ESG leadership from the legal function: An interview with Whitbread General Counsel Chris Vaughan

In this episode of the Heidrick & Struggles Leadership Podcast, Heidrick & Struggles’ Laila Coffey speaks to Chris Vaughan, the general counsel and company secretary of Whitbread plc, an FTSE 100 company. Vaughan, who also leads the company’s sustainability function, shares how he has embedded ESG into the company, how he empowers other functions in the company to help drive ESG, and some advice to other legal leaders who want to actively contribute to and lead on sustainability initiatives.

Some key questions answered in this podcast include:

• (1:08) How did Whitbread develop the strategy around ESG and how did you and the legal department contribute?
• (6:36) In your role as the company secretary guiding and steering the board, how are you supporting them with upskilling in sustainability?
• (10:32) How have the events of the past year contributed to the need for a flexible ESG strategy?
• (16:14) What keeps you awake at night in relation to ESG? 
• (17:33) What advice would you give to other general counsel who really want to actively contribute to their ESG goals, strategy, and execution?

Below is a full transcript of the episode, which has been edited for clarity.

Welcome to the Heidrick & Struggles Leadership Podcast. Heidrick is the premier global provider of senior-level executive search and leadership consulting services. Diversity and inclusion, leading through tumultuous times, and building thriving teams and organizations are among the core issues we talk with leaders about every day, including in our podcasts. Thank you for joining the conversation.

Laila Coffey: Hi, I'm Laila Coffey, a principal in Heidrick & Struggles’ London office and a member of the Legal, Risk, Compliance & Government Affairs and Corporate Officers practices. In today's podcast, I'm talking to Chris Vaughan, general counsel and company secretary of FTSE 100 company Whitbread plc, a multinational hotel and restaurant company headquartered in the UK. Chris joined Whitbread in 2015. 

As well as serving as general counsel and company secretary, Chris has responsibility for the sustainability function within Whitbread and is a member of the executive committee. Chris, welcome, and thank you for taking the time to speak with us today.

Could you talk to me a little bit about how Whitbread developed the strategy around ESG and how, I suppose, you and the legal department have contributed to that strategy?

Chris Vaughan: I joined the business toward the end of 2015. We already had a sustainability program at the time: it was called Good Together. And, at the time, Whitbread was made up of two quite distinct businesses, that was Costa Coffee and the Premier Inn hotel business. And we had little pockets of really good practice in sustainability across each of those businesses, but the issues were different, and we weren't making anything of it at the corporate level and it was very, sort of, desperate in different parts of the business. So, someone who was interested in charitable fundraising really pushed that; someone else was interested in coffee cup recycling, so they were pushing that. It was all a bit sort of scattergun. It wasn't very strategic, it wasn't adding any value, really, to either business, and we weren't communicating it properly across the business or to shareholders and other stakeholders. So, when I started, I could actually see there was an opportunity to create some value. But it was more about how to pull it together, how to add value to the business and make sustainability strategic and embedded into the business, how to create something that was motivating for our staff. That is, to help, you know, get people into the business, hire people, and retain them. And it would be interesting for customers because customers are interested in sustainability as well. A lot of our suppliers were as well, and shareholders. It just felt like the right thing to do. We did some focus groups with staff and with customers, we spoke to suppliers, we spoke to shareholders and analysts, we spoke to NGOs, people that knew about the sector. It was effectively a materiality assessment, so, what are the most material sustainability issues affecting our business? How could we align that to our strategy and what were people in the business and customers most worried about from a sustainability perspective? We brought all of that together. And because we're a hospitality business, you know, we employ 35,000 people in our own right and you can multiply that by five or six in the supply chain. 

Laila Coffey: You talked about how it started as pockets of people that probably felt passionate about those areas that were driving it. How have you been able to keep the passion when you've formalized it, and built it around strategy, how do you combine that? Because I find a lot of clients rely on people's passion to drive ESG freely through the organization.

Chris Vaughan: Where I think companies sometimes get this wrong is that they end up thinking everything has to be done from the center, or you have to have some very large central group really driving it. But that was not going to work in our culture. So, the way I positioned it was that I have a small, central group that comes up with a framework that’s then embedded and delivered through the business. So the people side, the opportunity side or the “S” side, if you like, in ESG, that's really delivered by the HR teams, by the operational teams on the ground, because they're the ones that are dealing with staff—they're dealing with all the issues. And I think that's important because you then retain that passion; you keep you keep it where it belongs in the business. So, you've got people who can deliver your strategy in the business and they're the ones that have the passion for it. And as long as you make it relevant to the business and align it with strategy and people can see that it's adding value, then they're perfectly happy to do it and they retain their passion.

