PURPOSE, INC.

Subscribe To The Podcast

S2 Ep15 Talking numbers and the narrative with Michael Young of Actual Agency and Noah Miller of Calibrate Partners

Transcript

In a special episode, host Michael Young, founder and CEO of Actual Agency, and Noah Miller, founder and CEO of Calibrate Partners, discuss changing expectations and heightened tension between corporations and stakeholders around ESG and sustainability. We discuss how ESG serves as a litmus test of leadership in 2022 and beyond, we highlight a few exemplars of corporate purpose, and examine what happens when there is a breakdown between the numbers and the narrative - including in the PR industry.

Adrienne Wojtaszek:

Welcome to Purpose, Inc., the podcast where we discuss corporate purpose and stakeholder capitalism. I'm your guest host, Adrienne Wojtaszek. Today we're turning the mic around for an interview with Michael Young who you know as your host of the Purpose, Inc. podcast. Michael is also the founder and CEO of Actual Agency, a PR firm that works with organizations to develop and integrate their purpose narratives throughout their internal and external communications, PR strategies, and ESG reporting. Michael, it's an honor to welcome you to your own podcast.

Michael Young:

It's great to be here. Thank you for hosting.

Adrienne Wojtaszek:

Absolutely. And we're also joined today by special guest Noah Miller. He's the founder and CEO of Calibrate Partners. Noah and the Calibrate team help organizations design commercially relevant ESG strategies that align with their intended corporate purpose. Noah is also a frequent speaker and lecturer on a broad range of ESG topics for academic institutions, trade associations, and civil society organizations. Noah, welcome to the podcast.

Noah Miller:

Hey, Michael. Hey, Adrienne. Great to be here.

Adrienne Wojtaszek:

Welcome to you both. And we have a lot to talk about today. So we can simply read some recent headlines to see how quickly the expectations around ESG are changing. There's a lot of tension that we're seeing between corporations and stakeholders which is creating both opportunity and peril. There's this new contract between corporations and society, a big change in expectations, and it's a complex environment coupled with the inertia of greenwashing, new regulatory requirements, and as we saw that the U.S. Securities and Exchange Commission introduced a proposal this week to regulate the way companies report greenhouse gas emissions. So Noah, let's start with you. It seems we already have an alphabet soup of standards and ratings, and at the same time, there are these proposals for additional reporting requirements. Can you paint the picture for us around this regulatory environment?

Noah Miller:

Absolutely. And this regulatory environment is really changing on almost a daily basis with the recent SEC announcement which you mentioned, Adrienne. Right now, you're seeing this explosion of disclosure regulations in the major economies around the world, and companies are scrambling to get the internal infrastructure, the planning, and really the people in capacity to start plan, tracking, and reporting on their ESG impacts and results. And what's mucking it up even more, as you mentioned, are these whole groups of rating entities, reporting frameworks, disclosure initiatives that starts to create a really messy, as you mentioned, alphabet soup of what framework do we use for reporting, what metrics do we report on. And ultimately, companies are really trying to figure out what is relevant to us and our stakeholders and really what do we need to do about it right now. And you're seeing companies that are getting in front of these disclosure regulations are having a lot of strategic reputational and operational value. And you can see that folks that are slow to the game here to start reporting on their impacts are immediately facing the headwinds of these changes that are happening and these changing expectations. So it's really becoming something that was peripheral to the main operations of the business now being a necessity and ultimately, table stakes. Michael, what do you think, being on the communications end of the spectrum? What are you seeing out there as it relates to the proliferation of ratings and reporting and all these different folks looking for disclosures?

Michael Young:

Yeah. Well, I think you nailed the point about data and fundamentally understanding what are the right metrics, what are the right reporting frameworks, and having that foundation in place prior to communicating. And I think if there's anything we're seeing, it's organizations that are not entirely clear about materiality in their business. And so they wind up communicating across a whole spectrum of issues and topics, and those could be climate related, those could be stakeholder or social issues which they want to communicate around but aren't ready to communicate around. And so we see this breakdown between the numbers and the narrative, and usually, where we see opportunity in peril as, Adrienne, you kind of outlined in your opening remarks. We see a breakdown when organizations are not clear about what's material to their business, what are the proper frameworks to report into. We see a lot of reporting not always necessarily on things that have material impact on the business.

Adrienne Wojtaszek:

Right. And so Michael and Noah, like you've talked about, we're seeing this new and evolving contract between corporations and society. According to Deloitte's most recent global Millennial and Gen Z survey, 87% of this population believes companies should take a stand, be part of the solution to these issues. So they feel compelled to make these commitments. But like you said, Michael, they don't always feel ready to do so. Can you speak to where do we start with we need to make these commitments and what do we do now? Noah, what do you think on that?

