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Tuesday, 30 June 2020 08:00

Social and Governance Factors in Projects

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This next article in the series on the relevance (materiality, in the terms of the investment community) of environmental, social and governance (ESG)

factors in projects addresses social and governance issues and how they influence successful project performance.

As we face pandemic and protests, the importance of healthy social and governance concerns is highlighted. It is no longer sufficient to meet objectives unless those objectives include long term impacts on the environment, social fabric and the way we govern ourselves, our projects and organizations.

Projects are microcosms of the overall organization. Organizations are microcosms of society at large. The way we behave and perform in our projects reflects the way we behave in the relationships in families and communities.

Social Concerns

In the context of ESG, social concerns address diversity, human rights, animal rights and consumer protection.

From a practical perspective, there is the value of the "power of difference." Diversity is valuable because it promotes agility and innovation, it enables getting the right people for the job. At the project level, we value the diversity of ideas because the confrontation among diverse perspectives can result in better solutions, designs and plans.

The benefit of the power of difference is only achievable if the decision-making process is healthy and there is open-mindedness among the stakeholders. There can be no real change without a commitment from the highest levels of organizations, and the willingness on all levels, to confront racism and bias, and to acknowledge the value of diversity.

Racism and Bias

However, there is another dimension to diversity. The Black Lives Matter awakening addresses the effects of racism on individual lives and society. Racism and other biases (ageism, sexism, etc.) make open-mindedness impossible.

To remediate bias there first must be the recognition that it exists. In several of the diversity and bias training sessions I have attended several white participants were in denial of their socially ingrained, systemic, racism and privilege. That seems to be changing, though it takes some real introspection to accept the reality of privilege and how it effects one's judgment of others, particularly people of color and members of LBGTQ communities.

This operates at the project level when people's ideas are discounted because of the color of their skin, their gender preference, height, weight, or other attributes. Or when ideas are in contradiction to the norms and beliefs of the group.

When bias gets in the way, there is the loss of potentially valuable insights or options. This in turn, promotes less than optimal decisions, plans and designs.

Further, microaggressions - subtle, often unconscious and unintended, behaviors inflict pain on others and destroy relationships.

Human rights

Closely related to diversity concerns, human rights concerns include consideration of the impact of decisions, products and services on local communities and the health and welfare of employees. These considerations do not stop at the project or organizational boundaries. The entire supply chain is subject to scrutiny.

To address human rights concerns the selection criteria for contracted services and products must include relevant criteria. For example, a project that on the surface may seem benign, may support suppliers that pollute the environment at the expense of people who may have no recourse but to live with impure water and foul air. Suppliers may exploit workers or support oppressive governments. With human rights as part of the selection criteria along with cost and performance it becomes increasingly possible to achieve long term benefits for more people.

The valuing of human rights is controversial. There is evidence that many influential people are more concerned with financial gain and the acquisition of power than they are with human rights. There are differences of opinions about the difference between rights and privileges. For example, is health care a right or a privilege? Should government regulate business or is it an organization's right to dump toxic waste into local water sources and hire whoever they want for whatever reason?

It is a continuous challenge to increasingly stand up for human rights by speaking out and standing up for values by refusing to make or support decisions that are contrary to one's values.

When does the security of one's job become secondary to one's values? When does one say NO, or, at least, speak out?


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Consumer Protection

Over the years there has been an increasing recognition of the responsibility of organizations to protect the lives and wellbeing of consumers. Litigation to hold tobacco, pharmaceutical and other companies accountable has been successful in highlighting the financial damages that are at risk when consumers are hurt as they use toxic or faulty products.

At the project level we have seen instances in which hitting deadlines or keeping costs down have resulted in damages to consumers because project managers and their leadership have ignored quality control and assurance concerns raised by project performers.

When does one refuse to go along with shortsighted decisions? When does one blow the whistle?

Animal welfare

While animal welfare as a social consideration is controversial, investors are increasingly seeking information regarding the practices of companies and communities that abuse animals in the pursuit of profits. At the project level this concern can influence supplier decisions, the design of research projects, and the treatment of animals in farming and food processing.

There are no universally accepted standards though we see increasing restrictions on inhumane treatment of animals and greater consumer choices for products that result from humane treatment. For example, preferences for cage free eggs.

Governance

Governance influences the ability of organizations and projects in particular to value and promote healthy environmental and social policies and practices.

Effective governance considers the long term and accepts the reality of uncertainty.

There is a long history of companies focusing on the short term - annual profits as opposed to long term investment. These organizations make decisions that impact the degree to which they perform leading to environmental damage and to harm to consumers and workers.

On the project level, risk management and the degree to which it is performed remains a controversial activity. Some stakeholders become certain of a desired outcome and dismiss the reality of adverse conditions and alternative outcomes. Without effective and open-minded risk management, projects and organizations suffer avoidable costly and damaging consequences.

Employee relations and the norms of workday duration, working conditions and compensation disparity influence productivity. As an example, a recent report highlighted that executives in some health care companies have taken multi-million-dollar compensation while laying off and/or reducing compensation for workers. How might this effect morale and the perception of investors who value ethical behavior?

In projects, when does the 24-7 work ethic become a significant burden borne by performers? When does the result of process improvement projects negatively effect operational employees? How does the use of contractors as opposed to employees impact workers' lives?

The Future

While the future is uncertain, there is evidence that awareness of ESG concerns and their positive effects on profits as investment criteria will lead to a future that is increasingly livable.

Filtering down to the project level, ESG awareness can lead to more effective decisions and more successful projects.

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