Transcript for Protect Against Social Greenwashing Metrics and Authenticity to Make ESG Actionable
Julie DiMauro: Welcome back, everyone. I’m Julie DiMauro, director of events and training at Compliance Week. We’re here at Compliance Week’s Everything ESG event, and we have another exciting session coming up. It’s sponsored by ComplianceLine entitled, “Protect Against Social Greenwashing: Metrics and Authenticity to make ESG Actionable.” The session will be followed by three CPE questions, and we hope you will ask questions of our speakers using the Q&A feature in the ON24 console to make this session truly interactive. Now let me introduce our two speakers for today.
Giovanni Gallo is the co-CEO and chief development officer at ComplianceLine, an industry leader and outsourced compliance solutions for over 20 years. Giovanni’s career has included working in innovative startups and advising multinational companies on strategic growth initiatives. As co-CEO and co-development officer of ComplianceLine, Giovanni seeks to develop solutions that enable compliance professionals to be more effective in their jobs so they can successfully protect their teams and meaningfully serve their missions.
Also joining us today is Nick Gallo, who calls himself the chief servant and co-CEO at ComplianceLine. He is also the host and creator of “The Ethics Experts,” the only ethics and compliance and human resources podcast. Nick’s podcast is designed to help elevate those often underutilized functions from stale old-school cost center to a 21st-century strategic lever that can actualize and realize the magic from a knowledge-based modern workforce. Thank you both for being here, Giovanni and Nick, and I turn things over to you now.
Giovanni Gallo: We’re glad to be here.
Nick Gallo: Thank you so much for that introduction. We’re excited to hop into Everything ESG for one of our favorite organizations, Compliance Week. Ready to dive in, G?
Giovanni: Yeah, let’s do it. Thanks for joining us today. Obviously, it’s great to be part of this Everything ESG event that’s going on, and we’re really excited for our topic today. What we’re terming Social Greenwashing.
So what we’re gonna be talking about today is balancing this desire to maybe say that you’re gonna make an impact, or maybe just actually authentically want to make an impact with the followthrough that’s necessary so that you’re really walking the walk. So we’re borrowing this term, greenwashing, which you’ve probably heard over the past decade or two from, you know, companies in environmental sense, making big commitments saying that they care so much about the environment and they’re really just kind of whitewashing the practices that they’re actually doing. So within an ESG framework, we’re gonna be talking about the social effort and the S of the ESG framework and talk about how can we make this so that we are not doing this greenwashing thing that I think, Nick, I mean, tell me what you think here, but I think that compliance and ethics professionals are probably especially reticent to be put in any box that says that they’re not gonna be following through on their commitments.
Nick: Yeah. I think generally, you know, the people that we deal with and work with every day are high conscientious people. They’re smart people who care. And they’re people whose deed follows their word. So I don’t think there’s a lot of drive to greenwash from folks in these roles. It seems like the drive to greenwash is really coming from, no offense to marketing folks, it comes from marketing…it comes from executives who see this as an opportunity to get some more market share or get some more top-line sales growth, ultimately some more bottom line, you know, by pulling on some of these heartstring levers.
And so that often creates a bit of a conflict within an organization because you don’t wanna stand behind something that you don’t actually agree with where you don’t think that there’s actual data to back up the impact. So we’re gonna talk a little bit today about balancing those things and how to kind of thread those needles. Because look, at the end of the day, we’ve been talking about ESG stuff for a long time, right? There was corporate social responsibility that was a little bit more amorphous. And so this is trying to drive toward kind of the next iteration of that, where we start to look at that high idealism of maximizing stakeholder wealth, so to speak, versus the sort of myopic Milton Friedman approach of maximizing only shareholder value.
Giovanni: Yeah. Thanks for that, Nick. So that’s what we’re gonna be talking about today. Jump in, stay tuned, and pay attention to how we’re gonna help you and the people on your team use metrics and authentic commitment to these standards and to the change that we’re driving in the world to make ESG actionable and make sure that you and your team are not one of the people who get, you know, stamped with this label of you’re just greenwashing or you’re not actually following through on your commitment.
So, you know, let’s just dig in a little bit and set the stage a little bit more clearly. So traditionally, greenwashing has been defined as this process of conveying a false impression or providing misleading information about how a company’s products or actions are environmentally sound. And, you know, we’re kind of borrowing that term to apply to a bunch of things within ESG, including all of these social initiatives, where corporations and companies and teams and task forces may be wrongfully trying to market themselves as socially conscious when they’re not actually following through on it.
And Nick, I wanna pause here a minute and talk about the complexity here because I think it’s easy for us, you know, maybe sitting on the outside or when we see someone plaster on the news for making, you know, big…something like that, I think we may walk into that and say, “Look at those bad guys. They were intentionally lying and misleading everybody and there must have been nothing behind that commitment ever.” I think it’s not always that Nick. So let’s talk about what it might be, which is not just someone…you know, a nefarious sociopath trying to actively lie to everybody.
Nick: Yeah. And although nefarious sociopaths are oversampled on the executive level, to your point, it’s not always happening there, okay? It’s not always driven by that. So sometimes it’s a company kind of getting out over its skis. Sometimes it’s making a claim that we don’t have the data to back it up. We don’t have the receipts or the proof for it.
But, you know, you speak about some of this complexity, as our world gets increasingly complex, the room for, you know, essentially a type one error, a false positive with respect to a nefarious drive behind some error that splashes onto the headlines gets increasingly higher due to our finally attuned…you know, we are finally attuned to inauthenticity now, and almost to the point where we almost expect it.
And, you know, there’s been no generation in recorded history that gets bombarded with more advertising, with more stimulus, with more things that are vying for our attention than us today, right?
So the classic example of this is, you know, it’s Black History Month. All the companies have their Black History Month logo up, it’s February 29th and they accidentally switch the logo too soon, right? Every month should be Black History Month, every month should be women’s month, every month should be a month that we are trying to level the playing field with respect to the impact that we as an organization can have on the world around us. But we see some of those challenges because, you know, we say, “Hey, on this date, you know, there are some algorithm or there are some program and the background controlling the display of the marketing materials or whatever.”
