Climate Change Under the Biden-Harris Administration: What Boards Should Know

When the Biden-Harris administration takes the reins of the US federal government in January, it will face challenges of historic proportions. In addition to the pandemic and associated economic fallout, the new administration aims to tackle racial injustice and climate change as top priorities.

But rather than viewing these as separate issues, the new administration is approaching them as interconnected. For instance, one of the first administration positions that Biden announced was John Kerry as special presidential envoy for climate—the United States’ first cabinet-level position focused exclusively on climate change and one that has a seat on the National Security Council. Moreover, several of the picks for economy leadership—such as Janet Yellen as secretary of the treasury—have strong climate change credentials.

Regardless of the makeup of the US Senate, we can anticipate plenty of climate action from the incoming presidential administration. Here’s what corporate boards can expect.

Enhanced Regulatory Oversight of Climate Risks

It is a safe bet that US financial regulators will increasingly recognize climate change as a systemic risk to financial systems and start to integrate it into their oversight of major industries. Less than a week after the presidential election, the Federal Reserve highlighted climate change as a near-term risk to the financial system, calling on banks to establish robust systems for climate-risk oversight. Days later, the organization announced its intention to join the Network of Central Banks and Supervisors for Greening the Financial System, a group of 75 global financial regulators seeking to combat climate change by better understanding the risks it poses to economies.

These developments add to the already growing momentum around integrating climate risk considerations into the financial system, including the release of a “first of its kind” report on climate change from the US Commodity Futures Trading Commission in September, which identified climate change as a threat to US market stability and outlined a series of steps that regulators could take to address this risk. An increase in US regulatory action would follow similar actions taken by central banks around the world, including in countries such as the United Kingdom and France, as well as by the European Commission, all of whom have or will institute climate change stress tests of their respective financial sectors.

Increased Freedom for Investors to Engage on Climate

During the Trump administration, investor engagement on climate change has been robust. The 2020 proxy season saw more than 140 climate-related shareholder proposals, with a record six resolutions earning majority votes. These actions are particularly notable given changes in regulation: just this fall, the US Securities and Exchange Commission (SEC) raised the threshold for investors to file resolutions and the US Department of Labor finalized a rule limiting the ability of fiduciaries under the Employee Retirement Income Security Act of 1974 to integrate environmental, social, and governance (ESG) issues such as climate change into their investment process (despite fierce opposition from the investor community).

In the Biden-Harris administration, we may see a reversal of these and other restrictions on the ability of investors to engage on climate change and ESG, potentially allowing investors to move forward with even more tools at their disposal.

Climate Change Disclosure Rules

Increased scrutiny of climate risk under the new administration will go hand in hand with the push for greater transparency throughout the financial system. The annual status report from the Task Force on Climate-related Financial Disclosures (TCFD), increasingly seen as the gold standard in climate change reporting, noted that while 60 percent of the world’s largest public corporations support the TCFD, less than 7 percent actually report the impact of climate change on business and strategy—hence the need for climate change disclosure rules.

Indeed, President-elect Biden has indicated that he would issue an executive action requiring climate change disclosures during the first days of his presidency. SEC commissioners Allison H. Lee and Caroline A. Crenshaw have been ardent in their support for climate change disclosure rules and could be integral in these efforts. Such action would help the United States catch up to a growing number of global peers that are creating climate change disclosure rules. In the past two months, both New Zealand and the United Kingdom began requiring climate-change disclosures from companies and investors and have pointed to using recommendations from the TCFD.

Given these likely regulatory, policy, and market headwinds under the incoming administration, how can companies prepare for these anticipated changes? In addition to building ESG competency, here’s what boards can do.

Embed climate change in enterprise-risk management. Last year, Ceres released Running the Risk, a report that details strategies for proactive board oversight of ESG and climate risk identification, assessment, and mitigation. The 2018 guidance from the Committee of Sponsoring Organizations of the Treadway Commission and the World Business Council on Sustainable Development also includes helpful advice on how to integrate ESG issues into the enterprise risk-management process.

