I’m reading more and more about ESG – it’s sweeping into vogue in a big way. I predict that we will continue to see more about it in 2019, including moving beyond the financial investment world. But how, exactly, do we make decisions that integrate the “environmental, social and governance” implications into the unique situation at hand? So much easier said than done.
ESG debates interest me because in financial distress settings, we see ESG in action every day, especially that pesky “G” part. It’s all well and good to issue ambitious and inspirational statements, such as the BlackRock ESG Investment Statement, but how does it play out when the rubber hits the road? How do those making the real world day to day decisions implement “stewardship” and “sustainability” when basically using OPM (other people’s money)? Spending someone else’s money is so much easier than spending your own.
The vast majority of fiscally distressed companies suffer from liquidity issues: i.e., fancy words for saying they do not have enough cash to operate, much less repay all the debt service as it comes due. Once entering the “zone of insolvency,” the law is settled that management owes duties to creditors as well as equity. Once entering a formal Chapter 11 proceeding, the debtor in possession (and all those in management who are making the decisions) owe fiduciary duties to creditors and other constituents, like employees, landlords, customers.
I believe that Chapter 11 provides strong cover for those calling the shots. Decisions are taken in front of the Court, and whoever wants to criticize and complain can come forth and do so. Then the Judge will decide to approve or disapprove the decision at issue. Corporate governance is a people-game, and it’s fascinating. #MeToo and #2020WOB are being facilitated by ESG, although the “20% of corporate board positions being women by 2020” seems poised to fall way short of goal. Watch for more discussion of corporate governance and sustainability as we enter 2019- it is a worthy topic for discussion.
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