And sometimes when there’s a slip there, that’s not from necessarily somebody in the organization not caring about Black History Month, but it ends up sending a message that’s contrary to the heart of the organization. So, I mean, there’s a lot of layers to the complexity here that you’re talking about, Gio, and there’s a lot of room to kind of get it wrong. There’s a lot of opportunities to get it wrong because there’s so many layers of, you know, competing initiatives, competing incentives, and just technology that often kind of runs off on its own when we don’t have the thoughtfulness to make sure that it’s dialed in properly.
Giovanni: Yeah. Yeah. It’s a great point. And, you know, there are a lot of different things that can lead, you know, I don’t wanna be kind of Chicken Little or make this sound too scary, but there are a lot of things that fall short of the, I’m trying to lie to everybody that can lead you to seem like someone who’s greenwashing, right? Maybe it’s just harder than you thought. Maybe you start with the best intentions and you failed to get some buy-in that you needed. Maybe you set some expectations that were a little unrealistic, or maybe, you know, just that project didn’t work as well as you thought it would, and you need to kind of keep working on it. And I think that’s part of what we’re gonna be encouraging people to do is set realistic expectations, continue to speak into the narrative about what you’re doing to do this, what you’re learning, what progress you are making.
You know, even if that’s not, you’ve solved all the world’s problems in the past three months and continue to stay aware of this new game that’s being played in this ESG framework. And we’re gonna talk about that game a little bit on this next slide as we talk about the press release effect. But really, you know, there’s a positive and a negative or an opportunity and a challenge as we step into this ESG framework, especially as compliance and ethics professionals, where we’re finally getting some of the limelight. We’re finally getting some attention.
Maybe we’re finally getting some more budget that we’ve been trying to get for a long time, or we’re finally getting the respect and the attention and the buy-in of the board on this method. Maybe it’s the same drum that you’ve been beating the whole time, the same tune that you’ve been playing the whole time, and you put an ESG stamp on it and then people’s ears perk up.
Well, that’s great that you’re getting that attention and that budget and that respect, that’s what we wanna help compliance and ethics professionals get more of every day. But the other side of it is you gotta have the followthrough, and you gotta know that a bunch more people are listening. And if you’re not kind of telling them what’s going on, they’re maybe gonna make some assumptions. And they may even be pointing out some, you know, skeletons in your closet or something that, you know, you’re trying to work on, but you’re not ready to kind of tell what the solution is. They might point that out before you’re ready to talk about it. And for that, we wanna talk about this press release effect.
So, Nick, I’m gonna set up kind of the example and the pictures here, and then, you know, maybe you can talk to us a little bit about this difference between authentic commitment and marketing strategy.
So these pictures here are this contrast that happened. I think this was a super bowl ad of one of the Williams sisters. And, you know, people think that your dreams can’t come true, show them how crazy they are when your dreams do come true. And it was a strong message about Nike empowering women and believing in women being able to do great things. So that’s a great message. I think a lot of us, hopefully, all of us, would say, “Hey, you know, I’m on board with that type of message.” Well, then the athlete on the right here Alysia, I think, Montano is how you say her name. She came out and said, “Hey, well, just the heads up, guys, Nike is saying that they care so much about women, they don’t even offer maternity leave.”
So now you have this conversation going on in the market. And I think for a lot of compliance and ethics professionals, this is kind of a nightmare. We’re not used to kind of messaging crisis management with the PR firm. We’re not used to, you know, handling a Twitter storm that happens. And I think some people are reticent to step in this ESG space because we might feel like we’re not really prepared to handle that.
Part of what we’re gonna be talking about today are ways that you can prepare for this, hopefully, avoid this type of outcome by the way that you go about this. But obviously, that’s a tough spot to be in. Listen, I’m sure there’s at least somebody, probably hundreds, maybe thousands of people at Nike who believe in this effort and are trying to make a positive impact on that. And then someone speaks up and says, “Hey, you’re not really walking the walk,” and then you have to go into damage control and you lose some of that progress that you were trying to make, at least some people not just for your company and trying to get some press or some sales, but just because you think it’s the right thing to do.
So Nick, talk to us a little bit about this contrast between an authentic commitment and a marketing strategy. And I think there are kind of two layers to it, right? Like, what people perceive and what’s actually going on.
Nick: Yeah. I think you’re exactly right. And that’s really what this greenwashing kind of tends to speak about. And it tends to really be kind of an outward focus. Hey, what are these claims we’re making to people outside of our organization with respect to, you know, how we’re investing or what we’re investing in or our commitment to environmental or social, you know, issues? And how close is that to the reality of what’s actually going on?
I think there’s also this knock-on effect that doesn’t get enough attention when we’re talking about ESG, and that’s the internal piece of the puzzle. And so, you know, how does a woman who sees this advertisement that her organization is making with respect to the organization’s broad commitment to women and women’s issues when they don’t get that maternity leave? And this thing can happen across any of these groups that, you know, are part of the stakeholders that should be, you know, gaining benefit by the organization.
So that can be underrepresented minorities or whatever, but that is a bad cultural look if you’re making all these claims on the outside and conflict with the actual environment or culture that the people within your company or the people within your organization are living in. So, you know, we always want our deed to follow our word. We wanna be authentically representing our commitment to the marketplace. And that’s never going to be perfect. But, you know, there is a lot of leakage on greenwashing from an external perspective, you know, when people begin to recognize that perhaps the emperor’s not wearing the clothes.
But from an internal perspective, it can be a total killer to employee engagement. It can be a total killer to the things, to the culture of the organization that can have some really negative knock-on effects over time.
Giovanni: Yeah, exactly. So what we’re gonna be getting into today is how you can set up your program, how you can manage your commitments, how you can work with people across your organization, and track your progress with an authentic commitment and metrics that you then can communicate. And then you can, you know, at least be contributing positively to some accountability within this narrative to say, “Hey, that wasn’t just a press release. That wasn’t just an isolated marketing effort because marketing thought that people would love us if we said this.
We said this because we care about it. We care about it so much that we’re doing something about it.” And, you know, that’s the ideal that a lot of this ESG framework is pushing toward is, you know, let’s not just make a press release, let’s not just make an ad, let’s not just even put something in a policy or the introduction to our code of conduct, let’s have actual transformation on environmental, social, and governance metrics. And let’s follow that up with transparency for those metrics benchmarking all of that.