Employ robust scenario analysis. Given the high degree of uncertainty around the impacts of climate change, companies should prepare for a range of possible scenarios—including an aggressive reduction in emissions (spurred by regulations and new technologies) and a business-as-usual scenario (where increased global warming impacts supply chains and owned facilities). This sort of planning can increase an organization’s flexibility in responding to future events and is valued by investors looking to manage portfolio risks.

Align all corporate decision-making with climate science. As corporations conduct risk assessments and make strategy adjustments for climate change, they should look to align all corporate action with the latest scientific understanding on the topic. One way to do this is to follow the more than 1,000 companies that have joined the Science Based Targets initiative.

Follow TCFD recommendations in climate disclosures. Smart risk management is not possible without a foundation of strong disclosure. This is the reason that a growing preponderance of investors, including Blackrock, are calling for rules for climate change disclosures. Companies can prepare by proactively aligning their disclosures to the framework provided by the TCFD.

With climate impacts compounding around the world and the incoming Biden-Harris administration poised to take a more aggressive stance on climate action, companies have the opportunity to prepare by increasing their climate resilience, mitigating climate risk, and openly disclosing their efforts.

Veena Ramani is the senior program director of Capital Market Systems at Ceres. She leads Ceres’ work on board governance.

NACD: Tools and resources to help guide you in unpredictable times.

Poll of Directors Reveals M&A Challenges as COVID-19 Persists

During this time of global health crisis, disruption, and uncertainty, 86.1 percent of directors say that the COVID-19 pandemic has affected their ability to pursue, finance, and close merger and acquisition (M&A) deals, according to the 2020 NACD/Deloitte M&A Poll, conducted for a second year to explore trends in the board’s role in the M&A process.

This year’s results include feedback from 178 directors who responded to an NACD email request between August 5 and 25, 2020 seeking their participation. While the survey results reveal the effects of COVID-19 on M&A activity, they also provide insight into the most important related risks for directors and the areas in which boards may have to evolve to offer adequate oversight of the M&A process.

The Pandemic Alters M&A Closings

With a majority of respondents saying that COVID-19 has affected their ability to pursue, finance, and close M&A deals, more than one-fifth (20.8%) of poll takers say it has “significantly” affected their ability to close deals. Amid this difficult M&A climate, 67.2 percent of respondents agree that there is now a greater role and opportunity for nonexecutive board members to lend their previous experience to management during M&A discussions.

Fortunately, most boards appear to have the experience necessary to provide such guidance to their C-suites, as the vast majority of respondents (96.4%) say that their boards already have one or more directors with some background in M&A.

Nevertheless, in these trying times, some boards are seeking reinforcements. More than a quarter of respondents (26.1%) indicate that their boards have considered bringing on new members with specific expertise in M&A.

Boards already play a critical role in the M&A process, overseeing the various risks associated with any deal. Of the key risks related to M&A transactions that board members concern themselves with, respondents deem valuation (e.g., the risk of overpaying) and value realization (e.g., synergy execution) the most important.

Other notable key risks include hidden liabilities and those associated with change management and culture. More than one-third (32.1%) of respondents indicate that their boards will have to evolve how they provide oversight to address the major risks inherent in the M&A process, including in the three areas below.

Nonfinancial Metrics Lacking

The aim of any merger or acquisition is to achieve sustainable growth. While it is essential to monitor important financial metrics (for example, metrics associated with financial statements prepared using generally accepted accounting principles), such metrics may not provide a complete picture of a merger or acquisition deal. Key nonfinancial metrics related to culture, community support, brand health and reputation, and sustainability may add to the picture and have even gained in importance during the pandemic. The COVID-19 outbreak has cast a spotlight on the efforts organizations have made, or the lack thereof, to be better corporate citizens.

In addition, a focus on sustainability is increasingly associated with resiliency to new and atypical risks, such as climate change. Only 31.8 percent of respondents, however, indicate that nonexecutive directors receive information on the merging or acquired companies’ progress against nonfinancial benchmarks through the close of a deal.