I'll give you an example. We did a recent survey, a staff engagement survey. The last one we did, we always ask questions about our ESG strategy, our Force For Good strategy. And in the most recent survey, 92% of our staff said it was either important or very important that we had a good sustainability strategy. It was the highest score on the whole survey, it was the thing people agreed on the most and that tells you that it's really important to people. And we know it's important to people as they come into the organization, particularly young people. And we recently did a survey of our corporate customers—90% percent of corporate customers told us that it was really important that we had a strong position on sustainability. They were pressuring us to explain what we were doing more on sustainability. You know, I think two-thirds of our suppliers have a net-zero target of some sort. So, once you get to a certain point, you can see how it can add value to the business then and you position it in that way. And we're actually starting to see it help drive sales now, which is exactly how it should be. 

Laila Coffey: If we look at your role as the company secretary who is guiding and steering the board, how are you supporting them with upskilling in this particular area, so they're thinking about it and they're asking the right questions of the executive team? 

Chris Vaughan: I do two deep dives a year with the board into sustainability. I did one at our board meeting in October. We'll do a 45-minute session with the board, and we'll do 20 minutes of a kind of “this is what we're up to” update. I'll do it again in March and we'll probably focus on the materiality assessment and strategy and things like that next time. I also do a monthly report to the board that includes legal updates and things like that, and I also include sustainability, so, what's going on in our business and what's new in sustainability to keep everyone up to speed.

Laila Coffey: How big is your sustainability team?

Chris Vaughan: Well there are four in the sustainability, so it's me plus four who really drive the strategy. But, as I said, it's embedded throughout the business. So, you know, it's the HR team and the operational teams that are really delivering on the people programs. It's the operational teams that are delivering a lot of the charitable fundraising, even though we actually come up with some of the events that we organize. The restaurants team are doing menu development. We focus more on the environmental stuff because we have some technical experts. So, we drive more of the environmental performance, the carbon reduction programs to do that, as well as recycling, eliminating single-use plastics, and reducing food waste. We really drive and concentrate on those programs because they don't have a natural home in the business. So, we work with construction teams, with the property teams, the estates teams that manage our property, the procurement teams, all to make sure that sustainability is embedded in everything we do. And then what I've encouraged the lawyers in the legal team to do is to get as involved as they want to in it. I'll give you an example. The general counsel I have in the UK business, who looks after Premier Inn, he wrote our TCFD [Task Force on Climate-Related Financial Disclosures] report this year. He chairs our Disability Network. One of the other lawyers in my team, she chairs our Race, Religion, and Ethnicity Network. I chair our LGBTQ+ Network. It's, you know, it's brilliant to see the legal team getting involved and it is this natural extension of the role. It gives you something else to focus on as well as the day job. And fitting it in isn't always easy, particularly when you're busy. You know, just after Covid hit us back in 2020, we did a rights issue and I pretty much had to drop everything else for three or four months to do that. These things happen and I just had absolutely no choice and it was probably longer than three months anyway. But that's life, you know? You have to cope with that and you have to have good people around you who can pick up the slack if you're not able. 

Laila Coffey: Yes. If we look at the last 12 months, we've got the Ukraine conflict, we've got energy security issues, inflation, and supply chain issues—which I appreciate have been ongoing for a good few years now. Does that need a flexible ESG strategy?

Chris Vaughan: Yes. I don't think the strategy has changed, but I do think the tactics that we've adopted have changed. I don't think there was anything wrong with the strategy. The overall structure of the programs we have are the right ones, but I'll give you an example. We buy 100% renewable electricity, but the cost of that has gone up. Now, the cost of all energy has gone up. We're 100% hedged this year with our renewable electricity. So, the cost of electricity, the energy we buy itself, has not gone up. But at the end of the year you get these certificates that give you assurance that you've purchased 100% renewable electricity. The cost of providing those certificates has gone up—it's gone up massively. So, I think this is where the rubber sort of hits the road with your program. We had a debate about it because we could not take the certificates which would have meant we couldn't get the assurance that we were buying renewable electricity. Now, that would have driven a coach and horses through our Force for Good strategy. We had short debate about whether to stay with the strategy or pay the extra money, and we decided to pay the extra money and stay with strategy. So, that's one example. 