And that paired with a full stakeholder, you know, involvement or at least caring about this ESG movement, ideally is gonna push us toward more of this transformation. So this is a quote from Darren Walker at the Ford Foundation saying, “We have to move from tokenism to transformation. Having one black on the board or the chief diversity officer three levels down from the CEO will not result in a successful strategy. There has to be genuine authenticity.” And I think a lot of us know this at our core. A lot of us know that, you know, you can’t just check one box and say that it’s good. You can’t just raise your hand for the survey and say, “Yeah, I care about that.” You have to have, you know, authentic commitment that turns into actual action that is measurable for this thing to work and for you to really back up your words. And that’s what needs to happen.
That’s part of our exhortation to the audience here is that if you’re gonna be part of this and speak into this and pick up this ESG banner and say, “Hey, I’m gonna be part of the team pushing this forward,” you have to make sure that it’s not just a commitment and you circle back next year and say how it’s going, but you’re pushing that forward throughout the whole year.
Nick: Yeah. I think that’s spot on. And this tokenism is…I mean, look, we get so fired up about this ESG thing because it is such an opportunity. It’s a focal point. It’s a catalyst for us to ascend to this more strategic lever in our organizations. These disparaging labels that are placed on us as support functions, it’s time for us to shed those things. And what I’m talking about is us being labeled as cost centers or us kind of sitting at the kitty table. We have a huge opportunity not only to separate from our competitors who are gonna play this a little bit faster and looser who are gonna, you know, try to game this system with tokenism and by saying the right things, if, in fact, we can have an authentic commitment to the E, the S, the G whatever are kind of germane to our business that not only resonates with the marketplace, but resonates and unleashes and really actualizes our workforce.
Keep in mind that over the next…you know, we talk about this all the time because we’re trying to pound this into people’s heads. Right now, 50% of the workforce are millennials and Gen Zs. That’s gonna ascend to 75% over the next 5 to 10 years depending on how you draw those lines around generations.
And the point there is that these new generations, while they’re at relatively lower positions of power within the organization, they have a materially different hierarchy of values, materially different hierarchy of needs and priorities, and those things if we can get it right, both from a marketing external perspective and an internal perspective in an authentic way, it’s really going to separate us from our competitors, again, who are just paying lip service and just trying to kind of gain this tokenism opportunity that’s there from marketing perspective or from a really short-term focus.
But, you know, I think, at the end of the day, it really comes down to in our own minds, how do we account for the impact or the return that our business generates? If it’s myopically focused on dollars and you kind of subscribe to that Milton Friedman or that trickle-down economics kind of model of, hey, if we can just push a bunch of money to our owners and they’re gonna do good with it, well, that’s fine. If you kind of subscribe to this, you know, more forward-thinking, more holistic stakeholder approach, well, you’re not gonna be able to point to each piece of the intrinsic return that’s generated because some of those things are gonna come from, you know, more social impact, or making a difference in your community, or fighting against climate change in your way.
So having a clear picture around how we’re gonna account for these things and look at these things will enable us to have more strategic conversations with leadership and more authentic messaging to the marketplace when we begin to initiate these in a meaningful way.
Giovanni: Yeah, Nick. That’s exactly right. And we wanna go over a couple of more angles of the challenges of this greenwashing piece. Again, we’re not trying to scare you off of this, but we’re trying to be a Sherpa and help you climb this mountain. Part of the way we’re gonna do it is say, “Hey, watch out. It’s slippery right there. Hey, you know, you wanna get a strong foothold right here because, you know, those rocks might slip or whatever.” So we wanna be clear as we set this up that, you know, this avoidance of greenwashing necessitates an understanding of the different challenges that you’re up against.
So we have two or three or more of these that we’ll go through a little bit more quickly, and then we’ll get to implementation here.
So one is the forgetting curve. This is an influential memory model about how people learn things. And I want you to consider this learning curve not in the context of the press release because listen, you know, somebody on Twitter or someone who’s mad about it is hopefully gonna not let you or your organization forget about the commitment you made.
But this forgetting curve is powerful when you want people to retain this information about what you’re actually doing and the progress that you’ve made. And if you say it one time, then they may forget 50% of it before you bring it up again. And part of this model is this original learning, you know, you kind of hit…you know, they get whatever that is, 70% of the information retained the first time you told it to them. Well, within a couple of days, they will have forgotten half of that. And then you gotta tell them again to, you know, get them back up to that 70%, and a couple of days later, you know, maybe a couple of weeks later, whatever, they’re gonna forget, you know, 40% of it. And you gotta tell them, you know, the second review, then they retain a little bit more. And the fourth time you’ve told them, you know, at least in this model or this representation, then they start to retain maybe 60% of it and it sticks.
So the way that I wanna represent that is the things that you “wanna get credit for,” and like, I’m using that term loosely because we’re not just doing this for credit, but what you wanna do to fight against this greenwashing is people say, “Hey, you know what? A bunch of people say this stuff, that company is actually doing it.” They’re not perfect. They haven’t made it through everything. They haven’t solved every single problem on every kind of facet of the diamond that is diversity. But you know what? They’re doing it. If you want them to have that sense of what you’re doing, then you need to be able to talk about it frequently enough so that the people who care, the people who are listening, hear it three and four times, and then they say, “Okay, I think they’re serious about this.”
And if you think that those three and four times are gonna be over five or six years, well, then these forgetting curves are just gonna drop off and you’re gonna be in this dotted line area where they forgot everything, right? So you need to, you know, maybe be talking about it each month. You know, maybe at least each quarter. But if people hear about what your company’s doing, whether it’s the board or an update to the employee base, if they hear about it once a year, they’ve probably forgotten 90% of it. If they’re talking about it once a month or once a quarter, then we’re like, “Okay, you know, it sounds like you’re serious about this.” You know, it’s kind of like you’re telling me about it before I’m asking like, “Hey, what happened to that commitment that you made?” Then I feel like, “Okay, you know what? My company is probably not one of those companies where I have to be embarrassed that they’re making these fake commitments and we’re really hollow about it.”
Nick: Yeah. And I think a good model for this forgetting curve is if you have kids, how many times did you have to tell them to say, please, right? It wasn’t one time. You had to say it’s 70 times 7 times or something like that. So borrow that rule, you know, that communications or that marketing rule and think about saying this many times in many different ways. I think it’s important to your point to get credit for it. It’s important to continue to talk about it, to again, overcome this. Again, presuming that like we’re not just, you know, employing tokenism or we’re not actually greenwashing a lot. The answer here is not just, you know, the way to overcome greenwashing is to just greenwash a ton. But if you have an authentic commitment to these things and these kinds of initiatives that, again, are super germane to your business, you’ve earned the right to talk about them a lot, and doing so helps to prove that commitment in a greater degree.
