Written by Sorenson Global Impact Leaders Rosemary Addis and Laurie J. Spengler with their partners in Mondiale Impact
With 2025 still freshly minted, it is already clear that it will be an even more complex landscape for leaders to navigate. It feels almost Dickensian, evoking a sense of “…the best of times, the worst of times, the age of wisdom, and the age of foolishness, the epoch of belief, and the epoch of incredulity.”
The boundaries for decision-making are shifting, raising questions about what Directors need to consider and the consequences they need to assess. The shifting landscape ups the ante for boards, making what can be a tough job even more challenging.
Observing the politics, posturing, and commentary in this year’s first few weeks has been disorienting for many. For Directors, it’s impossible to steer the (corporate) ship with reactive positions and short-hand signaling using broad language open to different interpretations and intentions. Boards will need to be transparent about their decision-making process and would be well-served to orient around the substance of their impact rather than virtue signaling.
Clarity of Purpose in 21st Century Governance
Amidst the noise around political policy changes and disruption, some companies have reacted quickly. Diversity, equity, and inclusion initiatives are a case in point with numerous organizations having already scaled back, reframed, or outright eliminated their initiatives.
These swift reactions represent a false binary between 1980s-style mantras focused on growth regardless of the consequences and a forward-looking approach that integrates social and environmental considerations to enhance performance, particularly over the long term. Polarization in the political debate, further fueled by misinformation and disinformation, will likely exacerbate this effect.
Boards that take a reactive approach or operate from an over-attachment to a particular narrative will likely see polarization reverberate through their organizations. Twenty-first Century governance calls for clarity of purpose and direction and a more substantive, nuanced approach to stewarding companies for strong, resilient performance over the longer term.
Costco exemplified this recently when they resisted a conservative think tank’s proposal to scrap their DEI policies as posing potential business risks. The company’s board responded with clarity and resolve about the value their policies bring to the business: “…these efforts enhance our capacity to attract and retain employees who will help our business succeed … And we believe (and member feedback shows) that many of our members like to see themselves reflected in the people in our warehouses with whom they interact.”
Costco’s shareholders overwhelmingly agreed; 98% voting against the proposal.
Climate Change’s Impact on Governance
The stakes are high. In the year ahead, the cascading and compounding impacts related to climate change will become more serious and consequential for both businesses and markets. If we need proof that the risk is not remote, it is writ large in wildfires in the heart of Los Angeles.
Before the atypical winter wildfires tore through, some companies had already decided California was too risky and too expensive to insure. To date, at least 10 major property insurers, making up roughly 80% of the Californian market, have either left the state altogether or restricted new policies due to the increased frequency of catastrophic natural disasters.
Variations on this theme are playing out across the globe as we experience more extreme weather events. Boards must engage with the issues and the evidence to understand the implications for their organizations. What are the physical risks? How might supply and distribution chains be affected? What are the implications for jobs, for reaching consumers, and for the affordability of products? Does our approach heighten the risk or mitigate it? Where can we adapt or help others to build greater resilience?
The Consequences of Board Decisions in 2025
What is required of boards at this moment is much more than cherry-picking which issues have currency in the public discourse and signaling their support. Leaders need to engage with the substance and implications of their strategies and operations. This requires an appreciation of how the pieces fit together. Boards willing to engage with choices and trade-offs relating to how an entity produces and delivers its goods and services will be better positioned to navigate a path toward success and longevity.
Nestlé is an example of a large company drawing on a substantive understanding of issues. They are developing a deeper understanding of our changing diets, water, and nature conservation to assess their impacts and unlock transformative business opportunities. They communicate clearly: “…to create value for our shareholders and our company, we must create value for people in the countries where we are present. This includes the farmers who supply us, the employees who work for us, our consumers, and the communities where we work.”
The choices boards make in the coming year will lead to a range of consequences, some that can be anticipated and others that are not yet known. Boards will need to choose which path they are on and make consistent decisions to advance along that path. That includes deciding whether they hold firmly to objectives around sustainability and impact and how they establish priorities, allocate resources, and assess performance. Critically, Directors will need to be clear about why.
Leading with Clarity, Integrity, and Pragmatism
Smart leaders will anchor their governance in clarity, integrity, and pragmatism around the substance of why they do what they do and what contributes to performance. They will make clear choices and communicate them, drawing on a grounded understanding of how their approach delivers on their company’s purpose and why and how their approach delivers value.
Leaders who place substance over signaling will identify ways to accelerate their progression toward sustainability and impact objectives. In doing so, they will drive new opportunities for differentiation and growth.
As we move further into 2025, these questions focused on the substance of strategies and decision-making can assist directors in doing that and help chart a course through our new governance realities.
- Are we focused on substance over politics in how we engage with our choices responsive to social and environmental contexts?
- Is our governance approach fit for purpose not only in structure but in the substance, including the behavioral and operational aspects of how it’s given effect and the dynamics between the board and the executive?
- Whose voices are being heard, how are decisions being made, and what kind of information and priorities are being based on? Then, how are those decisions being executed and managed?
- Are we clear on where we need to focus and what we need to invest in to advance our purpose over the near, mid-, and long term in this changing context?
- Is there coherence, congruence, and appropriate feedback loops between our purpose, strategy, and decision-making?