U.S. corporate governance movements have had a history of following some of the very positive innovations that have come out of the UK and Europe. For example, boardroom gender diversity is a movement that started in Europe (Scandinavia) and we see how it’s now influenced us here in the U.S. in a very positive way.
In the U.S. our “duty of loyalty” is clearly identified as being to our shareholders. We believe in being good corporate citizens, embracing ESG (environmental, social and governance issues), having a company with a mission and a purpose, and making business decisions that “do the right thing” for the company first, its shareholders (which normally would include the other constituencies of customers, employees, vendors, etc.).
UK Corporate Governance Code (formerly known as the Combined Code) sets the standards of good practice for listed companies on board composition, shareholder relations, accountability, etc. The code is published by the Financial Reporting Council (FRC).
Although many great advances have resulted from the standards put in place by the FRC, the idea that there should be a broader definition of who directors owe a duty of loyalty to is very concerning.
The proposed revised code mandates that your duty of loyalty must include, on an equal footing, community, employees, and an affirmative obligation to do good equally across all these other constituencies. This means you are no longer a capitalist organization; it is a mission drift into the role of public policy and government.
I am troubled that the lines are being blurred between the roles of a corporation, a local government and a federal government. This is not a healthy trend for corporations who must either dividend or reinvest their profits to grow a strong business.
Corporations should not be held to the higher standards of a policy making government and board members should not be expected to play the role of the enforcer. The duty of board members must first and foremost be aligned with the interests of the shareholders.
Betsy Atkins is the CEO of Baja Corp. and the author of Be Board Ready: The Secrets to Landing a Board Seat and Being a Great Director.