We just got a phenomenal question from someone, thank you for participating. Please keep these questions coming. We’d love this to stay super conversational. So this question said, “Should I totally avoid terms like eco-friendly or sustainable when others are using them? And also, do I have to supply lots of boring data to be able to use those terms?” What do you think, Gio?
Giovanni: You know, like, I think it’s more in the how and the why than the what. So I don’t wanna dodge it, but there are ways to use those words and kind of get on your heels and like, okay, I keep saying it, but I’m not really backing it up or there ways to use use them and someone, you know, kind of double clicks on it or says, “Hey, tell me the detail about that.” And you’re like, “Okay, cool. You know, let me send you the report that I look at that has five times as many data points.” So I think you can use those words. And I think you can also share the data. I think you need to…you know, you can share the data and, you know, there are a bunch of different personalities, right? Some people are gonna wanna say, “Hey, you know what? I wanna see how this is broken down. I don’t wanna just, you know, a broad stat of 15% of our pipeline is blah, blah, blah.” Like, show me that there’s something behind that. And a bunch of people are just gonna see the infographic with a pie chart and, you know, someone smiling and they’ll be like, “Okay, we’re doing it well.” I think you need a balance of that. So my answer is, yes, you can use both. You can also not do either and still be successful. But I think it’s about this comprehensive approach, and I think one thing I would encourage you on is I think that barring any massive…there’s not one thing that you do or don’t do that is gonna mess this up. So that may be good or bad. There’s not a silver bullet, but also like nothing as riding on one decision you make, you know, obvious unless you do something terrible.
Nick: Yeah. And I think, you know, you may not need to present all the data, but I think it’s best practice definitely to have the data to you back up any claims that you’re making, unless you just kind of a shoot from the hip person and you’ll kind of let the chips fall where they may. I don’t think that’s the spirit behind this that’s kind of the antithesis of what we’re talking about. But at the same time, I think if you bombard people with too much data, whether that’s the board or whether that’s something, you know, external or even internal from an employee perspective, too much data, people are gonna get lost in it. So our general rule of thumb when we’re helping people with these kinds of presentations or kind of helping them to strategize this type of approach is we always say boil it down to what’s the headline.
Like, start with that headline. There’s usually a headline number for a general business. The headline number is maybe sales growth or cash flow or something like that. There’s some headline number behind whatever metric we’re talking about, lead with that but make sure you have the supporting documentation. If that particular board member who may be skeptical of the claims that are being made wants to ask that question, you can peel those layers of the onion back and have, you know, something substantial and like objective that you can present.
Giovanni: Right. So this other one, you know, we call it the disappointment trap. Disappointment is the gap that exists between expectation and reality. And, you know, I think that part of the reason…You know, this is kind of like having grit. This is kind of like stick with it a little bit longer than you think it’s gonna take. You know, it’s probably gonna take a few more runs to get, you know, the time for your mile pace down 10 more seconds, but stick with it. I think a lot of people put out the press release and say, “You know what? We’re investing another $20,000 or $2 million into this initiative or whatever it is.” And they say that must solve it.
You know, these things are generally always harder than you think they are. And they’re gonna take a little bit more time and you’re gonna have to rework it a little bit, and you’re not gonna get all the people to show up to that event that you want.
So, you know, my encouragement this disappointment trap is you wanna set ambitious goals and say, “Hey, you know what? We’d love to see this representation on our board at some point,” or, “We’d love to see, you know, this representation in our pipeline or our recruiting pipeline or whatever it is,” but be careful to set really clear expectations that might lead to disappointment. Because if you say, “Hey, here’s a press release, by the end of this year, we’re gonna solve all these problems.” Well, you’re probably gonna let a lot of people down and you’re probably gonna be very frustrated.
And I think a lot of people, especially over the past kind of year, year and a half, where organizations have woken up to this reality who have gotten interested in hiring a DEI advisor or doing some new training or whatever, they’ve thought that that might be a silver bullet. We’re gonna do a town hall and then we’re gonna train everybody and everyone’s gonna know how to not discriminate. Well, it’s probably a little bit harder than that. So setting the proper expectations is gonna keep from falling into this trap where, you know, to kind of put it in this greenwashing effort, people might look at you and say, “Hey, you completely failed at that.” And really if you had set different expectations, they would say, “Okay, sounds like you got started in the race. Keep going.”
Nick: Yeah. And, you know, I think something that’s implicit in what you’re saying is that there is a control and there’s agency that we have over the expectations that are related to this. And so, you know, you have to kind of take a direct approach to those expectations so that not only you can build credibility over time, but so that you don’t wind up with this gap that is unintentional or that is misaligned to how you’ve kind of thought about it. You know, I think back, Gio, to your point about the silver bullet, like let’s say you’re overweight and you have 50 pounds to lose. Well, you’re not just gonna mix a salad once a week as a silver bullet to achieve those health goals, right? You have to do a lot of different things…yeah. There’s extra branches.
Giovanni: And you tell everybody about it and you post it all over your Instagram.
Nick: Yeah. I had a salad on Tuesday. Yeah. Tuesday is salad day. You have to do a bunch of things. You have to start exercising every day. And, you know, there’s 5 or 6 or 10 different things you need to do to create a sustainable, healthy lifestyle. And the expectations are gonna be a function of that sort of bouquet of activities or commitments that you’re making.
So just keep in mind that, again, I just wanna underscore that there’s no silver bullet. You can’t wave a magic ESG wand and all these things be dialed in. But you do have agency over the expectations and you do have agency over the messaging that helps paint the picture of the reality that everyone is living in. And one more thing before I hop off the soapbox, what I’ve seen a lot of people do, I think in error is when they’re talking about this stuff, they’re just showing snapshots. Well, you need to show a before and after picture, you know, from a health perspective to see how much change has been generated. And that allows you not only to, again, control and exhibit some agency over the pace of change, but it also helps to remind people where we came from.