We probably spent more time in the last two or three years on the “S” side of ESG just because of Covid—its impact on our staff, on mental health programs—and the importance of diversity and inclusion, along with the cost of living crisis and supporting people through that, which included making top-up payments to people from their furloughs so that they could live during Covid. With topped-up hourly rates, we pay quite significantly ahead of national living wage now. And we're making some one-off energy payments this year to support rising energy costs for hourly paid team members. So, we've probably spent more time on the “S,” but I don't think that the strategy has really changed. It's just you have to be flexible and open to new ideas as to how to address the problems that face you. 

It does feel like quite an uncertain world at the moment. So, I think being true to your values and true to the vital programs you have through the difficult times says more about you as a company and more about your culture than when times are easy. I think you find out more about the character of people around you when times are really, really tough. And I think the same is true of companies. Good companies manage through these things effectively, but they stay true to their principles and their values. Treating people in the right way and looking after the environment around us and the communities we operate in, it’s just a really important part of what we do now.

Laila Coffey: And have you found that your shareholders have been supportive of some of those things that are going to cost the business money?

Chris Vaughan: Some of them cost money, and some of them save money. So, I know it’s a silly example, but we replaced—you'll laugh—we replaced all of our toasters in our hotels this year. It cost £300,000 to replace the toasters and we've saved £400,000 in energy. 

Laila Coffey: Wow. 

Chris Vaughan: Some of these energy management systems we’re putting in save significant sums of money, and they're some of our highest returning capital investments. So, I think shareholders understand that there are some additional costs because everyone's got additional costs. But they also, when they can see the opportunity, they also understand that actually this can add value and it makes for a better business in the long term. 

We’ve got 40 hotels at the moment where we're trialing air source heat pumps rather than gas boilers. Now they're a bit more expensive to install, but we're getting 15% to 20% savings in energy at the moment. So those things do have a payback. The technology will improve, and they'll come down in price. So, they're quite expensive at the moment—you wouldn't want to retrofit them in your whole estate—but I think it's important to trial these things and shareholders like that. They, generally speaking, like companies that invest. It's a combination: there are a extra costs but when you say that 92% of corporate customers want to know what you're doing on sustainability and that it's improving your staff retention, shareholders go, “Oh, actually, I can see how this really benefits the business.” And I'm hoping it will create a sort of halo effect on the share price. 

Laila Coffey: What keeps you awake at night in relation to ESG? And what's on the horizon?

Chris Vaughan: I don't think there's much that keeps me awake at night about ESG. There are a few things I worry about, though. I mean, first of all, for a lot of the targets we've set, we're dependent on third parties delivering things for us. So, you know, we have a Scope 3 carbon target, for example, which is in our supply chain. So, we have a target to eliminate single-use plastic in our business and we have a target to reduce food waste by 50%. For all of those things, we're dependent on third parties doing things to their own businesses that are going to help us achieve those targets. So, when you're in control of your own destiny, at least you've got choices, and you know what those are, and you can see them in front of you. So, it feels inherently more risky when you're dealing with people that don't necessarily see the world in the same way. You know, we've got over 2,000 suppliers in the UK. Some of them are big businesses and some of them are small businesses, so not everyone sees life in quite the same way.

Laila Coffey: What advice could you give to other general counsel who really want to actively contribute to their ESG goals, strategy, and execution? Can you talk about how they can get buy in and how they develop their strategy? Because I think, as we talked about earlier, it's quite different from organization to organization how these things have evolved. Are there any tips and tricks you could give us of things that really worked?

Chris Vaughan: Well, I think the most important thing is to make it really business-focused and simple, and commercial, and as aligned to strategy as you can make it. If you can find a way of embedding it through the business to make a difference in what people are doing so that they can see a tangible improvement in their area of expertise—whether that's operations or finance or HR—I think people just naturally are more attracted to it and they're more likely to buy in to it.

Laila Coffey: Chris, thank you for taking the time to speak with us today.

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About the interviewer 

Laila Coffey (lcoffey@heidrick.com) is a principal in Heidrick & Struggles’ London office and a member of the global Legal, Risk, Compliance & Government Affairs and Corporate Officers practices.