Noah Miller:

Yeah, yeah. Well, today's boardroom is facing a lot of difficult challenges. You're looking at issues like growing wealth inequality, natural resource scarcity, the climate catastrophe. And stakeholders are expecting companies to not only take a stand but actively use their business to engage and address the issue. And with so many kind of BHAG, big, hairy, audacious problems out there, I think executives are struggling to identify really what's commercially relevant as it relates to our business and what is the socially impactful elements that tie back to the business in the industry and the real capabilities of the organization. Michael, you mentioned a point that I just want to revisit that's really critical. You see this in the data. Companies that are addressing every single issue trying to spray everything that's good are not yielding the benefits operationally, financially, strategically of ESG because they're trying to be everyone to everything all the time. So I think it's this real focus on what's material to the company operationally from a growth perspective, from core inputs or resource requirements, and looking at what are the broad societal challenges that speak to those elements that are relevant to the business commercially. And tying that together is really where companies are getting that real impact to the bottom line essentially. So I think bringing it back to the Millennial and Gen Z population and these expectations, it's like if a company does not have that corporate say-do ratio aligned around what they're standing up against and then their actual ESG strategy and performance, you're seeing a lot of greenwashing accusations, woke washing, purpose washing, essentially the bait and switch of environmental, social, or governance performance. And folks are getting pissed about it, are getting really upset. And it's resulting in real impacts to the bottom line, lost sales, employee attrition, unfavorable investor and shareholder votes. So all of these business priorities now are getting addressed by whether you are intentionally engaging on these ESG issues or not. So it's quite a challenge for the boardroom and an opportunity for differentiation and competitive advantage in the long term. I'm wondering, Michael, are you seeing that out there especially with the Millennial and Gen Z expectations of who they work with and who they patron?

Michael Young:

Yeah. Noah, there's no question that generationally there is a shift, and consumers and employees are now making decisions about the brands they're going to be loyal to and the companies they want to work for decades to come. And without question, organizations are either moving in the right direction and getting this right or they're back-footed or flat-footed in terms of either their strategy or their response. And only yesterday we saw Disney come out against the Florida law, the Don't Say Gay law after a lot of internal movement and employees walking out. And I think the thing to remember here is that there is now a symmetric power that did not exist even a few years ago, and employees have particular power and agency now that they didn't have a few years ago. And we could look at Facebook as an example. And if you go back to the Facebook papers that Francis Haugen gave to the Wall Street Journal, that had a huge impact, but it hasn't had the same impact as employee voice or as moms are now starting to look at the well-being of their children and their daughters in particular and seeing that Instagram is toxic to the mindset of a young girl. That is having huge impact on the behavior and the conduct of that organization and others. So employees and consumers have this asymmetric power. They can boycott. They can protest. And the currency and the speed at which those kinds of things can impact the boardroom have never been greater. We saw the letter that the McKinsey folks wrote, the McKinsey employees wrote to leadership about McKinsey's work for fossil fuels as an example of employees having that asymmetric power. So I think that's going to continue, and it does seem as if this is not going to change. This is definitely not going to change. It's going to stay this way for some time.

Adrienne Wojtaszek:

And so Michael, you brought up a few examples there with Disney and McKinsey talking about fossil fuel. And so they're kind of these usual suspects in the oil and gas industry, and now we're seeing this expansion to boardrooms and C-suites across the country where they're accused of saying one thing about diversity and inclusion while apparently not looking within. But what if we think about the companies that are getting this right. Are there some examples we can point to for the corporations who are really doing what they say they're going to do?

Michael Young:

Yeah. And by no means, an exhaustive list, but just some of the folks we've had on the podcast here that are truly trying to align their business practices with their sustainability commitments across ESG, whether that's on the environment, on the workforce side, or in the governance issue which used to be dominant is now sort of a less so because of environmental and social. But the key governance factor there is executive compensation tied to achieving ESG goals. And perhaps one of the exemplars is Starbucks and what that board has done in tying executive compensation. But there are others and folks that we've talked to. Oshkosh Corporation, maker of fire trucks and ambulances, has really looked at next generation vehicles that are electrified. So you think of an ambulance that's now electrified. They're building those kinds of vehicles of the future. Chipotle, a great example, a company we had on the podcast it's looking at not just the nutritional value of the food that they serve but looking up into animal welfare, animal health. They're also looking at how small farmers, small holder farmers that they do business with, how are they enabling the next generation of farmer, looking at food waste and their waste stream entirely holistically. We mentioned McKinsey and a services firm. But you look at a company like Deloitte that's really pushed very strongly into some of these workforce issues. They’re counseling clients on how to do this right and how to do it well. And then finally, a company like HP, both from a DEI and a diversity and inclusion standpoint, really getting it right. Leslie Slaton Brown, a leader there. And also, looking at plastic waste. HP produces a lot of products that are made from plastic, and they've really taken a stand in terms of how they're recycling the products that come out of their business. So it is really, truly this alignment between the business practice and the sustainability. So making sure those two things are connected.