So if you’ve over the last several years or several months have made a massive commitment to diversity and inclusion, and you’re starting to see the early signs of those demographics changing or whatever, you don’t know what expectations people are coming in to look at that particular graph or whatever with. So reminding them that, hey, this is what it used to look like, and this is what it looks like now. Hey, we wanna get to this end goal, and it’s gonna take some more work, but we’re starting to make progress again, helps us control the narrative a little bit and helps us control those expectations so that we don’t get out over our skis.
Giovanni: Exactly. So one more challenge on here. And again, I just wanna couch this for everybody. We’re not trying to be doom and gloom here, but we think if this is a mountain that’s gonna take six days to climb, we don’t wanna start off on this journey and suggest you start on this journey with just a day pack and a bottle of water, right? So there are a bunch of facets to this, and we’re gonna spend the back, you know, half or two-thirds of this going over what to do about it. So the last thing here is look at the eagle, the SEC is getting serious about this. So, you know, this August 2020 pronouncement, the Modernization of Regulations S-K, publicly traded companies must disclose material human capital metrics, including leadership trust scores, employee relations issues, employee engagement scores, and there it is, diversity and inclusion scores.
So this is how it starts, everyone, right? You know, I think in compliance, you know, if you have that really strong kind of regulation and legal mindset, you might be saying, “Well, when a regulation comes out that tells me exactly what I need to do and that has a framework that I need to report to the government, then I’ll get started on it.” This is not how ESG is gonna happen. ESG is gonna be, you know, a little bit, and then all at once. It’s gonna be a bunch of these things, hey, you guys better get your game tight. And then all of a sudden, it’s gonna be, everyone must be doing this or it’s gonna be enforced against. So, this is a tremor before the earthquake or the tsunami of everyone is going to need to be doing this in the next 5 and 10 years. And if you get started on it, not only will you avoid some risks and manage some risks around fines and actions against you, but you also will to other things, which I think are a big reason why a lot of us care about this, you’re gonna be helping your company run better and achieve your mission better and you’re actually gonna be doing the right thing to human people around the world or around your business or, you know, in your stakeholders.
So this is just one example of an upvote for the SEC getting serious about this and saying, “Hey, you have to report this.” As you can see, even this thing, yes, it’s the SEC, it’s got the seal on it. So they must be real. Even though they’re saying this, this is not direct guidance of you need to, you know, rate this for every 10 people and report it in this box.
They’re just saying, “Hey, get ready.” You know, what the SEC is doing is what we’re gonna suggest that you all do is they’re getting started on it. They’re putting a stake in the ground, they’re setting a milestone. And then in the background, they’re doing the work, they’re saying, “Okay, how can we get more specific about this? Okay, how can we move this forward? Okay, we said they have to report in these categories, how can we specify that more?” And if you’re not working, you know, in your background to kind of move forward on that, you might get caught on your heels and be caught off guard and say, “Okay, I guess we have to get serious about that now.” I think that the companies that do that, that the ethics and compliance professionals who allow their companies to wait for the hard-nosed regulation to come through are not only kind of putting themselves in a risky situation from a mitigation and regulation standpoint, they’re also missing an opportunity to be a leader in your organization and a leader in your industry by leading out on these metrics.
Nick: Yeah. And again, use this. Use this to drive the change internally if you don’t have the buy-in from executive yet. Use this if you’re in a non-profit or you’re in a private company to say, “Hey, this is the canary in the coal mine, all this stuff is gonna wash across our entire economy.” There’s so much opportunity in this to utilize it. I’m gonna keep saying it. I’m gonna say until, you know, I’m blue in the face. There’s so much opportunity for us to elevate by using this as a focal point or this as a catalyst to reframe how people think about us as a support back-office function.
Giovanni: Exactly. So let’s get in. Let’s get into the practicality of this. Let’s get into what we should be doing. So, you know, what we’re gonna transition now, we’ve been talking about the challenges. And again, I’m just gonna say it again, I don’t want you to be scared off by these challenges. I want you to say, “Hey, you know what? I just gotta pack my backpack for that.” I can do, you know, 2-day hike instead of a, you know, 20-minute hike, I just have to be prepared for it. And if you’re prepared for it and you know that there are enough stops along the way to rest and get more water or whatever, then you can make this trip. So the time to be part of this change is now, and the power is in our hands. So this is the thing that I love telling our market and our ethics and compliance professionals about is that this is what we’ve been waiting for. You know, like all of the things that you’ve been doing and getting your CE credits or, you know, your CEUs, all of the things that you’ve been doing to get certified, running programs, building your team, all of that, you’ve been doing it in a bunch of these different areas. And now finally, you know, if it’s not happening now, it’s probably gonna happen in the next year or two. The board or the exec is gonna come by and say, hey, we need someone who knows how to run a tight program, who knows how to make sure stuff gets done, who knows how to make sure that these programs are run and measured properly and improved continuously and can handle the complexity of a challenge that really spans across the whole organization inside and out. Do you know anybody who can do that?
And you can say, “Hey, you know what? I’m so glad you asked. I’m here for you.” So, you know, there are scared, sad, or, you know, employees who don’t feel that leaders are working for them. And this ESG movement is a once-in-a-lifetime opportunity for us as ethics experts to do the right thing and change the lives of the people around us. And it’s gonna be by doing what we’ve been doing on…you know, in some things that, you know, we’ve been waving the flag and saying, “Hey, we gotta have better policies. We need to do an audit. Hey, everyone should really be doing training around here.”
Hey, you know what? We’ve been saying all these things and the pendulum is about to swing from a bunch of people being resistant to doing the right thing and getting the right metrics and measurements in place,” to people saying, “Hey, why haven’t we been doing this the whole time?” And we can be ready for that. And I think that, you know, the framework for that is gonna be a mix of this tracking the things that you’re doing and tracking the outcomes. It’s not gonna be one or the other. That’s how we’re gonna be the hero in this game. Go ahead, Nick.
Nick: Yeah. I was just gonna say that, you know, assuming you’re in a compliance 2.0 type program, you probably have a lot of tools in place, and you probably have a lot of data lakes that you can utilize and leverage to begin to sketch out what your ESG sort of results are. And, you know, we keep talking about this as an opportunity because guess what, every executive is like you, they have a ton of stuff on their to-do list. They live probably primarily in that quadrant of really important and really urgent. And we know ESG is not a burning fire yet in most organizations. Well, what an opportunity for you to come and say, “Hey, here’s a fire, and here’s also a bucket of water.” “Hey, you know everyone’s talking about ESG, guess what? I have a kind of a plan sketched out and we already have a bunch of this stuff in place, we just need to kind of measure it a little bit differently.”
