John Borneman is Managing Director, Tatyana Day is Senior Consultant, and Olivia Voorhis is a Consultant at Semler Brossy Consulting Group LLC. This post is based on a Semler Brossy memorandum by Mr. Borneman, Ms. Day, Ms. Voorhis, Kevin Masini, Matthew Mazzoni, and Jennifer Teefey. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).
“I cannot recall a time where it has been more important for companies to respond to the needs of their stakeholders. We are at a moment of tremendous economic pain. We are also at a historic crossroads on the path to racial justice—one that cannot be solved without leadership from companies.”
— Larry Fink, 2021 Letter to CEOs
At the start of the new decade, corporate engagement with environmental, social, and governance (“ESG”) issues was already accelerating—part of a large large-scale shift in corporate purpose toward responsibility to a broad group of stakeholders. 2020 had a profound impact on corporate governance and responsibility, with the pandemic shining a spotlight on health and safety and the national focus on racial justice drawing sharp attention to diversity and inclusion in corporate America.
As a result, ESG has become one of the most prominent set of issues discussed in boardrooms across the country over the past year. As stakeholder and investor focus on these issues continues to increase, corporate leadership has worked to demonstrate their commitment to progress. Inclusion of ESG metrics in incentive compensation is often seen as a key part in publicly demonstrating this commitment. As a result, ESG metrics have proliferated throughout incentive plans.