Adrienne Wojtaszek:

And Michael, maybe we need to go ahead and address the proverbial elephant in the room, if you will. So critics are arguing that PR and marketing are part of the greenwashing and purpose washing problem. CNBC published a piece last month, and the headline just struck me. PR firms are facing a backlash for greenwashing big oil, and the pressure on them is growing. And they really didn't bury the lead on this one. They opened with the public relations industry has a PR problem, and the article goes on to accuse PR firms and ad agencies of obstructing climate action by spreading disinformation on behalf of their clients. So we just talked about some companies that are doing this well. Others are trying to do this well from a PR standpoint in terms of saying that they're doing these things. But now PR agencies are being accused of being part of that problem. So this is your industry. How do you respond to that?

Michael Young:

Yeah. There's no question that big firms who have long histories of working with oil and gas and extractive industries have participated in, enabled, and in fact, driven misinformation about climate. There's absolutely no question there, and there is a backlash. Duncan Meisel of Clean Creatives has done incredible work here in getting agencies to sign the pledge, and we definitely want to have Duncan on the pod. And Christina Arena from Generous Films who was a former EVP at Edelman and has been on the forefront of calling out PR firms and ad agencies. And none of them have really done anything of substance to be clear. None of the big holding companies, WPP, Omnicom, IPG, or Edelman which is the largest independent public relations firm have really owned up to their role. Edelman's whole kabuki theater around they're going to evaluate what they're doing, and then they're going to make some commitments. It's absolute nonsense. They're addicted to the oil and gas industries from a revenue standpoint. They get a huge amount of their income from there, and they just can't give it up. And none of them are willing to take anything remotely, remotely resembling a stand. And that's really unfortunate because, and again, they're going to run up against this same problem that we were just talking about with McKinsey employees and other organizations. They're going to run into this. And Facebook is having this problem. People are not going to want to work for them, and they're not going to want to work on this business. And I could probably go on all day about the PR industry and its lack of sort of a moral compass. But they're going to find it harder and harder to recruit talent in the future if they stick to these kind of high-brow ways of thinking about their business. And if they don't take a stand, others with asymmetric power, clients and employees, are going to do the work for them. So end of sermon there.

Adrienne Wojtaszek:

And so whether it's a PR agency speaking on behalf of their clients or whether it's the companies themselves, they want to make these commitments. A lot of them want to be a force for good. But there are all these missteps in making these commitments and knowing whether they can actually achieve them. Noah, can you speak to that a bit? So when these companies make commitments, how can they know how much to share, when to share that information? Can you talk to that a bit?

Noah Miller:

Absolutely. And it's definitely such a key challenge for organizations that are being expected to address all of these complex challenges. Employees are speaking up more than ever, as Michael mentioned. Things that are happening on the other side of the world in your supply chain which would never have been relevant or even people to know about these things a few years back, now can create brand cancellation when one supplier is a bad actor within your supply chain. So ultimately, some of the key steps that companies can take to avoid making commitments they can't keep is to have a science-based approach to setting these targets and ultimately, making sure that their materiality assessment, defining what issues are relevant to the business and of most relevance to their stakeholders, that these are aligned with some actual baselining on their current state, their starting point, right? Where are we beginning? So that all these future commitments can be made with a level of sophistication based on the starting point. When you think of going on a diet, you need to know where you're starting to know where you can reduce. So it's no different across these ESG issues that if you don't know your current emissions footprint, how can you reliably set 35% emission targets for our absolute emissions by 2025 and then net zero by 2030. It's kind of like putting your finger up to the air at this point without that level of baselining the current state, looking at your ESG strategy and how it's integrated into the daily operations of the business, and seeing through modeling how are you going to be able to advance these commitments based on your current work. So really just having that same level of sophistication around financial modeling or strategic planning, bringing that same level of focus and methodology to ESG commitment setting and strategic planning. So back to the key point, ESG is just business at this point. It's the ultimate litmus test of management effectiveness in 2022. And soon I think we'll see that ESG is no longer this sort of woke, amorphous, new age concept. It's just business because we're reacting to changing expectations of the people we rely on and changing business conditions on the ground. But what do you think, Michael? What are you seeing out there in terms of what companies can do to make sure they're not getting themselves in hot water?