What an opportunity to elevate your impact in your organization, and again, reframe or rebrand yourself, or rebrand your department in the context of your company’s broader mission. We are not just a seatbelt, we’re a spoiler, we’re nitrous in the gas tank of our organizations, particularly those that our knowledge work, which is pretty much every company at this point. And so, again, bringing this to the surface, bringing this to executives when that commitment is not there or that initiative is not driven, you drive it. You pull that seat up to the boardroom table and you show your value in your organization.
It’s very easy to shatter these archetypes that other people have cast us in. And it’s very easy to change the course that our career or our impact with our organization is taking, but we have to seize it. We have to be the agents of change in our careers and in our organizations if we’re really gonna hit our potential of changing the world.
Giovanni: Exactly. And, you know, I think that, you know, my hope or my understanding, you know, I really believe this. If you’re watching this webinar, you probably wanna understand how to follow through on your commitment and not be a hollow commitment to social programs and, you know, transformation. I think that probably to a person, if you’re an ethics and compliance professional, you’re not someone who, you know, doesn’t care if things get done and doesn’t care about, you know, the job getting completed, we’re the type of people who are always balancing our head and our heart. We have our head to organize the project and organize the plan and get this thing done. And we have our heart to…we care about people and we have to get this done, you know, through our influence and our communication and things like that.
And as we do that, you know, if you’re bought into the fact that there are a bunch of challenges to make sure you don’t get kind of painted in a social greenwashing light, and you say, “Okay, well, I wanna do that, but I wanna make sure I don’t mess it up.” Well, you know, one way to do that is think about this distinction of you’re gonna track some behaviors and you’re gonna track some outcomes. I think a lot of people look at this and say, okay, what? I just have to start reporting these metrics. Is that what I wanna do? Well, that’s part of it, but you can go through kind of a plan-do-check-act process where you’re kind of checking those metrics on your third step and you can say, “Well, what we’re gonna start with is we do some of these behaviors,” which we’re gonna get to on the next slide. And then we’re gonna track before and after metrics of those outcomes.
This is not just about outcomes, it’s not just about, you know, showing where you are at a point in time, but it’s about implementing some of these things that are gonna eventually transform this over time. So let’s talk about some of those behaviors that are gonna impact the outcomes. We’re gonna talk about behaviors and then outcomes. Nick, do you wanna pick any of these up?
Nick: Yeah. You know, I think a lot of these things are a little bit softer, but you can still put some numbers around them. And you can absolutely corroborate these, again, depending on what your participation rates are, but you can corroborate the occurrence of these, the impact of these, particularly with the workforce through surveys and things like that.
So mentoring programs, recruiting priorities, and internal promotions are a couple of the types of behaviors that I can tell you that people within the organization are looking at. Are there opportunities here for me? What is the composition of leadership? Is there anybody up there that looks like me? Is there anybody up there who’s like me? These are all pieces of the puzzle that allow us to, again, unleash that magic in the workforce, but that unleashment or unleashing, I don’t know what the word is, unleashing that is driven by someone feeling included and feeling actually part of the thing.
So these are all pieces of the puzzle and all examples of the types of behaviors that, again, can make a real difference in our organization that we can point to on a bulleted list of our commitment. And we also can back up with some numbers. So mentoring programs, look, sometimes those are formal, sometimes those are informal. You know, we’re gonna get a little bit tactical with some of these things on how you can sort of prove out.
But again, in the survey, we’ve seen folks say, you know, I have a mentor whether, you know, informal or formal within the organization, and you can aggregate those and show that, okay, there is mentoring going on, giving folks mentoring training, right? Again, in my life, I’ve had a lot of mentors. The formal mentors were way less impactful than those that naturally developed. So providing tools for folks who are putting others into their own mentee chair, so to speak, to allow those relationships and those transfers of knowledge and that guidance and so forth to really take hold can make a big difference and it can drive a lot of, you know, numbers at the end of the day that are gonna be backing up the data points for your ESG commitments.
You know, recruiting priorities is an interesting one. And I think a lot of people sort of naturally struggle with it because we all have biases to some degree. Except for me, I’m not biased at all. But, you know, recruiting priorities, there’s a lot of things you can do to help meet those goals, right? Those ESG goals.
Oh, we got another great question here. So I’m gonna pause myself and…See, you guys are listening. You guys are being very conversational, which I love: “So should I tell my marketing department that it’s just too risky to compare our products to our competitor’s products even if we, including my compliance team, feel confident that we’ve taken bolder ESG actions as a business than our peers?” Wow. What a great question. That is like a loaded question. Just kidding. So should I tell my marketing department that it’s just too risky and…
Giovanni: This is like someone out of the experience.
Nick: Yeah, exactly. So what do you think? Should you be scared to talk to your marketing department, or should you, you know, tell them it’s too risky to compare products to our competitor’s products?
Giovanni: I would just say that, first of all, you probably don’t wanna tell marketers what to do because they can be a bit of renegades and they’re gonna say, “You know, I’m gonna spend my budget the way I want to get my MQLs.” But, you know, joking aside, you probably wanna collaborate in that discussion and say, “Hey, I’d like to provide some perspective on this.” And, you know, I think it’s not so black and white of like, “Oh, don’t ever compare it.” You probably just wanna be part of that conversation and say, “Hey, I know that you know…” I mean, we’re talking about marketing, but we can talk about product or manufacturing or recruiting or whatever, you wanna be part of that conversation and say, “Hey, I know that you have this priority, right? You care, you know, in marketing, maybe about making bold claims that are gonna drive more leads and business. I get what you’re trying to do. Let’s do that a little bit of a different way because I have some context here about this risk that this thing blows up.”
And you might think that there’s no such thing as bad press, but, you know, there actually is. And I think you wanna just be part of that conversation and say, “Hey, what if we tweak this a little bit? What if we make a really clear commitment about what we’re doing and it’s less comparative. Or what if we compare and just say, it’s better and then talk about ourselves instead of talking how bad the competitors are or something like that.” I think you want to try to be welcomed into that conversation and try to balance it properly rather than, you know, kind of being so black and white, which honestly, you know, I guess we’re not in person, so you can’t throw rotten tomatoes at me. I think that sometimes, you know, compliance leaders may need a little bit of polish on this.
