Podcast: Discussing Environmental, Social and Corporate Governance (ESG) with Public Policy Attorney Rich Gold and Dan Ekstein of Sagac

Rich Gold: Thanks for joining us for another episode of our Eyes on Washington podcast, and wasting another perfectly good 20 minutes of time with us. I'm joined here today by Dan Ekstein of Sagac, and we look forward to a good episode today. So, Dan, let me kick it to you.

Dan Ekstein: Great. Well, Rich, thank you so much. Hello, everybody. You know, we really do appreciate the partnership with Holland & Knight to talk about topics of interest to government relations executives. Rich, thank you for letting me be part of this. You know, on a topic that's getting increasingly more attention with government relations executives, which is ESG, the acronym for Environmental, Social and Governance. I'm sure if the listeners do a quick internet search, there'll be a lot of background on ESG. But, you know, we're at the end of shareholder season and particularly now if you had any stock, you know, there has been a significant focus on how public companies perform, not just on their ability to sell product and services, but their efforts to impact the greater good. You know, whether it's a commitment on climate change or ways to address social inequalities. Investors are asking companies to take positions and lead on big policy issues or matters beyond their traditional business objectives. In addition, many companies have active and vocal employees, and employees are becoming more involved and organized within their workplace, and social media seems to be making it easier for employees to be more willing to publicly express their views about their company and their practices. But, you know, ESG really isn't an investor relations or just, I should say, in investor relations or human resources issue, I think it is becoming, and I know Rich you and I have talked about this a bit, too, it's becoming more of a government affairs focused component, particularly as it relates to how organizations decide to comment or not on broad social issues, you know, what they lobby on or not, and the types of candidates they support through their PACs or not. You know, corporate executives, I think Rich are kind of in a pickle, if you will, because they're cautious and also cognizant now, probably more than ever, of the costs, really, of corporate activism. So, Rich, maybe, you know, I can throw a couple of questions out. We could just talk a little bit about how companies maybe can navigate through these waters. So really the first question back to you on this, Rich, is the notion of trust, right? So, you know, fundamentally, you know, an effective government affairs function is all about establishing and maintaining trust with policymakers and candidates. And, you know, if a company is making statements on broad policy matters that may potentially, you know, alienate one side or the other, you know, how does that impact that notion of trust? And frankly, then how also, following that is, how are some of your clients sort of thinking through and navigating through these waters?

[ESG is] becoming more of a government affairs focused component, particularly as it relates to how organizations decide to comment or not on broad social issues, you know, what they lobby on or not, and the types of candidates they support through their PACs or not.

Maintaining Trust While Navigating Major ESG Issues

Rich Gold: Yeah, it's a good question, Dan. It's really a tough moment in time on that issue of trust, because as we all know, the country, not just from a political perspective, but out in the real world, is more and more divided, more red, more blue, deeper red, deeper blue. And, you know, companies, most companies, have employees and have customers and constituents that are in both camps. Very few companies only have to sell in large urban areas or rural areas. And how you undertake ESG commitments and maintain credibility with people watching and caring about those things, but also avoid alienating audiences that may be alienated by certain commitments you would make in that situation becomes more and more difficult. And, you know, all of this hearkens back to sort of the last five years leading up to the Business Roundtable (BRT), commitment of corporations standing for more than profit and having a positive social role to play, which was really sort of a watershed moment. And I think at the time, all the CEOs thought it was common sense and made sense for the BRT. And now, of course, we have gone through the bathroom bills in Georgia and Texas. Most recently, we've gone through Disney having its special district privileges revoked in Florida at Disney World. And we're seeing sort of the upside and downside of speaking out on ESG issues. We are also seeing more subtle criticism, particularly from the right of woke corporations working on issues that are none of their business. And the position that many conservatives are taking, that it isn't the business of companies at the end of the day to advise or make decisions on policy issues like this. It's the business of companies to make income and give jobs to employees, and that's it.

How you undertake ESG commitments and maintain credibility with people watching and caring about those things, but also avoid alienating audiences that may be alienated by certain commitments you would make in that situation becomes more and more difficult.

Balancing the Interests of Various Stakeholders

Dan Ekstein: Let me ask you a question on that point. You know, I'm not a CEO, but my observation would be is that they're pulled, you know, or senior executives in a corporation are pulled at these strong currents of, on one end their investor group that they care deeply about, particularly publicly traded companies. And then, of course, obviously, depending - well, any size company would be obviously they're concerned with their employees and their employees view - so they're getting pulled potentially, you know, in two different directions or they're being pulled in one direction, which is be more active on these broad topics. But then they're hearing from senior policymakers that there's some potential backlash that may come about if they, frankly, focus on broader topics. I mean, how does a CEO, how do they navigate through that?