According to NACD’s “Strengthening Oversight of M&A” installment in its Director Essentials series, a relevant question boards may wish to ask is, “What metrics will the board use to measure the transaction’s overall success?”

Integration Strategy Needs Oversight

This year, a larger proportion of respondents indicate that their boards will hold management accountable for integration strategy (93 percent this year, compared to 84 percent last year). So close to the finish line, it is at the integration stage that many organizations notoriously trip up and the prospective benefits of a deal are lost. As organizations endeavor to realize the prospective value of a given merger or acquisition for stakeholders, it behooves boards to remain vigilant and monitor management, even after requisite signatures are affixed to the dotted line.

Questions for the board to ask include: do we have the right mix of leaders from both companies to lead the post-integration effort?

Pre-close Process Commands Board Attention

Finally, the majority (58.7%) of director respondents believe that it is likely that the acquisition pre-close process will be subjected to increased levels of scrutiny by shareholders and regulators in the coming months. It is thus critical that boards ask the right questions at this stage, such as the following:

Under state law or our bylaws, do shareholders need to approve this sale?
What authorities need to be notified of this transaction and when?
Does the transaction require regulatory approval, and what are the arguments for and against it? How strong is our position?

Even before the outbreak of COVID-19, many companies were struggling to adapt to trends such as exponential technological change and the reinvention of industry and business models. One efficient way for companies to adapt is to acquire new capabilities via M&A transactions. As such, executive teams will continue to rely on their boards’ guidance throughout the deal process both today amid the pandemic and beyond into whatever new normal the future holds.

NACD: Tools and resources to help guide you in unpredictable times.

Evolve Risk-oriented Roles and Their Effectiveness Using the Three Lines Model

The Three Lines of Defense framework has long been used to help organizations manage risk. The Institute of Internal Auditors (IIA) recently developed an updated version, the Three Lines Model, to reflect changes in risk management and governance over the years, including the idea that risk management goes beyond simply defending or protecting value. In fact, effective risk management involves proactively addressing risk and creating value.

In a recent Baker Tilly webinar, “Leveraging the updated IIA Three Lines Model for greater organizational resiliency,” my partner Jonathan Marks, firm leader of our global fraud and forensic investigations and compliance practice, and I discussed how this framework can benefit all organizations. Of particular interest to governing boards, the model can help an organization to improve its oversight and monitoring of key risks by more clearly articulating the risk-related roles and responsibilities of the board, senior leadership, risk-related functions, and internal audit capabilities.

No matter the size or industry, every organization manages risk and pursues compliance to some extent—but how effectively? Some companies operate well without formalized risk-oriented functions; but most, and especially growing organizations, benefit from assigning responsibility and accountability to support collaboration and the identification and mitigation of risks that could impact achievement of the organization’s objectives.

The Three Lines Model helps leadership, including boards of directors, see the delineation of roles and responsibilities along the “three lines”: day-to-day management, risk oversight and monitoring functions, and risk assurance-oriented functions, such as internal audit. It also provides a customizable framework upon which to build your organizational understanding of and approach to risk management and monitoring functions. This includes how the organization effectively interacts, communicates, and collaborates between and within each of the three lines. Visualizing how these capabilities work together and address their respective areas of influence can help to identify functions in need of role clarification to ensure no unnecessary duplication or overlap, and any gaps in organizational risk oversight.

In a time of rapid change, clarity around enterprise risks, risk ownership, and risk-related roles and responsibilities can help to support rapid decision-making and prevent organizational risk information from becoming siloed. Becoming a more risk-resilient enterprise requires communicating where the organization is in relation to managing and overseeing risks, where it is going, what risks it’s facing, what challenges management is tackling, how the strategy is changing, what the competition is doing, and how all of these elements affect the organization.

In considering whether to use the Three Lines Model to take a closer look at the organizational risk-management structure, boards and senior leaders may wish to consider asking the following questions:

To what extent have we clearly internally articulated the interrelationships among our risk-oriented functions?
When the business must adapt quickly to address factors beyond its control, to what extent does the organization leverage enterprise risk information to inform decision-making?
Might a greater degree of formalization and clarity around risk- and compliance-oriented roles support strengthened decision-making and the pace of company-, industry-, or market-wide disruption and transformation?

