Getting Governance Right – New Challenges

Welcome to the last in this four-part series on the importance of ESG (environmental, sSocial and governance/government) activities to companies. Simply put, ESG is imperative for three key reasons: reducing risk, attracting capital and obtaining sustainability, with all that that implies.

As is the case with environmental activities, mining companies have had decades of experience in the related domains of internal governance and managing government relations. Compliance officers have become key members of both headquarters and field teams, working to ensure that corporate employees fully understand their obligations and limitations under key laws, such as the Foreign Corrupt Practices Act. The FCPA contains clear and strict guidance on how companies can legally and transparently interact with governments to avoid either real or perceived accusations of corruption or improper influence. It also contains severe penalties for companies that (even inadvertently) violate the rules, with those consequences ranging from fines to even closure of a company. 

In addition to these very real consequences, there are also the reputational consequences of real or perceived governance failures, particularly as regards engaging in corruption. For instance, recent press stories highlight the US$180 billion fine levied against commodities trading house Glencore for its activities in the Democratic Republic of the Congo. This comes after a multiyear investigation of allegations of improper activities, underscoring the persistence of international governmental anticorruption activities.

Changing social expectations are also presenting new challenges for corporate governance, both within and beyond the mining industry. For instance, new public scrutiny of corporate lobbying and political donations recently have inadvertently led many companies into turbulent waters. In Georgia a few years ago, Atlanta-based Delta Airlines and Coke were boycotted by demonstrators because they had donated to politicians who were advocating reducing electoral access. Popular demands that companies should not engage in political donations soared, coupled with other demands that if companies wanted to do so, their donations should be subject to scrutiny and conform to broader social values, such as universal access to voting rights. 

While mining companies in the US were not drawn into that particular controversy, another social change poses a much more present challenge. This is in the area of diversity, equity and inclusivity (DEI). In many ways, this is nothing new. For years, the industry has been criticized for its failure to attract and retain women and minorities to the workforce. Statistics on female participation chronically show only about 15 percent of the global mining workforce are women, with ethnic minority participation rates even lower. Clearly there are exceptions for individual companies that have exceeded these levels – but nonetheless, the problem remains. While in part this stems from the perception/reality that the industry is male-dominated, it also has to do in many cases with decisions by managers in companies as to who accesses training and networking opportunities, which disproportionately are rewarded to men even when women apply. 

In governance terms, managers should be encouraged to identify and prioritize opportunities for women and minorities on their teams to not only lead projects but access training and attend conferences and other networking events. Calls by some for quotas, however, should be avoided, as historically these have not proven effective but are deeply divisive. 

A potentially important recruiting tool can be including women and minorities in visits to universities and professional schools. Too many recruiting teams still are made up only of white males, which inherently is less attractive to non-white male applicants. Likewise, featuring women and minority employees on websites and in social media also can highlight the diverse roles available in the industry and the success of DEI candidates in those roles. Some junior miners in the US, such as American Rare Earths, are a good example. Two-thirds of the company’s geologists are young women and they are leading important exploration initiatives for the company. They are frequently highlighted on the company’s webpage, LinkedIn and other social media, and attend professional conferences on behalf of the company. ARR’s efforts underscore that exploration and junior miners in particular have an opportunity to embrace DEI principles at a formative stage, making DEI and ESG cornerstones of the corporate structure. 

An important, related problem is the lack of female or minority leadership at the C-suite and board levels. In part, this flows from the realities mentioned above, that women don’t tend to gain the necessary experience to occupy senior management or strategic positions. However, particularly as regards boards, the strategic skills needed are sufficiently broad that candidates from other industries could be recruited – if companies genuinely wished to seek to make DEI part of their internal governance.

Numerous studies have shown that companies that incorporate varied points of view skew more profitable, creative and sustainable, which should encourage mining companies to continue to seek ways to encourage women and minorities to enter the industry.

The bottom line is that we live in a challenging, changing world that affects mining companies in all three aspects of ESG. Those companies willing and able to embrace these changes will be better positioned to thrive in the coming difficult decades, while those unwilling or unable to do so will face increasing, real difficulties.