Rich Gold: Well, that is, you are viewing it from the perspective of sort of the downstream element that is visible, in talking about shareholders and employees and, you know, other stakeholder groups. The other thing that is really difficult for CEOs is you are talking about big money on both sides, right. So the billionaire class, when you've got the money to spend investing on the left, to run shareholder campaigns, to push Exxon to make climate commitments and take on climate change more seriously is something you can do. Similarly, on the right, you can go out to Republican states and spend a lot of money and have states basically say to the financial institutions who do their bonding and, you know, do loans in the states that they won't get any business if they have a no carbon or zero carbon requirement for their loans in the private sector. And obviously, that was an anti-BlackRock effort that was very well financed again by, you know, some of the typical foundations on the left and the right that we see engaged in this space. So stakeholders, I don't want to say stakeholders are a front or a tool, they're not. Obviously, they strongly believe in their positions. But what makes a difference here is the amount of money being spent. And CEOs aren't used to being caught in between warring campaigns that are funded in the tens, if not hundreds of millions of dollars, sometimes with a particular company in their sights. But oftentimes of the particular practice, whether it's a commitment to net zero emissions by 2050 or LGBTQ rights within companies, etc.. So, you know, look, the biggest thing coming down the pike that CEOs are going to have to deal with, I know, because we're doing counseling on this now are very concerned about Roe v. Wade. What do companies do to somewhat compensate for women employees for women's health issues? For instance, if a woman works in Texas for a tech company, does the tech company pay for travel benefits to a state where she can get the health services she needs? And if they do so, are they opening themselves up to criticism from the governor of Texas or other conservative spaces in terms of taking a policy that clearly would be accused of trying to work around, you know, then law of the land. Every company is going to be facing issues like that going forward, and that's just the most obvious one. You know, coming up in the next few weeks, these things seem to be, you know, coming at a pace now of, you know, every couple of months there's another major issue.

I don't want to say stakeholders are a front or a tool, they're not. Obviously, they strongly believe in their positions. But what makes a difference here is the amount of money being spent.

Dealing with Internal Audiences

Dan Ekstein: Can you touch on you know, because my observation is, because of the internal advocacy work we do with companies, the tremendous amount of sensitivity, if you will, on making sure that, you know, messages are as balanced as possible in terms of how, you know, companies, public policy priorities, why companies engage the value and purpose of engagement. But then and the companies obviously are encouraging, which is a good thing. Affinity groups, many different types of affinity groups. And some of these groups are very vocal. And I think some of the concern by some executives is that, you know, they want to encourage these groups to have conversations internally and to coalesce. But then at what point do those groups potentially sort of say, oh, we'd also like you to sign on to this bill or push this particular agenda item, which may not comport. And there are probably not just HR related matters, but there are public policy and political engagement concerns as well for that. And I guess to some extent, you know, sometimes the loudest voices, that may not be the most important issue. So how do you, I mean, are you seeing any of that in your counseling with some of your clients on how they're dealing with the internal audiences?

Rich Gold: Yeah, for sure. And I'm on the phone for a couple of those calls. And, you know, if you have a company that is headquartered, say, split headquarters between a blue state and a red state, and you get on the phone with the C-suite and, you know, some of the other key officials in a company. And you kind of go through the women's health issue and the choice issue that I just discussed, you get some, you know, average American discussions going on, and you certainly would have that when you get down to the worker level at, for instance, manufacturing company where you're going to have very diverse views. So I think that what we've been talking to CEOs about is it all has to come back to the business and the bottom line at the end of the day, you're doing things on, for instance, the choice issue. You're making a decision based on we must have the top talent, and we cannot be losing talent because of where our workers are located and what choices the state makes in terms of these women's health issues. We are committed to supporting the women that work at our companies and helping them access the healthcare they need. And that is going to make us a talent magnet and that is going to make us more successful than our competitors. Similarly, on climate issues, you know, obviously, many companies can make the argument that they have developed and are working to implement technologies or solutions. This is going to help them make money off of the energy transition. And that is why they are committed to climate change. It is about shareholder value, it is about profits. And, you know, if you're connecting it back to the purpose of the corporation, it's much more difficult for somebody to attack you on the progressive side, at least from the right. In terms of advocating for particular legislation based on that. To me, that's always another jump. I mean, you know, different companies decide to advocate on different issues for many reasons and don't necessarily advocate on issues that they generally support just because they support them. There's got to be prioritization. Every company has the list of the top 3 to 5 things that are the most important things that they're advocating on with the government right now. And oftentimes that issue is not going to be the top issue, and they're not going to take a stance on a bill where they don't need to because it's not a top priority. So you know that second step of not only do I have an opinion, but do I want a voice it to state legislators or Congress or the executive branch is a much not a much bigger step, but a bigger step. And that is where you really get into what your priorities are and, you know, political risk and all that sort of thing.

