

Leading with Dignity is a way to improve the moral compass of businesses and organisation, by appreciating the inherent worth of the people, other beings and things (such as the environment) that will be impacted by the choices made at every level in businesses and organisations - from front line employees to the board.

We already ran a first program in Leading with Dignity and got great feedback from those who participated. They were interested in becoming "Agents of Dignity" within their own businesses or organisations, or as facilitators helping others adopt the Leading with Dignity approach. The Second Online Program will run during June and July. We will also offer the program as a 2 1/2 day Retreat in the UK in September. For details email us and put "Leading with Dignity" as the email title.

With Donna Hicks, the Enlightened Enterprise Academy is also designing the International Dignity Institute. All graduates of our program will be invited to join and will receive free membership for the first year. The Institute will facilitate the development of a growing body of of knowledge and practice to support all Agents of Dignity. For details email us and put "International Dignity Institute" as the email title.