Director Engagement: Necessary for ESG Success

Abstract

Leo Strine, Kirby Smith, and Reilly Steel make an important contribution to the corporate governance literature. In their article, Caremark and ESG, Perfect Together: A Practical Approach to Implementing an Integrated, Efficient, and Effective Caremark and EESG Strategy, they make the compelling case that Caremark’s obligation that directors "be reasonably informed concerning" the activities of their corporations—and be subject to legal liability if they are not—provides a foundation upon which directors can and should inform themselves as to whether their companies are acting in ESG-forward or otherwise ethical manners.

While Strine, Smith, and Steel include discussions of Caremark liability and associated legal gloss, the practical “takeaway” from their article is that directors must be engaged with their companies' ESG (or, as the authors write, EESG) efforts, addressing those matters that pose moral risk to their firms as well as those that only pose legal ones. And importantly, director engagement on ESG should not just be something that corporate boards implement, but that shareholders should be demanding.