After a year of novel, unpredictable, and ever-present sources of stress for businesses that may only be more dynamic in the year ahead, leveraging the Three Lines Model to evolve a more harmonious risk-management structure, with clearly defined roles and responsibilities, can better equip organizations to respond to these stressors as a united and collaborative whole.

Raina Rose Tagle is a partner in the risk advisory practice at Baker Tilly.

NACD: Tools and resources to help guide you in unpredictable times.

Continue Enhancing Developmental Efforts to Excel in 2021

The conclusion of 2020 marks a year memorable in many ways.  The end of the year will not miraculously resolve challenges experienced throughout, however, it does provide an opportunity to harness this experience in preparation for the future.  This year all organizations have had to strategically rethink the way they do business.   Leaders learned to reach their teams in new and novel ways and employees approached their work from unfamiliar context and perspectives.  As we enter the new year, take advantage of the notion that “change begets change”.  Seize this opportunity of transition to create an ecosystem in which your employees, and hence your organization, are poised to succeed now and into the future.

Just as your organization is unique, every employee is in a different phase of their journey with distinctive challenges and opportunities.  Successful organizations are examining the complete employee lifecycle to align and add value at each step along the way.  By focusing on individual needs and targeted growth, investments in employee development produce greater engagement, productivity, and return.  Career Partners International delivers human capital consulting programs across the globe at all levels of the organization.  Below are just a few examples of ways in which our CPI Partners help their clients chart a successful course for the future, even during the uncertainties of today.

Executive CoachingIt’s no secret that 2020 has upended how people relate and integrate to get work done.  Digital markets, consumer behavior, leadership development, and general workplace processes have been disrupted by cats walking across video screens, children interrupting negotiations or planning sessions, and even lost connections to critical server-held documents.

What has not changed in 2020 is that people must pivot; leaders just need to pivot more quickly.  Our talent development practice has paid close attention to supporting leaders who have had to hold things together on a grand scale, make incredibly difficult decisions around remote work and employee well-being, and navigate turbulence like never before.  Here are three specific behaviors our executive coaches have found critical for leaders to harness and leverage if they hope to be successful in the future.

Listen more.  Our current environment has proven that people will step up and step in when their voices are heard.  The current style of interacting in a “zoom room” has opened the door to incredible innovation.  

Get comfortable with intimacy.  Having visibility into peoples’ homes and moods is the new normal.  Boundaries are more fluid as we seek to truly embrace diversity, equity & inclusion.

Build trust and transparency. Remote work and easy commutes are here to stay.  Leaders must over-communicate and lead with integrity knowing that individuals and teams will rise to the occasion when trust is there to get work done.

Adena Johnston, D. Mgt.Master Corporate Executive CoachVice President and Practice Leader, CCI Consulting

Professional DevelopmentMany of our clients are looking for new and innovative ways to support the development of their employees to create a better employee experience, build stronger engagement & retention, and identify new leaders across their enterprise. Using our PowerAmp Coaching approach, we have provided clients with a solution that combines high touch live coaching with an AI based technology platform that allows them to bring development to a wider range of employees within the organization.

Our clients are using this solution to provide development skills for those employees who would not normally be selected for leadership coaching programs yet need to be strong in their roles as leaders within teams, across networks, and in their daily activities.  PowerAmp Coaching is also being used to identify employees who are most interested in their career development, ensuring returns on investment.   We are working with organizations to integrate this solution into high potential programs, greatly reducing the risk of spending development money on employees who are not willing to invest in themselves.

The way we work has changed significantly over the past year; PowerAmp Coaching provides a great opportunity to bring forth leadership skills at a large scale on a virtual basis.

