As the cultural climate shifts in the 21st century, focusing on Environmental, Social, and Governance (ESG) factors is essential to every company’s success. Businesses need ESG-driven policies to thrive, including environmentally friendly operations, socially-conscious hiring processes, and transparent decision-making regulations.
Law firms must lead the charge in creating and enacting ESG elements. If you run a law firm, hiring ESG experts is vital to help your firm develop ESG policies and support your clients in doing the same.
ESG in Law Firms
Environmental, Social, and Governance (ESG) is a broad set of metrics, practices, and policies organizations use to operate. 58% of corporate studies regarding ESG show a positive correlation between a company’s financial performance and implementation of ESG factors.
The G in ESG refers to the roles, processes, and rules that guide a company’s operations and the decisions made by its board members. Strong governance policies help mitigate issues like corruption, bribery, and fraud. Governance is vital for reducing risk and ensuring protection against mismanagement.
Law offices must hire and retain ESG experts to help their clients and themselves mitigate risks.
The “G” in ESG
Governance policies related to several areas of corporate operations, including:
● Distribution of rights
● Distribution of responsibilities
Participants affected by governance policies include a company’s stakeholders, shareholders, directors, and managers. Governance affects how the board of directors is structured and how much a company pays its top executives.
This factor also plays into the monitoring and oversight policies used to resolve conflicts of interest between company policies and when the board of directors disagrees on an issue.
Governance is especially relevant in today’s climate. As political, social, and cultural attitudes change, solid governance policies can prevent problems for your law firm, your clients, and their businesses.
How to Quantify Good Governance Policies
Companies looking to quantify governance can track specific criteria and data to estimate an economic dimension score (EDS). The EDS is a comprehensive measurement of governance metrics that you can use to understand how a company performs on governance issues.
Estimating the EDS involves monitoring and quantifying information from the following areas:
● Corporate governance
Put strong policies in place regarding board structure, compensation, and ownership. Also, look at policies that encourage diversity, effectiveness, and experience within the company’s organizational structure.
● Codes of conduct
Good governance includes putting procedures and systems in place for identifying and dealing with corruption and bribery. Also, consider how to handle reporting breaches when they occur.
● Risk and crisis management
Consider the company’s risk and crisis management policies. How effectively can the company handle risks from internal or external sources? How do the policies deal with liability in the short and long term? Identify policies that allow for stress training and proactively identify and deal with emerging risks.
● Supply chain management
Strong governance policies encourage supply chain awareness and implement a supplier code of conduct. They also integrate other ESG factors into the supply chain to promote socially conscious ideals and environmental considerations.
● Tax strategy
A company’s governance must include policies regarding taxes. Policies should outline a beneficial tax strategy, ensure proper tax reporting, and promote year-long tax governance to avoid problems during filing.
Materiality refers to the governance policies surrounding long-term value creation and the metrics used to report these details. Good governance encourages transparency in reporting future value creation.
● Policy influence
Strong governance regarding policy influence includes policies that encourage disclosing large contributions to businesses that influence policies. It also includes adherence to regulations and legislation.
● Impact measurement and valuation
Governance policies must help the company assess programs for social needs and how these are impacting society more broadly. They should also account for the social impact that programs may have over time and how to price them into operations.
Lack of Governance Policies
A lack of solid governance policies can lead to serious issues within a company. Most corporate scandals occur because the business didn’t have or didn’t adhere to governance policies. For instance, Facebook’s misuse of data and the ensuing scandal resulted from a lack of transparency and negatively impacted the company’s shareholders.
Not having governance policies in place leaves companies prone to mismanagement. Scandals or risks resulting from this mismanagement can be costly to stakeholders and deter investors who want to protect themselves from scandal.
Law Firms Can Help
Law firms can help their clients implement ESG elements into their business operations. You can help your clients focus on ESG by:
● Helping establish governance policies
● Creating ESG assessments
● Identifying metrics to track governance performance
● Developing consistent, uniform reporting channels
● Setting an example by implementing strong ESG policies in your law firm
Find ESG Experts for Your Law Firm
Future-proof your law firm by hiring an ESG expert today. Collier Legal can match your law firm with a qualified candidate knowledgeable in all areas of ESG to ensure your firm enacts up-to-date policies regarding social, environmental, and governance issues.
Contact Coller Legal today to find the perfect candidate for your firm.