It’s good to talk: Driving better standards in a risky world

Reading an article in the Financial Times recently, I was reminded of the 1986 Challenger space shuttle disaster, where all seven astronauts died shortly after launch, and NASA’s response to the incident. 

The cause was not a single catastrophic failure, but a culture of complacency. Engineers had long warned about the vulnerabilities, but because previous launches had succeeded despite similar conditions, those warnings were downplayed. Over time, small deviations from safety standards were normalised, a phenomenon sociologist Diane Vaughan termed the ‘normalisation of deviance’. 

The article argued that when companies and markets begin to accept small rule-bending as routine, trust – the foundation of capitalism – begins to erode. This erosion is rarely sudden, as minor lapses go unchallenged incrementally until they become the new norm.

This tragedy, and the subsequent NASA report titled ‘The Cost of Silence’, revealed how groupthink and the erosion of standards can lead to disaster. The report’s recommendations “never use past success to redefine acceptable performance,” “prevent groupthink,” and “keep safety programmes independent” are as relevant to corporate governance and investment as they are to aerospace engineering.

Importantly, the same patterns can plague businesses and financial markets. Corporate scandals and failures rarely happen because one person suddenly decides to go rogue. More often, standards slip little by little. 

Read more: Beginning or ending with governance

When companies begin to rationalise away ESG risks or silence dissenting voices, they risk not only reputational damage but also long-term value destruction. As investors, we have a responsibility to set high expectations and hold companies to account, not just to protect capital, but to ensure that the businesses we invest in are resilient and future fit.

By setting clear expectations and engaging with companies on ESG risks, we can help prevent the slow drift into mediocrity or misconduct. It’s not about perfection, no company is flawless. Instead, we want to see a commitment to continuous improvement and transparency. Companies flagged for potential downgrades of performance are given the opportunity to respond, explain, and where necessary, improve.

In each case, the outcomes should be determined by a willingness and ability to address issues rather than the presence of them. This reflects the belief that engagement, not divestment, is often the most effective tool for raising standards.

Investor expectations matter and shareholder pressure has driven tangible change. From 2016 to 2019, targeted voting policies by major asset managers contributed to a 150% increase in the number of women on S&P 500 boards. In the UK, similar efforts contributed to women holding 45% of FTSE 100 board seats by 2025, up from just 12% in 2011.

These outcomes were not the result of regulatory action. They were achieved because investors set clear standards and used their influence to enforce them. This is the essence of stewardship – using ownership rights to promote better governance, resilience, and long-term value creation.

High standards in times of upheaval

Some argue that during periods of economic uncertainty, ESG considerations should take a back seat to financial fundamentals. I disagree. In fact, times of upheaval are when high standards matter most.

Research during the COVID-19 crisis showed that companies with strong ESG profiles were more resilient, experiencing smaller drawdowns and faster recoveries. This is not surprising. Companies that manage short, medium and (importantly) long term ESG risks well are often better governed, more forward-looking, and more trusted by stakeholders. They are more likely to anticipate and adapt to shocks, whether environmental, social, or economic.

Moreover, crises test corporate integrity. Under pressure, some companies may be tempted to cut corners or deprioritise sustainability. Those that maintain their standards and are held to them by engaged investors can emerge stronger.

The Challenger disaster was a tragedy born of ‘group think’ and lowered expectations. In the world of investment, the cost of silence may not be as immediate or visible, but it is no less real. When investors fail to monitor and challenge companies on ESG risks, they risk enabling the very behaviours that lead to long-term value destruction.

Through rigorous analysis, active engagement, and a commitment to high standards, investors can build portfolios that are not only financially robust but also aligned with the values and expectations of our clients.

Read more: Quilter Cheviot ramps up stewardship across sustainable fund range