Is your company operating in a socially purposeful way?
There is a growing movement to push corporations to take on a bigger role in addressing societal problems, from climate change to income inequality.
That’s left many directors wondering what type of role and how big a role they should — or even can — play in today’s corporate environment largely focused on short-term stockholder value above all else.
Delaware Supreme Court Chief Justice Leo Strine tells Directors & Boards that it is not “sustainable to have societies where large corporations do not have to align their business practices with the interests of living, breathing human beings who deserve a safe environment, economic security and consumer protection.”
But how do boards take up the challenge?
To address one of the most pressing challenges of our time, Directors & Boards is dedicating this year’s coverage to something we’re calling “The Character of the Corporation,” which is the very essence of a company’s approach to making money and how that approach impacts all stakeholders — employees, communities, etc. — not just stockholders.
The key question: Is your organization operating in a socially purposeful way? We will provide insights on the purpose-vs.-profit concept and on environmental, social and governance issues (ESG) from top corporate directors, corporate governance experts, legal scholars and government officials.
• ESG Point/Counterpoint: Should environmental, social and governance reporting be standardized and mandated?
This kickoff issue includes purpose perspectives from PepsiCo’s former chairman; directors at Costco, Hewlett-Packard, Best Buy and Bank of America; officials at Vanguard, State Street, CalPERS, Instituional Shareholders Services and the U.S. Chamber of Commerce; and a host of other corporate-governance influencers looking to bolster the greater good.
For many directors, it’s unclear how far down the purpose path they can go while still meeting their legal obligations to company stockholders.
It is not “sustainable to have societies where large corporations do not have to align their business practices with the interests of living, breathing human beings who deserve a safe environment, economic security and consumer protection.”
~ Delaware Supreme Court Chief Justice Leo Strine
Some of the key questions include: Should boards consider ESG issues, even if they could potentially impact the bottom line? Can directors be held in breach of their fiduciary duties if they consider other stakeholders that could be interpreted as benefiting more than the shareholder? Is shareholder primacy still king, or is the pendulum swinging?
This is a conversation we will continue all year and hope you will take part. For his part, Strine will offer his in-depth take on the purpose-vs.-profits debate in an upcoming article.
For this issue, Strine — who heads the high court in Delaware, a state where two-thirds of Fortune 500 companies are incorporated and whose corporate laws are considered the de facto law of the land — provides his initial insights:
Throughout the world, Strine points out, there is “widespread concern that our economic systems are not working for the many as well as they should, or have in the past. It is no coincidence that there is pressure on corporations and institutional investors to take stock of our corporate governance system and to consider positive change to do better by the workers, communities, consumers and nations who do so much to enable top executives and stockholders to do so well.”
A system where the rewards of “corporate activity is tilting in such an unfair way against the employees who put in the sweat” is unsustainable, he says. He also takes issue with requiring those very employees, through investment vehicles like 401(k)s, to “give over so much of their earnings to the control of institutional investors who get to wield the power that comes with ordinary people’s money.”
“To get to where we need to go,” he continues, “the corporate electorate — institutional investors — have to share accountability, so that all with economic power are required to use it in a socially responsible manner and to ensure that our capitalist system provides economic security for all its participants, but most importantly working people.”
To weigh in on the “Character of the Corporation,” contact me at firstname.lastname@example.org.