Embedding purpose into corporate decision making

Tamara Cannon:
At Ashurst, we acknowledge First Nations people as the traditional custodians of the land on which we work in Australia and we pay our respects to their elders, past and present. We extend that respect to Aboriginal and Torres Strait Islander people listening today.

Tamara Cannon:
Hello and welcome to this special episode of ESG Matters at Ashurst. My name's Tamara Cannon, and I'm a lawyer with over 20 years commercial experience and the founder of Lille Fro Foundation, an Australian not-for-profit working to bridge the gap for children living in extreme poverty through education. I'm a passionate human rights and social impact advocate and thrilled to join Ashurst's ESG practise, helping organisations bring about positive change.

Tamara Cannon:
In today's episode, we discuss how proactive business leaders can embed corporate purpose and shared value at the very centre of their corporate strategies. In doing so, boards and executives are better able to anticipate and deliver on the expectations of their stakeholders, from investors and customers, to employees and government. This is an opportunity for organisations to show proactive leadership around major social issues and achieve positive change, but it requires creativity, courage, and vision. In this episode, we explore what it means to go beyond traditional reputational risk management, and instead take a holistic and systemic social value creation approach to managing risk.

Tamara Cannon:
Our special guest in this episode is Audette Exel. Audette is a pioneer of social entrepreneurship in Australia. Almost 25 years ago, she ripped up the rule book and started Adara Advisors, a for-profit business which seeks to alleviate extreme poverty and disadvantage. Together with her panel of advisors and donors, Audette has raised over $60 million to fund social development projects. Audette is also a non-executive director of Westpac.

Tamara Cannon:
Joining us for this discussion are Elena Lambros who heads up Ashurst's climate change and sustainability practise, and Robert Hanley, who heads up Ashurst's legal governance advisory team. You're listening to ESG Matters at Ashurst.

Tamara Cannon:
Audette, Elena, and Rob, welcome to the podcast. Social entrepreneurs have always existed, and in the past, they were called visionaries, humanitarians, saints, or simply great leaders. Audette, you do fall in that category. When I cast my mind back and put things into perspective, 10 years prior to when Adara was founded, there was a huge explosion in this space. So, for you to have come up with that idea in 1998, that would have been such a radical concept. Can you take us back to how this all began and where that idea came from?

Audette Excel:
Sure. I'm happy to do that and delighted to be here. Thanks. I don't think anybody who knows me would call me a saint, by the way. So, I'm definitely not going to own that as a title, but as you rightly say, I'm a little amazed to find Adara nearly 25 years old. A lot of what in truth was really hubris and perhaps a crazy idea is now we're still standing as being reinterpreted somehow as great vision, and it is lovely to be standing here. And it is lovely that something that was considered to be so kind of out of left of centre is now almost mainstream. The wave that we've seen, which I know we'll talk a lot about, of ESG. It's been wonderful to be part of that and to watch that for all these years.

Audette Excel:
But simply put, the idea of Adara and as you know, Adara is nothing more really than a corporate advice business for entirely for-purpose, that's set up as a funding engine for the NGO work, the non-for-profit work, that we do around the world with people in extreme poverty. So, it's a funding source, if you like. The idea just came from the very simple idea that if we really want to change the world, we need to bridge divide. We need to stop thinking in silos, our business silos and our not-for-profit silos or our philanthropic silos. And we need to create models and structures that are hybrids of those. So, Adara was my crack at one such model, and it has been a winding sort of journey of joint tiers. And there're many, many other models out there now, but it came from just that singular thought that if we want to change the world, which of course we do, we have to bridge divide, and we have to think outside of our silos. So, that's how we find ourselves here after all these years.

Tamara Cannon:
Well, that's right. And after 25 years, you have touched the lives of more than 200,000 people living in poverty. And I know opening doors of opportunity and providing the chance for that social mobility for people in need is a hugely rewarding experience. There's a point though, with many social entrepreneurs, where it becomes less about, yes, this is a joyful experience to, okay, now where is the greatest need and striving for greater impact. So, how did you identify these projects and your beneficiaries and how do you measure impact?