And they may be used to saying, “Hey, you can’t do that.” And they may not mean that and they may say, you can’t do exactly that. I wanna have a conversation about it. But sometimes the way that we come across is a little bit more black and white and a little bit of telling people no or telling people what to do. And I think that if we balance that, especially in this ESG framework where people are kind of giving us more of the mic or more of the limelight, we gotta figure out how to be a little bit more diplomatic and a little bit more tactical. And I think that we can figure it out.
Nick: Yeah. And also just keep in mind that, you know, I’m glad you kind of alluded to this, Gio, but at some level, we’re kind of playing with fire, right? Like, the stakes are high because reputational damage is so crippling. I mean, look at this whole activism thing, like it’s brutally bad. So recognize that this is a long game. Again, there’s no silver bullet, and that over time, the inauthentic commitments to ESG is just going to come to the surface. So have a bias toward, you know, pushing the envelope but not so far that it’s beyond something that you’re comfortable with. And just recognize that over time, if this approach is genuine and if your commitment to this is authentic, it’s gonna come out in the end. You know what I’m saying?
Giovanni: Yeah. Exactly. So, you know, the point on these behaviors is don’t think that you can only do something if it’s gonna show up in the metrics within a month or the quarter, right? Like, part of doing this ESG program is right, you want to avoid that disappointment trap, you want to avoid kind of setting expectations that everything’s gonna change in three months. You also wanna avoid thinking that I’m only gonna do stuff if it’s gonna change, you know, our makeup on this dimension within three months, part of what you have to do on this is play the long game. And you can do that by presenting a long-term strategic plan to your team and say, “Hey, you know what? We’re gonna be doing a bunch of behaviors for the next year and a half until those are part of our culture.” And it’s gonna take some time for, you know, those seeds take root. And then we’re gonna see that start showing up in our metrics in about a year, a year and a half, two years, and then, you know, it’s gonna take time for this thing to change. A lot of the social stuff, it’s cultural stuff.
You can’t just do it by dictate and saying, “Hey, you know what? There’s a new security standard for our passwords. Now everything’s secure.” This is a different type of thing, and you have to give yourself and your team and your company time for those seeds to take root. And in doing that, it’s gonna be a bunch of, “Hey, you know what? Our representation at the board level has not completely changed in the past three months, but you know what we did? We launched a mentoring program. And you know what? We started the conversation with the HR team about, you know, rebalancing some of our priorities. And you know what? We’re in the middle of talking about planning, you know, a way to implement internal promotion, that’s tied to this mentoring program, etc., etc.,” and say, “Hey, here’s what we’re working on right now.” And you can communicate that to anyone who’s listening and avoid that press release effect. And you can avoid that disappointment trap by saying, “Hey, you shouldn’t expect me to be, you know, holding a gold medal in three months that this whole thing is done, but you can start with these behaviors and you probably have to do it.” Because if you’re just looking for something that’s gonna change your high-level metrics within three months, you’re probably not gonna find anything.
Nick: Yeah. And be looking for these early indicators. Well, I’m just saying, yeah, we can hop to the next slide, but be looking for those early indicators. Again, we often draw this parallel of changing to a healthy lifestyle. Well, before all the weight starts coming off, you start noticing that, wow, I don’t get out of breath when I walk up the stairs anymore, or wow, I’m sleeping better, or I don’t have heartburn or whatever. You can start to take credit for those early signs of the improvement that is coming because you’re doing those right things and you have an authentic commitment to those right things. And those can help to paint the picture while avoiding greenwashing, but to begin to kind of get credit and show, begin to prove that commitment to these initiatives and so forth.
So here’s our framework for human capital metrics, again, thanks to Janine Yancey, who wasn’t able to join us from Emtrain. She helped collaborate on this webinar with us. These are some places that human capital or these are some metrics to look at and start tracking. You know, again, you probably have some of these things already in your system. Start taking some early signs, start getting some early prints, and start looking at how these numbers change over time. So workforce demographics, what are the proportion of women at different levels? What are the proportion of minorities at different levels? You know, what are pay differentials? You know, which of these kind of stand out to you, Gio, as…you know, do you feel like any of these are of more value than others? How do you think about these human capital metrics in the context of this ESG framework?
Giovanni: I mean, you know, you made the kid analogy before. These are like the kids, I love all my metrics equally. You know, I think that you gotta…get ready for this, I’m gonna give you a little bit of license here, everybody. You have an opportunity to cherrypick this, okay? Why don’t we start there and say, “Hey, you know what? Where can we make some action on here? I’m gonna make up the report,” right, if you go back to that SEC rule, they just say report some diversity and inclusion metrics. So pick the ones that you think you can take some action on. Pick the ones that you wanna say, “Hey guys, you know, the headline is we’re doing pretty well on representation of minorities. We need to do a little bit better on, you know, women in leadership. So we’re gonna work toward that.”
So I would take a look at some of these and you can just do it by gut feel and say, “Hey, you know, am I doing pretty well on these?” And, you know, I would recommend rather than, you know, picking your three favorites, just sort these and say, “Hey, where can I get some wins, where can I get some traction, where are we already decent on, or where can we do like a big transformation,” right? Those might be two different things. You might already be pretty good somewhere and say, “Hey, you know what? I wanna make sure that we hold the line on this. We have great representation of Black and Latino and Asian people within our organization. So I’m gonna kind of drill down on that and make sure that that’s equally spread across different layers of leadership and stuff like that. I wanna keep tracking that because we’re doing well on it and I wanna hold the line on it.” There’s nothing wrong with that.
And then say, “Hey, you know what? This other thing, our recruiting pipeline has been terrible, you know, for, you know, this underrepresented minority recently. You know what? We can go from kind of failing to at least getting a D pretty quickly. So I’m gonna work on that.” And you can kind of pick both sides of that, and then work in the middle or sort these, but feel free to cherrypick this. And I’m not saying that in an inauthentic way because you shouldn’t be misrepresenting these metrics, but if you’re doing great at mid-management and leadership roles, then put that on your scorecard and say, “Hey, you know what? We’re doing well here, we’re gonna make sure we keep it. And then figure out how to make this a one, two, five-year plan to start performing well on all of these.”
