Updated: Apr 4, 2022
If you are wanting to exit your business in the next 5 years, and you want a great exit, then take Wayne Gretzky’s advice, “skate to where the puck is going”. For business, the puck is rocketing toward sustainability and ESG (environmental, social, governance) conscious businesses. You can add significant value to your sale price if your business has embraced and lives the ESG conscious business values and principles. ESG is the key to attracting money, clients, the best talent and to earning a social license to grow in the new normal. You can also use it to differentiate your business so it stands out like a shiny penny (that gets picked up) in the over-heated M&A market.
With the media's focus on climate, it seems like all you hear about is the environmental aspect of ESG. Environmental initiatives are the baseline for all businesses. ESG also requires businesses to act on their Governance Responsibility, to be leaders in creating a sustainable world. To do it, you need to take the governance responsibility out of the board room, and make it real and relevant from top to bottom and back up again in your organization. Using the 4 points outlined in this article, you can use the governance component of ESG to differentiate and grow the value of your business by consciously embedding "trustworthiness" into the DNA of your business.
REFRAMING GOVERNANCE AS TRUSTWORTHINESS - Governance for senior leadership is their unique responsibility to convince shareholders the business is being run with honesty and integrity, so as to earn and keep the trust of financial markets. To truly live good governance you need to bring this governance responsibility to every person and role in the company. The key to making good governance relevant and practical all across the organization is to redefine it as TRUSTWORTHINESS. From this perspective, everyone can contribute to proving good governance. Everyone in the organization is responsible for demonstrating trustworthiness to all stakeholders.
UNDERSTANDING BUILDS TRUSTWORTHINESS – There is a mountain of literature on leadership and building trust, many based on psychological and sociological principals but I find that simplicity is the key to utility within an organization, and the simplest foundation I’ve found is, “we don’t trust what we don’t understand”. As Simon Sinek says, we need to understand the “why” of things, before we care about what or how. Therefore, the key to building your trustworthiness as individuals, teams or communities of interest, is you need to focus on truly deeply understanding each other, especially people’s underlying needs and drivers. Further, if you want others to understand you, then you must understand them first and to do this you must suspend your judgements and assumptions, and bring an open mind and a deep desire to simply understand to your conversations. Then, when you communicate your own perspectives, the nuances in how you communicate are critical because to be trustworthy you must both speak and act in ways that convey: honesty, integrity, caring, competence, credibility, dependability, consistency, consideration, contribution, vulnerability, transparency and fairness. These are the characteristics, most referenced in the literature, of a trustworthy person or organization.
MINDFUL CONVERSATIONS – You can involve everyone in delivering on the governance responsibility by simply having them ask themselves in all of their interactions – “is what I’m doing or saying adding to my trustworthiness, or taking away from it?” In the information age, it is impossible to keep secrets indefinitely and when they get exposed, like VW or Patagonia, they can decimate the market value of the organization and lose you your best customers, people, suppliers and your social license to grow. The lesson in this is to be mindful of what you say, it will be remembered and can be used against you.
ANCHORING TRUSTWORTHY BEHAVIOURS – – The last, and culturally most crucial step, is to stop, recognize and celebrate your governance successes, and learn from your mistakes. Your culture is simply the pattern of behaviours you tolerate, and most importantly those you don’t tolerate within your organization. In the words of John Jones, “what gets measured gets done, what gets fed back gets done well, what gets rewarded gets repeated”. This is the function of ESG data collection, monitoring, analysis and reporting. There is actually a TQ (trust quotient) measure developed by Charles Green that is ideal for this.
Capturing your environmental, social and governance data, winning stories, the lessons learned, rewarding the right behaviours and not tolerating the wrong, is the key to driving your ESG cultural transformation. The job is not finished until you’ve collected the data, and stories and shared them, not as bragging, but as a role model to others. To grow a sustainable society, as a leader you must own your ESG responsibility, and be a role model challenging others to do the same, then your stories and your efforts will build your ESG brand, growing exponential value over time.
Success in governance is a journey, not a destination, you never truly get there as with every interaction you are either adding to or taking away from your reputation. Regardless, these simple ideas if applied consistently, with discipline, can position you as an ESG conscious business leader and trustworthy partner with all of your stakeholders. Your stakeholders are the key to your ESG success as it is when your stakeholders tell stories about your trustworthiness. They create the great ESG brand and reputation you want, much more credibly than you could ever do for yourself.
Regardless, disruption is the new normal. You can embrace it as an opportunity or be its victim. Consider you are living in an ocean of change. You can’t control the waves, but you can learn to surf. Proving your team’s ability to surf by seeing the ESG waves coming and adapting quickly will add more value to the sale price of your business in the new normal of disruptive change.
If these ideas aren’t a part of your exit planning & execution, then this is your call to action to build ESG value in your business well before you start negotiating a deal. If you don’t, you may find it extremely difficult to attract buyers, customers, employees, and partners and ultimately to have the great exit you truly want.