Audette Excel:
Yeah, no, really good question. It's actually 200,000 people a year that we touch. So, over the course of the quarter of a century, it's been an awful lot of people. I mean, never enough. So, that's through our direct service delivery. As I think you know, we're specialists in maternal newborn healthcare, particularly the pre-terms and low-birth-weight babies, and we're really specialists in very remote service delivery education. Our most remote project is 25 days walk from a road. So, you're totally right. You go from, "Wow, this is joyous and I've got to get after it," to, "Holy cow. What's my responsibility in all of this? And am I doing good rather than bad?" I'm happy to say that what happens, as what's happened to me anyway as a social entrepreneur, is you get joined by amazing people who really, really understand the nature of the work.

Audette Excel:
For us, in terms of impact, for instance, impact, our thinking around impact has really deepened over the years. I've been lucky enough to have behavioural scientists standing by me right the way through, but we have monitoring and evaluation, research teams, best practise innovation teams who help us think about impact. What we do is and have increasingly done over the last 15 years or so, is we work from theories of change.

Audette Excel:
We start with our teams on the ground and communities on the ground, trying to figure out what is the change that the communities want to happen here. And then we map through a theory of change process, which is quite deliberate around ways to make that change. And then we monitor and measure it, really, really with a sharp focus. So, we look at the data that comes, we look and listen to the voice of our client group very carefully. And we particularly look at the biggest mistakes that we make or the areas that we're not doing well. And then we use that to not only shape our programme work going forward to try to do better, deeper work, but we also use that to share with others so that we try to take years off other people's learning time from the mistakes that we've made.

Audette Excel:
But it's a very serious process for us. It's been going on for a very long time. With our first work back in 1998, we did household-level baseline surveys in the communities that we were going to intervene in before we intervened and we map everything. So, we've got a lot of rich data and we map everything from there, and it's been wonderful to see how that unfolds, wonderful to see where we've done well, where the theory of change is working. And of course, heartbreaking sometimes when you realise, "Gee, no matter how hard we tried, we still messed that up," or didn't make change. But yes, we think a lot about impact at Adara to make sure. I believe the poor, we all believe the poor deserve really high-quality service delivery. If I thought we weren't doing that and if any of our team thought we weren't doing that, we would give our money to somebody else who does do that. And that's the kind of baseline that we run across all our work.

Tamara Cannon:
Well, that's right. I mean, development is such a grey area and there is no one size that fits all. So, when you are mapping impact, you really have to take into account also the remote areas in which you're working. So, if you're looking for that dollar-per-child analysis which gets rolled out all the time, then it's very hard when you are taking on such enormous challenges in different corners of the globe.

Audette Excel:
I find that kind of analysis really offensive. I think the business community brings its metrics into the international development or the development sector without necessarily understanding that things don't translate exactly. And you can, if you're not careful about how you measure impact, you can really distort high-quality service delivery. So, you start, for instance, to look for easier client groups who might meet your metrics or whatever the issues are. And the dollar-per-child issue is one of the reasons that people don't do remote because the bang-for-the-buck argument. But we're talking about human rights here. We're talking about the entitlement of every human being on this planet to have great service delivery. I really believe we need to bring a rights-based approach to our thinking around how we measure and monitor impact. And you're entirely right. It's different in every single place that anybody works.

Tamara Cannon:
That's right. Well, today we are seeing a different role for businesses in society. It's so positive and that's one that tilts the scales of purpose and profit. Rob, how are boards managing these broad range of expectations in order to create that marriage between purpose and business?