Nick: Great point. You know, there is a tipping point effect here. If you can get some wins and you can prove the authenticity of it, you start to prove it internally, you get engagement, you get actualization of a workforce that begins to make the future commitments…you know, it lets you achieve those a lot faster and a lot more meaningfully. So let’s talk about tracking outcomes. So setting a goal for the metrics you wanna achieve as an organization, tracking those over time, again, is a critical way to show that we’re making progress. And to Gio’s point from the last slide, pick something and start charting it. See where you can start to make a difference. Here are a couple of categories of things, you know, underneath this umbrella. What does our hiring pipeline look like? What is our representation on our board, among leadership, among these different, you know, bands within our organization, directors, execs, whatever? And then how does our pay proportion look, both from racial perspective, from a gender perspective, and so forth?
And again, this stuff does not need to look so pretty, right? Just getting the data, you can pretty it up when it’s time to do the report, but just getting some of this basic data so that, you know, we have a couple of gauges that we’re looking at and we can focus our efforts on the things that are gonna give us those quickest wins are gonna help us move our ESG forward, again, in an authentic way without tipping over into, you know, greenwashing, which is obviously what we wanna avoid.
Giovanni: Yeah. So, you know, on the point about these being pretty, we wanna show you good examples, right? I could have drawn this on a napkin and taken a picture of it. If that’s the best you got is a hand-drawn graph or something that you do on Google Sheets or whatever, then go ahead and start with that and then tell someone, “Hey, you know what? I just got started on this a month ago, let me work on this for a year, I’ll, you know, get better metrics and stuff like that.” But, you know, Nick, you and I did a session earlier this year about using the agile methodology that’s used in software development to apply to our compliance program. And you gotta be able to do this here, and the next thing is, everyone, you’re allowed to do that because nobody knows exactly what you need to do here.
Listen, if you’re under a CIA, or you need to do a policy, or you need to do a code of conduct, there are a bunch of very clear standards and you can kind of pick your flavor, but that’s kind of already like pretty well set on a lot of these. You can kind of pick your lane and start walking into it. So these are some examples of some nice ways to do this. But again, if you just have a table of saying, “Hey, here are three levels of our organization kind of split across, you know, these three criteria or something.” You can go through that. So there’s some examples here. You all can have access to these slides and download them. And we’re gonna be doing some follow-up to the attendees to send you some more actionable kind of worksheet-type information for this because, you know, the truth of it is we can’t provide a silver bullet of, “Hey, here are 45 steps to completely transform every culture, whether you have 30 people or 300,000 people,” but we wanna kind of give you a toehold on some of this and say, “Hey, you know what? You can look at your hiring pipeline and say, how many people, how many were screened, and how are they split across, you know, this specific demographic. This is showing, you know, females versus active applicants, this proportion across these different steps in your pipeline.”
So that’s a framework you can use, and you can say, “Hey, you know what? I’d love to have that. HR, can you start tracking this? Hey, how about next quarter you, you know, give me a sample of these data or something like that?” You can go into board representation and say, multicultural mix and gender mix, and by race and total representation of men and women and start reporting that. And then, you know, if you’re being agile with this, report that for a month or a quarter or a year, and then during that time, get ready to show the detail behind it. Hey, now we’re showing this split across division or across geography. And then, you know, you can get deeper on this, but you don’t have to start with a full encyclopedia to just start, you know, doing a report to people. And the next one is…
Nick: Listen, let me just add something to that. Sorry to interrupt. Reality is your friend here. So you might do this initial analysis and be like, “Oh my gosh, we have a massive problem.” Guess what? Great, that’s an opportunity for you. That’s something that you can improve. That’s that initial print that you can show a ton of progress on very quickly. So just recognize that any stone you unturn, whatever worm that’s under there, that is bait. That is opportunity for you. And I get so excited about this thing because there’s so much opportunity for us to do this thing that we’ve been talking about for a long time. And reality is our, friend, don’t tweak the numbers. You know, let’s not greenwash the numbers, but a bad print allows for a ton of improvement.
So let’s hop here to this last thing and let’s wrap up here. So, you know, the last thing that we…I mean, we’ve kind of been kind of talking around this for a while, that, you know, collecting metrics will ensure you represent reality. We don’t wanna be fudging this. We don’t wanna be doing Kentucky windage with these numbers, but having good data allows us to paint a picture that’s accurate so that we can with high confidence, you know, say that we stand behind these numbers, that we’re not greenwashing these, and this is not a spin zone, this is a picture of the reality. And based on the progress we’ve made on these metrics, that’s proof of our commitment to these environmental, social, and governance issues that our business interacts with.
Giovanni: Yeah. So what we’ve taken you through today is, you know, we’ve laid out this challenge of you wanna make an impact on, you know, your social metrics and your delivery on the social initiatives. There are challenges around that, right? You have the press release effect and you have, you know, the disappointment trap and stuff like that, but you can get started, and getting started now is gonna put you in a position to deliver good metrics, to say that you’re active in these things, to have the behaviors that lead to the right outcomes. And ultimately, when you’ve done this, maybe it takes two years to get the nice, glossy white paper that has 20 pages of all this. Maybe it takes a while to get there, but ultimately, so you can have your eyes set on, you know, an endpoint here, you can deliver a story that says, “Hey, here’s the story of where we came from.”
“Hey, you know what? We stepped into this and weren’t great on all these things, but we’ve been putting our heart into it. And we’ve brought in people who care, and people who think well, and people who can implement the right things. And we’re doing better by our people, for our customers, for our shareholders, for our employees, even our vendors, and our community.” And if you can get started on that journey sooner, then by the time it’s required, by the time there’s a clear regulation, then people are gonna be looking to you like they probably looked to you last year during the COVID crisis and saying, “This is crazy, but I’m so glad we have a great leader like you who was there and prepared for the things that we needed before we knew enough to do it.”
And if you start on that today, start with a single slide, start with a single report, with a meeting across some functions, and say, “Hey, we wanna get serious about this, or we wanna step up our game in this.” If you start pushing for that and leading it, you’re gonna find other people who care. You’re gonna find other people who wanna help. And you can just get started on this journey with a single step.
Nick: Thanks for joining us. Until next time.