It’s the time of the year for annual reports and shareholder meetings. I recently watched Warren Buffett preside over the annual Berkshire Hathaway shareholder meeting. Berkshire owns over 60 companies and has major shares in hundreds of others. 30,000 attended the meeting in person and millions more watched it live for several hours. It ran against the stiff competition of the coronation of King Charles in London that day.
That intense level of interest in corporate governance and the minutiae in annual 10-K and corporate filings that Buffett’s teams routinely parse reminded me to read the Salesforce FY23 Stakeholder Impact Report (for the year ending January 21, 2023).
Salesforce has an expansive definition of “stakeholder” to include “shareholders, customers, employees, partners, the planet and the communities in which we work and live”
CEO Marc Benioff is quoted “When we focus on stakeholder value as well as shareholder value, our companies will be more successful, our communities will be more equal, our societies will be more just, and our planet will be healthier.”
In an interview with Business Insider, Benioff’s definition of a stakeholder was even broader, “Yes, our investors are our stakeholders. Our employees, our customers, the homeless in San Francisco we've advocated for. Our public schools are a stakeholder. Our planet, and journalists — you're key stakeholders also. And I have to manage for all of them. And that's what it means to be a modern CEO today."
The acronym ESG (for Environmental, Social, and Governance) has become synonymous with a broad stakeholder focus. It was first coined by the United Nations in 2004. It has gained momentum in investing and related reporting, but not as much as you would expect over two decades. It is still controversial because much of the guidance comes from the United Nations and entities like the World Economic Forum with no jurisdictional authority. While some companies are still asking “why bother?” the reality is there is only inconsistent guidance on “how do we proceed”. I think the Salesforce template can guide in answering the “how” question
The road is long
Salesforce has been publishing its Stakeholder Impact Report for over a decade now. The FY12 report primarily focused on Sustainability and every year since it has steadily grown in scope. Salesforce’s founders had an even earlier start. A decade prior, they launched their 1-1-1 model, which commits 1% of their equity, technology, and employees’ time toward charitable initiatives. We should expect most ESG initiatives will evolve on a similar, gradual path.
Don’t try to boil the ocean
The United Nations has 17 broad Sustainable Development Goals each with many targets (169 in total at last count).
Throughout its report, Salesforce helpfully points out which of the UN SDGs a particular section meets. Salesforce does so with its solutions like Net Zero Cloud, Net Zero Marketplace (see their presentation in this Analyst Cam episode), and contributions to entities like 1t.org, a global tree movement they co-founded in 2020 to conserve, restore and grow a trillion trees by 2030.
Salesforce also shares how it decides what to prioritize.
No law requires you to volunteer for all these goals and related targets – or indeed any. There are plenty of activists and regulators who are only too happy to guilt you about each of the goals. Decide on goals where you can contribute the most impact. For example, as a chemical company you are likely to have a much larger emissions footprint than a software vendor does.
Commit to data rich initiatives
Here are some of the highlights from the Salesforce report:
The Salesforce FY23 summary report runs 21 pages, and has another 24 pages of detailed schedules (and includes data on Scope 3 emissions, Sustainable Aviation Fuel certificates and data on Underrepresented employee groups among others) and audit commentary from the independent accounting firm, Ernst & Young. The more you collect, certify and share specific data the more trust you will create that you are not just “virtue signaling” your commitment to a certain goal or target.
Negotiate more disclosures from activists and politicians
Part of the resistance we hear about ESG is that it is about one-way transparency. Many politicians, NGOs, charities and activists do not appear to be that open to debate or disclosure. Charities should better explain their program expense ratio. In many cases the executive compensation is too high and takes away from funding designated for their mission. Similarly, politicians demand plenty of reporting from businesses, but don’t often reciprocate. Many are banning combustion cars with aggressive timetables. They should, in turn, be able to show whether local utility grids will be able to support the transition needed for regular charging of EVs. They should be able to show the vehicle makers who sell in their jurisdiction have negotiated sufficient supplies of lithium, manganese and other critical materials needed for EV batteries. The Ukraine crisis has shown us energy independence is just as important as a focus on emissions. We have a right to see and debate if their transition plans from point A to B are well thought out.
Summary
Not every company will take as expansive a definition of stakeholders or ESG as Salesforce has. However, their Stakeholder Impact Report provides a nice template for every company to review and adapt to their more limited commitments. Just as importantly, as a society it also allows us to seek similar accountability and transparency from those who are setting the “rules” for such commitments.