Larry FisherVice President, Career Transition & Executive CoachingThe Ayers Group

Retirement CoachingWhat a challenging time we live in!   Many individuals have been faced with a career change they were not expecting, which often leads to a major point of reflection on the future.  For those between 50 and 70, it is especially difficult to determine what is important in life, beyond their traditional job.  The New Horizons LifeOptions-Lifestyle Planning program provides an ideal platform to help participants plan beyond just the financials of retirement, should it be in the next 15 days or next 15 years.  Retirement is a key milestone of the employee lifecycle and organizations that support their employees in preparing for this journey have found greater engagement, increased transparency, and stronger succession planning.

Coaching a future retiree with New Horizons provides them with the opportunity to learn new things about the journey which they are about to embark as well as confirm their predetermined thoughts about retirement; both are important.  During the assessment phase of the program considerable time is spent understanding that our past job was, for many of us, the total embodiment of who we are to ourselves and to our community. For many this means re-inventing oneself and discovering other aspects of life we love. For others, this means accepting that we are more than the subject matter expert in an industry, we are a grandparent, a friend, a yoga lover, a woodcarver, a whatever.  Some have gone on to “encore careers” matching their passion with interest; a Supply Chain Director who took on piano lessons, a Data Analyst opening her own catering company, an HR Training Manager volunteering to teach reading in the inner city, and many more.  By shifting the vision of retirement to an opportunity, rather than a looming and uncertain inevitability, employees can become more engaged and involved in their own succession exit. New Horizons are out there to be explored…now more than ever!

Gregg LevineSr. Career Transition ConsultantRatliff & Taylor

Career ManagementAs we approach the new year, many firms are looking at new and compelling ways to enhance employee experience.  Talent is feeling overwhelmed, disconnected, and at risk of burn-out.  Driven by trends related to a new social contract, an ever-evident war for talent, and rapidly changing environments, employees are hungry for more transparency and support related to career growth and development.  In fact, research from Fuel50.com shows that a staggering 81% of employees feel that their skills are not being fully utilized at work.  As talent leaders consider investments for next year, providing scalable and accessible access to insights, coaching, and mentorship support and learning opportunities will be key to satisfying this pervasive demand.

To add to this, research still shows that organizations are more inclined to hire externally, even though the data shows the merits of looking internal first.  This parallels research that shows only twenty-one percent of respondents believe their managers have the skills required to help employees develop their careers. Forty-six percent of survey respondents from a recent Deloitte survey say managers resist internal mobility.  Coaching and feedback are now table stakes competencies for leaders to do the important work of engaging and growing talent.  Investing in coaching, feedback, and productive conflict skills is essential to building or enhancing career agile cultures.

Liane TaylorCareer Engagement Practice LeaderThe Talent Company

In preparing for the new year, understand that the needs of nearly all employees have evolved, as have the tools available to support them.  Whether 2020 brought a struggle or a windfall, a challenge or an opportunity, continuing to invest in the people that make an organization great will yield sustainable positive returns.  Career Partners International Members all over the world are here to support the growth of organizations, their leaders, and their employees during every point of the journey.  We wish each of you a prosperous New Year.
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Minnesota Speaks – Leadership in The New Work Environment

The COVID-19 pandemic is administering an exhausting, once-in-a-centurystress test to every system of American life and culture. Organizations areworking to maintain effective, efficient operations as employees, customers, and communities at large face constant fluctuation and ambiguity.

With no immediate end to the pandemic in sight, CPI Twin Cities explored how the circumstances impact companies and leaders. Below is an excerpt of their research. To download the complete document, click here.

What Are You Doing to Create Vision andFocus?

Leader responses to this question created a wide spectrum. At one end, theorganization achieves very little in the way of vision and focus because thebusiness is in survival mode. At the opposite end, companies conduct globaltown hall meetings (involving 25,000 employees) to reaffirm values, crystallize vision, and re-establish core business strategies. Companies committing to vision and focus prioritize four areas:

Focus #1: EmployeesRespondents agree on the need to ensure employee safety, listen to concerns, show compassion, and demonstrate flexibility. One leader stated that his HR team created a customized work plan for each employee to alleviate pandemicrelated stress at the individual level. Multiple organizations delivered care packages to employees’ homes.