Robert Hanley:
That's a very good question. As you know, at its essence, boards have to act in the interests of shareholders. But the interesting thing over the last few years is the meaning of what acting in the interests of shareholders is is changing. Increasingly, it's not just acting for shareholders, it's taking into account all relevant stakeholders, and that includes employees and also the communities in which companies operate. And so as a result, directors now are obliged to stay up-to-date with what society considers are important issues so their organisations maintain effectively their social licence to operate. For example, issues like cultural sensitivity, the rights of First Nations people, diversity and inclusion more broadly, workplace behaviour, human rights, as Audette has already mentioned. Directors need now to ensure that their companies anticipate and avoid foreseeable risks, and increasingly, those risks include ESG-related risks.

Robert Hanley:
So, actions that contradict the company's social licence to operate can lead to significant reputational damage with far-reaching repercussions, including a fall in the company's share price, shareholder upheaval, executive resignations, and even corporate and director liability. And also, and I think very importantly, a company's purpose is increasingly important for employees. People want to work for an organisation whose clearly articulated purpose is something that they're proud of. And we hear this a lot, and there's a consequence in an era at the moment, especially where there's a war for talent, I think we're definitely seeing a marriage of business and purpose.

Tamara Cannon:
Well, we see in the newspapers just discussion every single day about ESG and the focus is generally on the E and the G and it's really heartening to see that there is discussion around the S and that purpose-led businesses really are needing to step up on that front. Elena, how important is it for businesses to get the narrative right? And where do they even start?

Elena Lambros:
I agree on so many of these issues and what we've already spoken about, but I would just highlight it is so valuable for companies to engage with stakeholders, which includes their employees, their customers, their investors, and the wider community on the right issues and demonstrating the approach. Businesses need to be engaging with this broad group of stakeholders on the matters that matter to them. I'm not saying that's an easy piece of work. I would say it's quite significant, but getting it right can set your business up for long-term success and sustainability. And it also reduces your risk to regulatory or litigation issues.

Elena Lambros:
In terms of where to start, I'd just kind of start from the very beginning. You start, you define your strategy, you review your internal and external commitments. You start identifying any risks and setting a solid foundation for executing on your plans. In a complex topic, particularly around the S in ES and G, you need to ensure there's externalities associated with your commitments being accounted for and priced into your projects and activities. So, whether that's employment or wellbeing or other metrics you might want to be measured against, and you also need to have a strong framework in which to understand these interdependencies and trade-offs that might be required, all at the same time by meeting your regulatory and compliance obligations, so it's really part of the organisational fabric and then keeping that kind of strong brand and reputation, I think that's benefiting everybody these days.

Tamara Cannon:
Absolutely. So, Audette, you sit on the board of one of Australia's leading banks, and how do you see that your lived experience can influence decision-making?

Audette Excel:
There's a lot of different ways to make change, right? I'm privileged enough to get the chance to try to make change as a social entrepreneur, but also to be a non-exec director in some great companies. I think I completely agree with Elena and Rob, ESG now is front and centre for boards, and these discussions, I mean, you only need to look at the Edelman Trust Barometer that comes out, in fact, the 2022 one's just out, to see the overwhelming majority of respondents saying they want their businesses to be speaking about and involved in, whether it's geopolitical risk or climate change issues, societal issues. I mean, it's a real change in the way that people, I think, are expressing themselves around business. So too with Westpac. If you're lucky enough to be on the board of one of these companies, you get a chance to use your voice around these incredibly interesting discussions.

Audette Excel:
One of the things that I think is really important is that when the discussion comes on about profit versus purpose, that it becomes really clear that these two concepts are not mutually exclusive. And in fact, in fact, they're quite the opposite, they're bound together. And as Rob says, our stakeholders now, we're so past Milton Friedman, the one stakeholder being the shareholder. Our stakeholders are our customers, our staff, our community, our environment, and our shareholders, and it's a perfect, perfect marriage when you bring all that together.

Audette Excel:
So, having the chance to sit on the board of a major company like that, as an entrepreneur, I ran a publicly-traded bank before I set up Adara. So, I've worked across different parts of the economy, but it allows me to bring that thinking about innovation and about social purpose, about how you manage purpose and profit together, and add my voice to a group of people working together to try and get the best possible outcomes for all those stakeholders. It's a huge privilege.

