An anti-ESG activist group recently complained that large U.S. companies are controlled by a “liberal cartel” of powerful corporate directors who sit on several boards simultaneously and “instill woke ideology that goes against their fiduciary duties.”
Even without the hyperbolic language, the line of attack is laughable. Consider recent and persistent accusations of woke-washing, greenwashing, union-busting, and greedflation at U.S. firms; if an organized gang of leftists is manipulating organizations, it doesn’t show. Not to mention that data on company directors’ political affiliations indicate Republicans, not Democrats, are overrepresented on corporate boards.
However, board members do tend to sit on several boards at once, and the prevalence of “interlocked” and overboarded directors has worrisome implications worth unpacking.
Governance experts say tight board networks enable mutual back-scratching (if not outright conflicts of interest) and industry-level groupthink. Some studies suggest that interconnected boards help to inflate director compensation. Diversity advocates believe that allowing people to hoard director seats and serve long tenures contributes to the snail’s pace of progress toward gender and racial representation on boards. But the biggest problem with having too few board members is that the people who are supposed to provide oversight are exhausted and spread too thin, leaving firms vulnerable.
For that reason, a consensus is forming that says directors shouldn’t sit on more than three boards at the same time, Fortune reports, though companies don’t seem particularly motivated to enforce such a rule.
Plenty of research has also revealed that business practices can and do become contagious, traveling across networks of interlocked board members. But Nai Lamb, associate professor at the University of Tennessee at Chattanooga, doesn’t see it as problematic. “We all have close groups that we hang out with, we have our little groups of friends, and we all influence each other,” she says. “That’s what’s happening in interlocking boards. The same people are on different boards, and they start to talk about their lifestyle and their values, and they affect each other.” Her most recent study (not yet published) suggests that when directors who serve many firms join a company with a high corporate social responsibility (CSR) score, they are likely to encourage their other boards to do better.
Does that mean extremists who have politicized ESG issues have a point? Not necessarily.
Lamb notes that her studies have not examined whether the CSR effect she detected works both ways. That’s worth remembering as we track shifts in sentiment around ESG topics.
Lila MacLellan
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@lilamaclellan
Noted
“[A]s a kid growing up in Hyderabad, India, I wanted to read Rumi translated into Urdu and translated into English, and in one shot, [ChatGPT] does it. But the most interesting thing about that is it captures the depth of poetry. So, it finds, somehow, in that latent space, meaning that’s beyond just the words and their translation. That I find is just phenomenal.”
—Satya Nadella on the Freakonomics podcast about what he finds most impressive about ChatGPT
On the Agenda
👓 Scope 3 emissions reporting is catching on: 63% of the 500 largest U.S. public companies now voluntarily report their levels, according to a new white paper from Insightia, a Diligent brand.
🎧 It may be cliché to say companies need to be agile, but it’s only becoming more true as economic, climate, and cultural forces drive rapid change. This episode of C-Suite Intelligence from The Miles Group examines how leaders can build companies with “to be” rather than “as is” cultures.
📖 Some of my brilliant colleagues at Fortune put together a new Fortune @ Work playbook, entirely dedicated to how companies and CHROs are creating efficiencies with A.I. Read the series, including news about IBM, Salesforce, and others, here.
In Brief
– A new survey of nearly 1,000 women in leadership roles found that ageism and gender bias collide to create barriers for women at every stage of life. Unlike men, women are found to be too young for certain roles, too old for others, and too middle-aged (not looking “vital” enough and dangerously close to menopause and its issues) at the heights of their careers.
– Corporate boards have maintained a narrow view of diversity, but that’s changing. The organization Disability:IN just launched a new initiative to help bring more people with disabilities into board roles and to make inclusion for them a board-level issue.
– CEOs are rolling out of their corner offices at record rates, according to research firm Challenger, Gray & Christmas. There were 224 CEO changes at U.S. companies in May, a steep jump from 147 in April and 150 in May last year.
– Kudos to the board at IRL, a social media app that was recently shuttered despite raising $200 million from investors. Company directors discovered that its CEO allegedly lied about the number of monthly active users on the app.
– The office vs. remote work battle has found a new front: Mondays. Companies want to take advantage of the “fresh start” effect by having workers meet in person at the beginning of the week. The logic isn’t flying with everyone.
The Long Read
New York magazine got under the hood of the sprawling global effort to educate bots and build generative A.I. software, and the results are eye-opening. Journalist Josh Dzieza found a nascent massive “underclass” of mostly overseas low-paid annotators (people who label images or text) doing unseen grunt work.
A.I. looks miraculous and high-tech, Dzieza writes. “But if you pull back the curtain even a little, it looks more familiar, the latest iteration of a particularly Silicon Valley division of labor, in which the futuristic gleam of new technologies hides a sprawling manufacturing apparatus and the people who make it run.” Those people are given limited insight into how software companies will ultimately use their work, which is frightening. Some workers have also begun using ChatGPT to automate their work for other software firms. This feature is a wild read.
Read the full article here
