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August 31, 2023

Shop floor to stakeholders: manufacturing and corporate governance

Amy Klitzke, Adam Kibble

Environmental, social, and governance (ESG) helps companies in and out of the workplace. Corporate governance focuses on the inner aspects of an organization. It makes a system of rules and methods that directs a firm toward its goals. Since it can cover many business areas, various parties feel the effects of corporate governance.

Knowing and managing risks help keep stakeholders confident in your company's leadership. A solid set of business practices can help navigate litigation trends and build a competitive edge in your industry.

The value of corporate governance

Trust and compatibility build relationships. For businesses, these two traits can bolster their relationship with consumers and stakeholders.

Broadly, your corporate governance strategy affects how well your entire operations perform. A company's practices should follow whatever direction its executives go. However, these executives shouldn't work in a bubble. They should remain aware of how their actions affect people outside the business. Shoppers prefer a brand's values to be like their own. If a brand doesn't match their standards or goes directly against them, these same shoppers will take their money somewhere else. The same concept works for investors. Suppose a manufacturer looks to gain capital, now or in the future. In that case, strong governance helps show a commitment to clarity and effective risk management.  

Board members and executives are coming under the microscope when it comes to the strategies they make. The days of blind trust in decision-makers are changing. A Harvard report on corporate governance trends noted that in 2022, only 69.7% of directors received more than 95% shareholder backing. The data shows that this was a dip from 73.7% in 2021. Privately owned companies are also not immune to this scrutiny. Even manufacturers without a board should strive to build and maintain a positive reputation.

Stakeholders are more than willing to make changes at the top level. As such, monitoring and holding executives accountable is becoming essential. Reaching out to a Marsh McLennan Agency specialist can help you bolster your current governance practices. They can also help you study how effective your leadership’s processes and performance measures are.

The increase in litigation 

Outside judgment of how executives approach ESG measures is growing. Groups like the Securities and Exchange Commission (SEC) are researching the ESG programs of publicly traded firms. For example, in November 2022, the SEC fined Goldman Sachs $4 million for failing to implement proper ESG investment procedures. ESG initiatives are just one piece of the puzzle regarding how parties view your executives' actions.

Just because your company can have an ESG program doesn't always mean your stakeholders will want one. For example, three pension funds were sued in New York City for divesting billions of dollars of fossil-fuel assets. The plaintiffs argued that this divestment was "...a misguided and ineffectual gesture to address climate change." This case highlights why organizational leaders need to listen to their employees' wants and needs. Every move your executives make must be carefully thought out and performed.

Where Marsh McLennan Agency can help

In a monitored climate, it will be vital for your company to act carefully on its corporate governance plans. Your executive strategies should be flexible. If your company grows, corporate governance measures should too. We believe strong corporate governance can build stakeholder trust in a company. As a manufacturer, your company plays a big role in how the business ecosystem interacts with the decisions of your executives. Transparency with your stakeholders “...should therefore be constant and free-flowing” so you can both take on rising issues.  

Support your company’s corporate governance with our help. We provide directors and officers coverage tailored to the needs of your executives. Additionally, you can use Marsh’s ESG Risk Rating tool and Pulse Check to see where your ESG program stands. You can use these data points and insights to further boost your corporate governance agenda.

Gain an understanding of the current environment for corporate governance and ESG. Read our Business Insurance Trends report to learn more about this and other trends happening in 2023.  

Contact a Marsh McLennan Agency manufacturing specialist today.