Experts say companies and their boards need to make sure their messaging is authentic as they evolve – or plan to evolve into – a model of stakeholder capitalism.
A panel at the Corporate Secretary Forum – Summer in New York earlier this year was asked to consider how to manage the increasingly widespread shift away from shareholder primacy amid growing investor interest in companies who pay attention to other groups.
Stakeholder capitalism took on much greater prominence in 2019 when 181 CEOs of major U.S. corporations signed the Business Roundtable’s statement on corporate purpose, urging issuers to consider not only the interests of shareholders, but also other stakeholder groups such as customers, employees, suppliers and communities. This overturned a previous policy statement that for more than two decades had defined a company’s primary objective as maximizing shareholder return.
Since 2019, developments such as the need to protect employees during the Covid-19 pandemic, increased attention to racial equity, greater awareness of the climate crisis and supply chain crises have all intensified discussions of stakeholder capitalism and its current or potential role.
The Corporate Secretary’s research to be published early next month suggests that stakeholder capitalism has taken root in board discussions and plays a role in research on stakeholder groups and director engagement with non-shareholders.
DEMONSTRATIONS OF COMMITMENT
Companies and their boards need to know where they stand in terms of expressing their commitment to their stakeholders and their performance in meeting that commitment – for example, by having data on salaries and diversity among their employees – Martin Whittaker, CEO of JUST Capital, tells attendees. They need to know where they are now and have an “authentic game plan” to achieve their goals, he said.
Many companies seem reluctant to tell a “bad story” if they still have some way to go to achieve stakeholder-driven goals, but telling a story of progress toward them can be inspiring, Whittaker commented. Explaining the plan well to stakeholders builds trust and that trust leads to increased value, he added.
Other panelist Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility (ICCR), noted that investors such as those in the ICCR coalition are looking for companies that create long-term value, a key component of which is d have meaningful engagement with and efforts to support stakeholders, such as investing in employees and working to mitigate climate change risks.
He said a problem arises when companies say one thing in terms of supporting stakeholders and do another because of their political spending and lobbying – for example, through their involvement in industry groups that s oppose policies aimed at tackling the climate crisis. It’s important for people in general to buy into stakeholder capitalism, but such a disconnect between messages and actions can create cynicism about “woke capitalism,” Zinner noted.
Byron Loflin, global head of the advisory board at Nasdaq, challenged the idea advanced by some critics that stakeholder capitalism is a euphemism for socialism. His work with corporate boards and secretaries shows that, for the most part, people don’t just care about themselves, he said. The concept of stakeholder capitalism and pressure from investors to pursue it creates an atmosphere in which companies compete to get it right, he added.
Indeed, Loflin said a transition to this model can help advance both capitalism and democracy — and when governance professionals encounter resistance on their board, education can be the key answer.
OTHER DEBATES
Elsewhere during the forum, Joshua Kaufman, Chief Legal Officer at IPG DXTRA and Sonia Kowal, President of Zevin Asset Management, discussed the roles and duties of boards regarding geopolitical tensions and crises. For example, the SEC has asked US public companies about how Russia’s war on Ukraine has affected their finances, and its questions may also relate to board oversight of war-related risks.
Boards also need to be aware of potential conflict areas – such as China and Taiwan – ensuring they can manage potential supply chain and reputational issues and have put in place the correct policies and procedures, the participants were informed.
In another session, Deborah Rubin, Senior Partner and Head of Board and CEO Services at RHR International, spoke about her work in conducting in-depth board assessments. Among other things, she addressed questions about what such assessments entail, why it is best to conduct them every three years, signs in the dynamics of a board of directors that are difficult for directors or management and how to assess the needs of boards regarding their ESG duties. .
Among other sessions, Shearman & Sterling Partner Gillian Emmett Moldowan discussed SEC regulatory actions in the areas of climate change and human capital management. Overall, she characterized the commission’s efforts as a new or modern approach to risk assessments by asking three questions:
- What are the main risks companies face?
- Are the existing disclosure requirements sufficient to ensure that investors are informed of these risks?
- Are the board and management paying enough attention to these risks?
Climate change and human capital management are among the significant areas where risks have increased in recent years and the SEC does not believe existing rules address them sufficiently, Moldowan said.
Click here to access video replays of these discussions and the entire day’s forum.