Tamara Cannon:
Have you seen a shift in how organisations are choosing to lead? Perhaps Rob might jump in on that one.

Robert Hanley:
Sure, sure. Yeah, I think there has been a real shift. I think organisations are increasingly signalling to shareholders and the broader stakeholder community that they take ESG issues seriously, and that their organisations are not pursuing profit at the expense of everything and everyone else. I think business leaders are becoming increasingly transparent about their decisions and also their mistakes. And I think there is finally greater accountability for those mistakes.

Robert Hanley:
Let me pick a few examples, a number of leading retailers, I'm sure everyone knows, who have been found to have underpaid their workers. Many of those companies have very publicly taken responsibility, apologised to those affected, and undertaken to remedy the situation.

Robert Hanley:
Recently, a multinational mining company itself commissioned an independent report into workplace culture at its remote mining sites. Once that report was published, the chief executive very publicly acknowledged the shortcomings, undertook to take very deliberate steps to address the underlying issues.

Robert Hanley:
In another issue, a different type of issue, one of the leading retailers in Australia, although it had the legal right to do so, opted not to open a new store, which sold alcohol near to where First Nations communities were located, for fear that they would suffer consequences as a result of doing so.

Robert Hanley:
In fact, I had a conversation last week with a senior executive of a different financial institution to the one Audette's on the board of, and he said to me that before taking any material decisions, that the management team and the board ask themselves a question, and they say, "It's not can we, but should we?" in relation to whatever the issue is. That is a real demonstration of the shift to how organisations are choosing to operate and to lead.

Tamara Cannon:
Well, that's right. When you look back to, I guess, where the social licence to operate first originated, and that was with the mining companies. I think back then in the '70s, '80s, it was more, "What can we get away with?" And nowadays there's that shift to, "Well, it's not just about how do we leave in a better place, but rather it's how can we add to that? What impact can we make?" And it's taking it or driving social change that one step further. It's really coming down to also, I think, to an activist workforce and they're really demanding these changes and near enough's not really good enough. They want to see that their bosses are walking the talk and taking action as well.

Audette Excel:
I'd agree with that. I just wanted to add to that, if I may. We're now living in the age of the internet. We're a global workforce. We're connected. It's wonderful the access to information that we have. So, radical transparency, to your point, Tamara, is what we're talking about. And people are making choices based on what they understand, in a way that perhaps decades ago, there was so much less available information about what corporations were doing. So, we now have these incredible tools to hold corporations and to hold ourselves to account. I think that's a huge part of why we're seeing this shift of societal expectation. I couldn't agree with Rob more. It's watershed. It is enormous compared to the way it was when I started in business 35 years ago or however long ago it was. Purpose is now the number one conversation that takes place in the biggest boardrooms, not only in Australia, but around the world. And I think that's very hopeful for us all in terms of where we're headed.

Tamara Cannon:
Absolutely. And it is such a pivotal point and over the last decade, but particularly, I think, accelerated by COVID, we've seen this strengthened sense of global citizenry. So, it is that next generation consider it natural to take the lead in the creation of solutions to social problems, and they expect their bosses to do the same. So, whether that's safeguarding the environment or protecting human rights, providing access to healthcare or just decent working conditions. But understandably, many CEOs feel out of their depth. Are businesses that don't take on the responsibility of being good global citizens going to be left behind? And how are these boards making these decisions?

Elena Lambros:
I might start there, Tamara. I would just say that I think the expectation on businesses to be a good global citizen is just continuing to increase. I think people just essentially don't want to do business with people who aren't making the right decisions. You don't want to be supporting an organisation that has slave labour, child trafficking, or other human rights in their supply chain. They don't want to have a direct or indirect link to supporting a business that isn't doing the right thing by its employees, or who has no regard for the human impact in its business decisions.