Focus #2: CustomersThe importance of prioritizing customer needs during the pandemic comesthrough in remarks like efficient and streamlined focus on the customer and unblinking focus on providing the best possible customer experience. Laser accurate customer focus helps employees understand they are responsible for business viability because success in the future depends on customer treatment during the crisis.

Focus #3: The BusinessSome organizations capitalize on opportunities that emerge from the pandemic. One company, citing positive opportunism, deviated from core business strategy and the traditional product line to manufacture personal protective equipment (PPE). Other respondents referenced tweaking strategic plans to redeploy resources.

Focus #4: The FutureEffective leaders are communicating a growth agenda through 2022, while also sharing specific go-to-market strategies for 2021. One executive highlighted early communication on how the company is better positioned post-pandemic.

To download the complete document, visit Career Partners International – Twin Cities.
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Take a Time-Out to Celebrate Your Team

I have always found the beginning of December to be a time to reflect on the year that has been.  It is such an energetic time with opportunities to meet with folks I haven’t seen in awhile, re-establish old business connections, and generally feel that ‘peace on earth – goodwill towards others’ that is the hallmark of the season.  Concurrently, we see our pace of work become a bit frenzied.  Our end of year tasks coupled with the demands of the holiday season can make for stressful times.  And importantly, everybody looks forward to holiday festivities in their own organization; be it a big year end party, a staff potluck, or a festive lunch to celebrate the year gone by.

Then along came the year 2020 – a year that has turned social gathering and connectivity on its head!

So, this year I started to reflect on what the Holidays really mean.  Perhaps this is more than just an event or a season but rather a frame of mind; the holiday spirit, if you will.  An expression of goodness, wellbeing, and peace on earth.

At the beginning of this year, many people reflected on 2020 in the context of 20/20 vision.  For those of you lucky to have 20/20 vision you know how incredibly sharp and focused your vision can be.  I recently underwent laser eye surgery in a vain attempt to acquire that elusive 20/20 vision.  Upon completion of the procedure, there are a few tense days where your vision is blurry and you wonder if you made a big mistake.  Your eyes just need rest, a ‘time-out’ to recuperate, and after a few days it is the most magical experience; truly clear vision without glasses or contact lenses.  I am left to wonder if perhaps, in some strange way, the year 2020 has given us that ‘time out’; the rest we required to refocus.

The holiday season is upon us and it is time to once again take a time-out to think about what might be most important to our team.  Here are a couple of ideas that organizations and leaders can use to help recognize our incredible employees who have worked so hard under the most unusual of circumstances this past year:

One Size Fits One.  No two people are alike, so you will really need to think about what is important to each person in your organization.
Some people love the gift of time.  With Christmas Day falling on a Friday this year, is there an opportunity to give a little more time off?
As Olivia Newton-John sang, “Let’s get physical”.  I say, “Let’s get flexible”.  Of all the years where flexibility is critical, 2020 has proven to be the one.  What can we do to be a lot less rigid throughout this special time?
The Holidays are always a tough financial time for just about everybody.  Is there a possibility to kick up the incentives this year?
Have fun!  Many organizations have adopted this principle throughout the year, and I think it’s time to double down on it for the Holidays (Do not lose sight of the fact that not everyone will want to participate.  Make sure you do not force activities on those that would prefer not to join.)
Get off technology.  How about sending a hand-written card to your employees or customers?  Pick up the phone and talk to somebody “live”.  What about dropping by and saying “hello” to your employees/customers in person while adhering to the strictest of physical distancing protocols?
As simple as this seems, be grateful.  Many of us have much to be grateful for; let’s embrace it.

Has 2020 let you pause to think a little harder about the things that are of utmost importance to us, our organizations, and our people?  Is this the gift of 2020?  Determining what is truly important to us? Uncovering what we really value in our lives and the places where we work?  Focusing on what does and does not matter?

I know many of you have reflected on these questions over the past several months and I believe the opportunity to stop and reflect has been the greatest gift of all.  Consider this for your employees as you thank them for their extraordinary efforts in the Holiday Season.

Terry Gillis CEO, Ahria ConsultingChair, Board of Managers, Career Partners International

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