The elephant and the mouse: how corporate giants can avoid trampling on their stakeholders

• Business is increasingly keen to be seen to be doing due diligence on ESG.

• The 'affected stakeholder' concept is a key way of identifying those most impacted by corporate actions.

• This year's Global Future Council on Human Rights aims to give insight on corporate actions regarding the living wage and human rights defenders.

In this age of emerging ESG priorities for business, one essential question is how those with the legal and financial responsibility for running a company (i.e. the board members) engage directly with those upon whom their company’s actions have the greatest impact (i.e. the affected stakeholders)? Anyone who has read one of the many fables about elephants and mice will know that it is in the elephant’s own self-interest not to ignore its impacts upon the most vulnerable.

There is a growing expectation that this be the case in business, but very few concrete examples of how it might be done in practice. Company boards like to be seen as responding to #MeToo, Black Lives Matter or LGBTI issues once they have become societal expectations. But what can be done proactively to ensure that boards are truly engaging with the people directly or indirectly impacted by their business?

All too often it is those marginalized due to gender, ethnicity, sexual orientation, age, disability, religion, socio-economic class or other factors that are under-represented in the power structures of business – yet these very groups are the ones most vulnerable to the decisions taken there. Remedying this is more than a box-ticking exercise or just the appearance of individuals in the boardroom: it is about ensuring that the knowledge of human rights risks is adequately understood, and that the board has the experience, skills and independence to act upon this.

Recent corporate lapses, such as the destruction of a 46,000 year-old sacred Aboriginal site in Australia or the tailings dam failures in Brazil, show the importance of fully implementing such knowledge. A recent report on 103 companies complying with France’s mandatory due diligence law informs us that such reports were only reviewed at executive committee or board level in 20% of cases. Human rights due diligence must be a strategic issue for any company and an issue of board oversight; we are hoping that this will be reflected in forthcoming legislative proposals from the European Union as well as in national laws. We also note the proposals for mandatory board-level diversity disclosures in the US.

But company directors around the world who feel they must lead on ESG issues should not be waiting to be pushed. There is leadership advantage now in asking one question: “How does my board engage with the very people that are most vulnerable to our mistakes, but also most likely to benefit from us performing better on these issues?”

One of the main critiques of stakeholder capitalism is identifying who precisely is a stakeholder of a company and who is not. The term “stakeholder” is often so broadly defined that it could almost include anybody. However, framing the concept around “affected stakeholders”, particularly those most vulnerable to a company’s actions and inactions, provides a clearer lens. This is the approach set out in the UN Guiding Principles on Business and Human Rights, which understands affected stakeholders to be those most impacted by a company's operations, most often workers, community members or consumers, sometimes human rights defenders. Some organizations represent these parties (such as trade unions, representative NGOs or community-based organizations), but they are not in themselves affected stakeholders. Hopefully this guiding principle will be chosen by the European Union and others in terms of mandatory due diligence requirements with board-level oversight.

This year the World Economic Forum’s Global Future Council on Human Rights, which we co-chair, is focused precisely on the question of how to identify and engage with those most affected. We have agreed to take two very different human rights issues – living wage in the supply chain and the protection of human rights defenders – and bring affected stakeholders into a direct dialogue with company directors from different business sectors.

These two encounters will be very different. On the living wage, we will be joined by directors whose companies have recently made supply chain commitments, or are considering the possibility, to hear from workers, not necessarily in their own supply chain, about why those in power must make this a central concern in how companies maintain business relations. It might be a difficult conversation, but it won’t be an abstract one. The same in relation to human rights defenders, often seen as the canary in the coalmine for the health of a company’s operating environment: Are stakeholders free to express their concerns and are businesses and government officials ready to listen and be held accountable for their actions?

We hope that these two encounters will generate some firm insights for both the board directors and the affected stakeholders. But the main aim is for all those involved to share their experiences in a report we will publish in September this year for board directors anywhere in the world to read. We hope this will show how boards can engage directly with affected stakeholders and the kinds of insights that can flow from this. We hope also to inform regulators how best they might shape board requirements in law. This must be more than compliance assessments, auditing or due diligence reports; it needs to be an active component of how boards are structured and how they conduct their business.

Our council’s report will ask if boards have the right representation and skills to allow such engagement to be meaningful and for companies to learn about their true societal impacts – however uncomfortable this might be at times. It is not enough for the elephant to talk to the mouse; rather the elephant must understand what the mice are saying and to act upon this knowledge.