Elena Lambros:
The other point I would make about that is that everyone expects that businesses actually taking these decisions and they're being informed about them. So, I don't think it's any excuse to say that you weren't aware of these issues across your supply chain or you didn't think it through. I think people expect you to be thinking about these and actually making the right decision. I would say it doesn't just kind of stop at the stakeholder. I think there is some clear expectations coming from regulators around this. And I expect that we'll see a lot more focus on this issue going forward.

Robert Hanley:
I think there is a huge increase in transparency and accountability, but I agree with Audette. I think it's being driven by an enormous ability for various stakeholders to see what's going on, to have access to information that previously was never available to the broader public. And I think that's driving a lot of these actions and that's a good thing.

Audette Excel:
Yeah. I agree with Rob. It's a very, very good thing for the world. And I think anybody who's involved with any kind of significant corporation now is well aware that we need to get this right, the war for top talent, the war to retain talent, the war to make sure we meet regulatory expectation, that we've got the widest pool of investor capital, and that all our team go home feeling really great about what they do all day. Boy, it's all wrapped up in ESG. And it's here now. It's not theoretical. It's really here. And the data is in, and that's a very, very nice place for us to be sitting, I think, compared to where we were 30 years ago.

Tamara Cannon:
Audette, are we seeing this transition now from the social entrepreneur to the social intrapreneur? So, driving positive change from within the existing business?

Audette Excel:
I don't know about those labels. I think we're seeing a transition to just positive social change everywhere. So, you can change from within, you can change from without. I'm a huge fan of the activist community. I'm a huge fan of the engagement community. There's no question that generations that have come after me are demanding a different standard. And so there is change in the biggest slowest dinosaur organisations and there's change in terms of entrepreneurship and the new starters. And so I think that that's a pattern that we're seeing and it's expressing itself in many different formats.

Audette Excel:
And really the chance, I'm a huge fan of SDG 17 is my favourite SDG, partnership for the goals. And as we see all our businesses pivot to understand, we have to point into the SDGs, doesn't matter what our business is. I think that one for me really catches it. Find ways to partner, think outside of our very narrow, siloed thinking. So, I think we're seeing that internally inside organisations, I think we're seeing it externally with the rise of social enterprise. In fact, I was reading a report yesterday that said that the social enterprise movement is the fastest-growing movement in the world. Isn't that fascinating? We need to take that lesson both internally to our large corporations, our publicly-traded businesses, and also in our education system with the youngsters that are coming out in terms of what they may choose to do. So, whether we're intrapreneurs or entrepreneurs, the great news is people are looking to make change and figure out what the tools of their trade are to be able to do that.

Tamara Cannon:
Well, that's right. When I think back to around 2007, can you remember Toms Shoes out of the US became the fastest-growing shoe company in the world. And that was one of the first organisations to develop that business for-profit with a non-profit purpose behind it. There is the demand for that, and there's demand for change and consumers are wanting to be able to tell that story as well or be part of the bigger picture. So, what does the future look like? Are corporations the new change-makers?

Robert Hanley:
Not yet. I think some corporations have leaders like Audette who are showing the way, and let's hope that continues, and there are a lot more Audettes going forward. These are companies who, I must say, are often very willing to hear the message, that they want to be or become good corporate citizens, but I think they are reacting to the pressure of change. I don't think they're leading the way, to answer your question.

Robert Hanley:
Activist shareholders, as Audette mentioned, activist shareholders, I think, are playing a large part in the recent battle. For the AGL battle, for example, there was an interesting investor called Snowcap Research out of the UK, which entered the fray and called for improved performance by AGL on ESG matters. Snowcap sort of describes itself as an atypical ESG investor. It looks for companies that are underperforming, takes a stake, and looks to turn those companies around. And that, to me, is the ideal type of activist investor and a very positive change. So, I think these interventions, I should say, and a growing awareness by companies is changing the way they operate. But I think as I said, the companies are reacting to the change rather than being the change-makers themselves.

