Professional services firms are under more scrutiny than ever when it comes to the clients they represent. Employees are no longer reticent about protesting clients they consider unsavory. We’ve seen other stakeholders and the public actively lobby firms to drop certain clients, as well. 

Think about the way at least three law firms distanced themselves from representing the Trump administration after initially agreeing to help challenge election results. Public and internal pressures forced these firms to reconsider their willingness to be involved.

Controversial scenarios like this can land on the doorstep of any professional services firm.  To protect your firm’s reputation in an era of more aggressive social activism, you can mitigate risk by considering carefully which clients you’re willing to work with.

Professional services firm can do this by applying the logic investors are increasingly using – it’s associated these days with three letters: ESG.

ESG Minimizes Risk and Maximizes Long-term Results

In the financial services realm, investing with a fund manager who touts a strong commitment to environmental, social, and governance (ESG) practices is not just about making a positive social impact. It’s also a way to reduce the likelihood that your investment will lose value while increasing the likelihood of positive returns over time.

Companies with weak ESG performance often find themselves in situations that can lead to a decline in valuation. If a company is cutting corners on safety protocols, harming the environment, or exploiting its workers, there’s a much greater likelihood it’ll eventually be sued, fined, or otherwise penalized, which can negatively impact its stock price. Activision’s shares have tumbled since revelations of sexual misconduct among its employees, a clear failure of governance. So an investor or fund manager may choose to benefit society by putting her money into a company or a fund with stronger ESG standards, sure, but it should also de-risk her investment.  

How is this strategy relevant to who professional services firms take on as clients? Like investors, they should weigh the short-term gains they stand to make against the long-term risks associated with their choices. Is the initial financial windfall of working with a client of questionable or dubious integrity worth a ding to your firm’s reputation?

Socially Responsible Investing is a Way for Investors to Live Out Their Values

There are firms who choose to represent society’s most controversial and polarizing characters as a matter of principle. In the legal industry, for example, firms rightly argue that everyone deserves skilled representation, even those who some may consider unsavory. That’s certainly true, and if the employees and stakeholders of those firms know that is how they make decisions, there’s less risk for those firms. But when a firm purports to hold certain values and then makes decisions that contradict those values, the firm takes on significant reputational risk.

Assuming you’ve taken steps to define your values, applying an ESG investment lens to client selection can help you live them out.

Ethical investing got started in the 1980s when students in the U.S. demanded that their colleges and universities divest from companies that did business with the apartheid government of South Africa. Over the years an investing strategy known as “exclusionary screening” became popular, wherein investment managers would screen certain industries out of their portfolios. Tobacco, firearms, pornography, fossil fuels, etc., were common targets. 

Investors have largely moved from screening out whole industries to selecting best-of-breed companies across all sectors of the economy.  Regardless, protocols aligned with your corporate values can help you make decisions about the types of clients you’re willing to represent or the kinds of projects you’re comfortable taking on. Failing to make decisions in this way can cause backlash among other clients, employees, and even law enforcement.

Google, whose motto remains “Don’t Be Evil,” faced intense blowback when employees discovered its plans to work with the Pentagon on a project using artificial intelligence technology. After workers spoke out, walked out, and even resigned in protest, Google abandoned the project. Executives recently announced they’ll be exploring another contract with the Pentagon — but this time Google took care to explain how this decision fits with its principles.

PR giant Edelman has been assailed recently by employees who decry statements it made praising COP24’s “new level of international consensus that climate change is an existential threat,” calling for “more scrutiny of corporate climate lobbying efforts,” and arguing that many pledges made at the conference “fall short of what is necessary to avert climate disaster,” all the while representing companies that exploit fossil fuels and the trade groups that lobby for them. 

McKinsey advised the pharmaceutical industry for years about how to increase opioid sales at a time when abuse of pain medicine was widespread. Sued by 46 states’ attorneys general for contributing to the opioid epidemic, the firm ultimately apologized for the work and paid a $573 million settlement to resolve investigations into it conduct, though the firm remains beset with fresh lawsuits. To avoid such entanglements in the future, the CEO Kevin Sneader struggled to draw bright-line rules around the kinds of industries from which it would no longer take clients, including defense, intelligence, justice or policing institutions in nondemocratic countries. Consensus among its partners on this has been difficult to achieve, and the divided opinions are said to have contributed to the Sneader’s ouster.

Investing in Funds with a Low ESG Index Can Influence Positive Change, Too

Sometimes, investors with a strong ESG commitment still invest in companies with environmental, social, or governance liability, but make this seemingly contradictory decision to encourage a company to change. For example, they might invest in an oil company to influence management’s decisions around replacing fossil fuels with renewable energy.

This logic might guide you to take on projects or clients that appear to be objectionable on the surface but have the potential to drive reform.

One example of this is impact litigation, which Harvard Law School defines as filing or defending lawsuits focused on changing laws or focused on the rights of a larger group of people than is directly involved in the suit. On the surface, such representations could beg the question, “Why are you doing this work?” But under certain circumstances, a firm may enter unsavory territory not only to earn fees, but also to make the world a more equitable place for more than just its client. Alan Isaacman’s work on behalf of Larry Flynt, published of Hustler in Hustler Magazine v Falwell, a landmark First Amendment decision, is a clear example. Indeed, John Adams’ defense of the reviled British soldiers who fired on colonists at the Boston Massacre in 1770 – rooted in his concern for the rights of the innocent and the rule of law – reveals how this practice has long been a feature of American jurisprudence. 

Make Business Decisions that Align with Your Firm’s Values

Whether you’re more concerned with mitigating risks to your firm’s reputation or using your talent and expertise to effect social change, the business decisions you make are most defensible when they align with what are commonly understood to be your organization’s values. Applying an ESG filter can help your firm make choices that maximize long-term earnings over short-term gain, enter boldly into social reform territory, or screen out clients and projects that don’t fit with your core principles.

It all comes down to who you are and what you want to represent. Define your values. Communicate them to your clients, your employees, and the community at large. And then commit to making decisions with those guidelines in mind.