What we've been talking to CEOs about is it all has to come back to the business and the bottom line at the end of the day, you're doing things on, for instance, the choice issue: you're making a decision based on we must have the top talent, and we cannot be losing talent because of where our workers are located and what choices the state makes in terms of these women's health issues. We are committed to supporting the women that work at our companies and helping them access the healthcare they need. And that is going to make us a talent magnet and that is going to make us more successful than our competitors.

Structuring Conversations About ESG Issues Internally

Dan Ekstein: It seems, just to kind of pull that string just a little bit more, it seems like the companies don't have the luxury to not talk about those topics inside anymore, almost as if they have to develop some structure for the conversation. Not that they'll solve anything, but at least give the opportunity to sort of have opinions voiced in some safe way, if you will, for lack of a better term. I mean, is there anything that you've seen that other any of your clients in terms of how they structure the conversation or some still trying to figure out their process for that?

Rich Gold: Yeah, I mean, good question, Dan. And I think that's one of the areas that is changing in real time as we're talking today, you know, the art of the doable six to nine months ago was the C-suite sending out an email, you know, and all employees email saying, we're concerned about this issue, we care about it, and it's something we're going to be engaging in, you know, in the public space. You know, today, that kind of sort of generic non-interactive response is not going to cut it. If we're talking about abortion and choice or gun control or any of the issues that we see coming down the pike, including the fall elections, which, you know, given everything going on with the January 6th hearings and everything else, could be, you know, incendiary in their wake. So I think people are trying to develop that more interactive communication space with employees to engage in the virtual watercooler talk, not ignore, you know, the 900 pound gorilla sitting on the table, whatever the social issue of the day is with employees, but also not have it be distracting from the core mission of obviously making widgets or whatever the company does. But the reality of where we are today is that people go to work and work is their social network and they discuss these things within their social network and they come to conclusions. And along the way they kind of ask, "Hey, where is my company on this?".

So I think people are trying to develop that more interactive communication space with employees to engage in the virtual watercooler talk, not ignore, you know, the 900 pound gorilla sitting on the table, whatever the social issue of the day is with employees, but also not have it be distracting from the core mission of obviously making widgets or whatever the company does.

Is It Feasible or Smart for CEOs to Disengage from ESG Issues

Dan Ekstein: Yeah, you know, you mentioned something earlier, too, and I know we're running really tight on time. So as we start to think about the wrap up, you mentioned something about big money involved in these sort of shareholder activities. And so what that tells me is, is that even if a company was to fulfill commitments, you know, the groups that are pushing for certain topics would say, well, wait a minute, then there's something else, right? Because they frankly want to probably keep the lights on after they've claimed victory. So what I imply from that means is, this isn't going away. The ESG and other broad topics like this, it may even get noisier as we get towards closer to November and as we move beyond. So I mean, you know, what's the counsel to a CEO that basically wants to throw their hands up and says "I don't want to be involved at all." Like this is just it's a no win situation and therefore, you know, a blight on both their houses. Any any reactions to that?

Rich Gold: My general reaction is it's really hard to get a CEO gig if you're an ostrich, but if you're already a CEO and you're going to try to ostrich, which I will use as a verb, even though I'm not sure it's supposed to be, you know, I think you are in severe danger of getting kicked in your butt while your head is in the ground. I don't think that's a realistic approach to how people are processing these issues at this point. 24/7 traditional and social media coverage on issues and the expectation today, particularly coming out of the pandemic from employees that they are looking for, if you want to know what companies are winning, companies that are winning are providing meaning to their employees through the job experience. Employees want to feel that they are accomplishing and achieving something that matters. And ignoring the issues of the day is not going to make you best in class in being a talent magnet, you know, to sort of figure that piece into meaning. You don't have to be a Fortune 500 company that has the same purpose as Habitat for Humanity. But you need to figure out what you stand for, why employees should come to you, or people should come and get a job with you. And people have an expectation that you are going to stand for something and not run from saying anything.

It's really hard to get a CEO gig if you're an ostrich, but if you're already a CEO and you're going to try to ostrich, which I will use as a verb, even though I'm not sure it's supposed to be, you know, I think you are in severe danger of getting kicked in your butt while your head is in the ground.

Dan Ekstein: So let me give you the easy layup as the last question. So is that a win-win then, so can the company succeed on their public policy objectives and navigate through these waters in terms of sort of these broader social issues? I mean, is it possible to be able to do both successfully?

Rich Gold: Yeah, absolutely. I think you have to start from the presumption that you're not going to make everybody happy all the time. And just like in the real world as individuals, where on any given day, you know, we're not going to be popular with everyone, you know, that's certainly going to be the case for companies where they're going to have to make some hard decisions sometimes and piss off the left or the right. All that said, it's all about balance and it's finding that balance between the two, such that you are maximizing shareholder value, which is end of the day, still matters most.

Dan Ekstein: Rich, this was great. Thank you for the time.

Rich Gold: Thanks for going in, Dan, and thanks to all of you out there who wasted another perfectly good 20 minutes of time listening to us today.