Michael Young:

Well, I think we've been talking about it which is this alignment between what's being said and what's being done. That’s really it. It just comes down to collapsing the say-do ratio, and it goes back to materiality and focus on and talk about and measure the things that matter to the business, whether that is supply chain or labor practices. And I think there's got to be alignment in saying that you're for your employees but you lobby for certain tax advantages for the corporation or you lobby against certain worker safety provisions. Those gaps between what an organization is saying and what it's actually doing are coming to light with increasing frequency. So there's really no hiding, and daylight is being shined upon these issues, whether those are from external forces like regulators from private capital which is essentially the new regulatory environment investors and are very much regulating corporate conduct. But I also think it's ultimately being genuine and authentic and not using sustainability, to quote Allison Taylor, as the paramilitary wing of the marketing department where all you're doing is attempting to mitigate risk, avoid lawsuits, keep everyone sort of out of your business. And that's just not going to work. Ultimately, it has to be this connection between how the business operates and then being honest about the negative and positive externalities that the business creates as a business. And those are real. We can't get away from them. But they have to be priced. And whether that's greenhouse gas emissions or that is how we are lobbying for or against certain regulations, those are externalities that a business generates, and organizations and leadership just need to be honest about what those are.

Adrienne Wojtaszek:

And it seems what we're talking about here is kind of that force for good, that purpose of the business. And Michael, talking about this can't be the paramilitary wing of the business focused on ESG and focused on avoiding the bad things, the lawsuits, the accusations of greenwashing. Noah, can you speak a little bit about how do we integrate purpose and ESG into the business?

Noah Miller:

And that's such a great question, Adrienne, and I'm glad you raised it. Right now, you are seeing the most skeptical sort of group of consumers that we've had so far in terms of corporate commentary around all natural, sustainable, good for the earth, social impact, all these words that are a bit arbitrary and loaded depending on who you're talking to. So right now, the best sort of actors or examples are really connecting the ESG operational practices and the outcomes of those practices and the impact that the products and services have on their customers as their intended corporate purpose and really connecting those dots between their operations, their products and services, the way they run the business, and how those outcomes of those collective activities relate back to some broader societal goal, whether it be a UN sustainable development goal or something generated by the stakeholder groups, by the employee base in the workforce around these systemic impacts of their operations, products and services on their stakeholders, on the environment, on broader society. So back to that core theme that we've been reiterating around aligning that corporate say-do ratio so that if you say these issues are critical to our business and it's important to our stakeholders, our corporate purpose ultimately needs to be connected back to those commitments. An oil and gas company that their corporate purpose is to be the best energy provider to their customers, well, that's just business at this point, being the best for your customers. Stakeholders are expecting a much more compelling, legitimate, and technically accurate corporate purpose that, again, ties back to the company's identified material issues and what they're doing about it. What do you think, Michael, though, being deep in the corporate purpose space, speaking of so many purpose thought leaders? What are you seeing out there as it relates to the connection between purpose and ESG?

Michael Young:

Well, and I think the much sort of misquoted and misaligned paper from Milton Friedman. I think ultimately, we've seen a reset in what is the purpose of a corporation. That's really what we're talking about, the new social contract between society and corporations. And I think ESG are the guard rails and the way that organizations will increasingly be measured, managed. I like what you said about this is the litmus test of leadership and management going forward. And I think that's absolutely true. I think there are organizations whose purpose is never going to be truly aligned with ESG. They can just do a little better. But I think there are a lot of organizations who, if they internalize the measures and the metrics of ESG into their business, will start to re-evaluate the business they're in, who they serve, why they serve those particular stakeholders. And I don't know that there's a uniform answer. It's going to be different for an airline manufacturer, a consumer package goods company, a professional services firm, a restaurant chain, a maker of computer hardware and peripherals. It's going to be different for each of those. But I think what ESG does at a minimum is helps translate corporate purpose into a way to think about how's this business doing as it relates to aligning with a broader set of stakeholders beyond just capital and shareholders.

Adrienne Wojtaszek:

Well, Michael, Noah, we could certainly talk about this topic for days, but unfortunately, we're going to have to leave it here. Thank you so much for the conversation today.

Noah Miller:

Thank you for having us.

Michael Young:

It was a pleasure. Thanks so much.

Conclusion:

The Purpose, Inc. Podcast is a production of Actual Agency, helping innovators communicate in a changing world. More at www.Actual.Agency.