21. Cathy Minehan on ESG: it’s about managing risk and long-term success – and it’s here to stay!

Cathy Minehan has been an active for profit and not for profit board member of a variety of entities over many and worked for 39 years with the Federal Reserve System, including as the President and Chief Executive of the Boston Bank Chapter.  In this episode she talks about the momentum of ESG (Environmental, Social and Governance) and, as a result, the focus by business on issues that will lead to long-term success.

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Cathy Minehan NACD New England Bio

Business Roundtable Statement on Stakeholder Capitalism


For a long period of time there has been a discussion: should a company driven by the quarterly earnings releases and all of the interaction with the street, or should it really focus on the long run? Should it have a purpose and a commitment? Is that what the board of directors should be espousing, or should the board be right behind the CEO in terms of hitting short-term objectives?

This has been a debate for a long-time and the longer-term look is gaining ascendance.  I think that was clear in the 2019 letter from the Business Roundtable.  And now that organizations that are very important to boards of directors and to senior management – ISS, Glass Lewis, the major financial custodians who vote a lot of the shares – it needs to be very important to boards of directors.

Big Ideas/Thoughts

What is it that is motivating this movement towards stakeholder capitalism?

I think it’s a frustration with quarterly balance sheets and the quarterly demands that are made because it doesn’t really give you  the best picture that you could have of companies that are being challenged by a lot of different things.  I also think some of the current challenges have made this even more important.  When you think about racial equity issues that were highlighted in the spring of this year, when  you think about pandemic issues and how much climate change fed into the pandemic, there are longer-term issues there, that businesses, to keep themselves healthy, have to come to grips with.

Am I saying that quarterly reporting of data and progress against what you’ve told the street, your goals are for the year, is going to go away? No, I’m not saying that. That’s not going to happen. But there has to be a balance. You have to feel the short term needs of the markets, but have that longer run focus because that’s, what’s going to keep you in the running against a whole range of different challenges

Well, I think what’s driving it is exactly what we were talking about: environmental footprints; social capital, both internal and external; major governance issues, what’s the board look like? Is it diverse, and what is its focus?  These are just really important topics, and I believe they come out of this longer-term focus, this idea that companies need to be run for a purpose, that they have multiple stakeholders.

ESG is a way of reflecting the multiple stakeholders mindset. The environment, the climate, your supply chain, your customers, people who work for you, the communities you work in and how your board, the direction that your board gives you, the kind of governance principles that the board works uses.

Ron O’Hanley of State Street and Larry Fink of  BlackRock are just two of the big names that have committed to working with companies, investing in companies, holding the stocks of companies, encouraging people to vote shares in a particular direction that are  It’s all about long-term.  ESG is risk management.

And when people like (O’Hanley and Fink) are saying “we’re going to be looking at your company to see, are you managing the risk of the future in an inappropriate way, because that is an investment risk for what we do” that is really a strong motivation to move in that direction.

ESG provides a powerful lens for focusing on the long-term, and the key driver of a company’s long-term success is effective, independent board oversight

If the CEOs of companies really are talking to their boards about stakeholder issues as opposed to shareholder issues and if the boards are really focused on that concept and that idea of purpose and commitment, I think it’s going to change the lens with which the board members focus on the company.  It won’t be enough that we paid everybody a bonus. We want to know who everybody is, and we want to know what’s the gender equity, what’s the racial equity, what’s the wage equity in the company.

We’re so used to thinking of equality, i.e., equal pay for equal work. Equal pay for equal work has been the law for sixty years, but when you look at the wage gap, the raw wage gap, i.e., what do women make versus what do men make, you will see that the gaps are large and staying large and get worse  when you put women of color, men of color, when you compare them to the wages of white men

Cathy, when we spoke earlier, you said something that really stuck with me.  There is a lot of focus on skills you need to serve on a board, but one skill you mentioned that a director must develop is the ability to realize. “If I don’t have the skillset that is needed on this board at this time, I should step down.”

Well, I personally think that this ought to be something that every board member considers on at least on annual basis in some of the annual material that you are asked to provide – an analysis of your own participation and your own contributions to the board.

I went through this on the Visa board. I was on the Visa board for ten years before it went public. I had a wealth of payment system experience from the Fed, but I did not have the technological background. Visa is a technology company. It does payments, but it’s a big technology company, and the more and more they got into that, the more they wanted and needed tech CEOs’ experiences to add to the board’s perspective.

We did a grid and it was clear the kinds of skills I brought, a lot of people on the board had them, and there were definitely some openings. So, it wasn’t something that I raised my hand and said, “I’m going to step down,” but in the context of these conversations, it became obvious that this was an opportunity for Visa, and it was something that I needed to recognize, and I needed to do, and I still look upon that as a very good decision on my part and a very good way of dealing with it on their part.