Audette Excel:
Interesting, isn't it? That's very interesting, Rob. I have to say, I think you're probably right, but I wonder if that's just typical of society? Not everybody leads, a lot of people follow. And so giving permission to step into a new space, that's really what I feel is happening, that the society is giving permission, in fact, encouraging and businesses responding other than business. If I look at Unilever and the work that Paul Polman did, I mean, there's some really great leaders out there in this space.

Audette Excel:
But one thing, just to contextualise the whole discussion, we're sitting in the middle, we're living in this fascinating decade. We've got three existential crises basically facing us. The COVID-19 pandemic, no matter how much we want to believe it to be, it is not, it's a long way from over. We've got climate change, which is not only real in the data, but it's real in our lived experience now in a way that I don't think Australians could even begin to comprehend even 15 or 20 years ago. And now we've got this massive economic crisis that's coming at us from a whole series of factors, including the latest being a war in Europe and an energy crisis on the back of that. So, we're living in a moment, I was looking at the data the other day, 200 million more people are going to, it's estimated, will go into extreme poverty in the next six months. 200 million.

Audette Excel:
One thing that COVID has shown us is we're all connected. So, as we think about our companies and I agree, Rob, that there's a sort of a reactive rather than proactive a lot of the time. But as we think about how we manage our companies, we're suddenly thinking about burden of disease. How many of our staff are sick? How many of our suppliers are sick? Where's this coming from the globe? So, that sort of understanding now of, "Oh, we're all connected." These issues, actually these existential crises for the world matter to me, my business, even if what I have is a business that's entirely local and not global, it's all impacting us.

Audette Excel:
So, contextually, I think, couldn't be a more important time for this work to be happening, for advice to be given, and for companies to be able to change the way that they operate in a way that meets all stakeholder needs and meets the SDGs, factors in with what's happening with the SDGs and where we need to go as a planet, because boy, if we don't get it right in the next eight years, we're not going to get it right. And the ramp is very short, if you like, the off-ramp is very short, but I personally feel enormously hopeful about what's happening, but the context is urgent.

Elena Lambros:
Audette, I'd just like to echo that, because what I was thinking throughout this conversation is I think it's immensely positive that we're even having this conversation, that it's open, that it's been spoken about in board levels and boardrooms around the world. So, for me, I feel like the future is pretty optimistic, and maybe it's in five years' time, we're not having this conversation about, can you marry profit and purpose together? It's just the reality that's that's the way that businesses operate, which I think would be ideal.

Robert Hanley:
I would agree with that, Elena, and to pick up on an issue or a point you made earlier, an important aspect of all of this is the regulators, and the regulators are now coming on board and they are demanding activity and not only action plans to address these risks of all kinds, ESG in particular, climate-related risks, for example. They're asking for risk frameworks, they're asking for actions, and importantly and increasingly, and we've seen it out of the US with the SEC releasing climate-reporting criteria. I think that this is the beginning of the regulators are going to be more active and drag even the unwilling companies with them. So, I agree. I'm positive, not necessarily because everyone's going to want and volunteer to do it, but I think we're all heading in the right direction.

Audette Excel:
Absolutely. And that relates not just to the environmental components as well, but I think the soft laws will turn into hard laws in the social context as well, for sure. We know more about the world's problems than we do about the world's problem solvers, and Audette, it has been an absolute privilege shining a light on your work today. I'd like to thank you, Audette, Rob and Elena for joining us. It's been terrific.

Elena Lambros:
Thanks very much, Tamara.

Robert Hanley:
I agree. Great to talk to you, Audette, as well.

Audette Excel:
Thanks, pleasure to be here and to have a chat to you about such important issues.

Tamara Cannon:
Thank you for listening to this special edition of ESG Matters. To hear more ESG Matters episodes, please visit ashurst.com/podcasts. To ensure you don't miss future episodes, subscribe now on Apple Podcasts, Spotify, or your favourite podcast platform. And while you're there, please feel free to leave us a rating or a review. Thanks again for listening and goodbye for now.

Speaker 5:
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