By Russ Banham
Corporate governance is in the crosshairs, with institutional investors broadcasting their concerns over the financial impact on companies of such social issues as the #MeToo movement, climate change, diversity and inclusion, and board gender composition.
Businesses with all-male boards, for instance, are now perceived as sending a message of gender inequity, while those whose CEOs or board members deny the existence of climate change are increasingly viewed as misinformed. Among other things, these assessments can affect a company’s stock performance.
Cognizant of this possibility, institutional investors are sounding alarms. A June 2018 survey of 223 institutional investors by consulting firm Aon indicates that 68% have concerns over board gender diversity in their proxy voting. And a 2018 survey of 60 institutional investors by audit firm EY states that nearly 8 in 10 (79%) consider climate change to be a significant risk, with 48% commenting that enhanced reporting of climate risks is a high priority.
“People have the ability to exchange their opinions and ideas more freely and easily in this era of constant information availability and accessibility,” said Sapna Nagaraj, director of machine learning and data science at BlackLine, a publicly traded provider of financial and accounting software automation solutions. “This is leading society as a whole to become more socially aware and conscious of such issues as human rights, gender equality and climate change, insofar as how businesses view these subjects.”
What You Say Impacts What You Do
Nagaraj makes an excellent point. Most people have a social conscience and many feel some degree of pressure to express their opinions in their social media accounts—and that includes high-profile people such as business leaders and board members. When their followers and others become privy to these individuals’ opinions on different social issues, that knowledge can positively or negatively affect public perception of the company’s brand and products.
“Companies are being judged not just by their business profitability, but by their operating principles,” Nagaraj noted. “Brands will be labeled as being socially conscious or not, creating long-lasting implications for the organization’s profitability, recruitment and retention of skill sets, and survival.”
Some businesses may undeservedly incur these challenges, given the propagation of fake news. Others may be unaware of how the organization is being examined and rebranded, learning about it after the fact on LinkedIn or on anonymous employee-feedback sites such as Glassdoor and Indeed.
“Whereas companies previously controlled the projection of their social branding, this is now being driven externally,” Nagaraj explained. “Consequently, it is incumbent upon businesses to be aware of this unfolding narrative in its earliest iterations to regain control of their story.”
Recapturing The Narrative
AI can help speed up the capture and analysis of truly useful information, turning this data into knowledge that can be used to track and assess impact on corporate profitability. Here are five ways in which the use of AI and other technologies can help businesses in the quest to drive their own stories.
1. Know thyself.
Just as a researcher can discern the gender diversity of a workforce, or an environmental group can discover if a company creates environmental hazards or sells products with potentially harmful components, an organization can find ways to monitor its own performance in key areas.
“There are software applications that can analyze the safety of the ingredients in your products and access public information on the organization’s environmental footprint, such as the volume of fossil fuel it burns or trees it cuts down,” Nagaraj said.
2. Turn the tables.
While companies such as Glassdoor and Indeed provide an external forum for disgruntled or unfulfilled employees to express their dismay, companies can create internal space for employees to be heard. The HR department can pull together an AI or analytics team to survey employees about their levels of engagement and create algorithms to make sense of this information, nipping burgeoning workforce problems in the bud.
3. Get a better look.
Many companies are unaware of how their products, services and brands are being represented in social media. Now, thanks to a combination of object-image recognition software and deep learning technology, they can determine if their products are being viewed on social media, how many times and the related context.
Basically, an algorithm is created to find the image, calculate the number of people viewing it and discern these individuals’ impressions. Based on the findings, a business can take actions to reframe the context.
4. Get ahead of trends.
While the #MeToo movement ignited after allegations of sexual impropriety against Harvey Weinstein, inferences of where things were headed could have been gleaned well in advance. Certainly, Hollywood’s “casting couch” was not a new phenomenon, and accusations of sexual harassment in the technology industry were front-page news for years.
“AI can track the rate of emerging sociocultural trends and compare them to specific business outcomes,” said Nagaraj. “An algorithm can find interesting correlations—good, bad and otherwise.”
5. Be the first on the block.
Down the line, Nagaraj predicts, an organization along the lines of the Better Business Bureau will be developed to assess and rate a company’s social consciousness. This barometer will entail a simple score that defines a company’s position on different social issues, such as board composition, diversity and inclusion, and climate change.
“It’s only a matter of time before consumers, institutional investors and the stock market factor in a company’s social conscience when buying products or shares in a publicly traded company,” she said. “By creating a specialized AI and analytics team, businesses can create their own social consciousness rating, seizing the narrative before others tell it their way.”
All in all, there is ample evidence to indicate that more companies than ever before are being held accountable for their actions and workforce composition, as well as leaders’ social media statements. Deploying AI to optimize these factors will be integral to future corporate advances: In this age of flourishing social consciousness, corporate governance is no longer just about business.
Russ Banham is a Pulitzer-nominated financial journalist and author who writes frequently about the intersection of business and technology.