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Sep 15, 2022

Boards advised to target authenticity in stakeholder capitalism moves

Professionals at Corporate Secretary event tackle shift away from shareholder primacy

Companies and their boards need to ensure their messaging is authentic as they shift – or consider moving toward – a stakeholder capitalism model, according to experts.

A panel at the Corporate Secretary Forum – Summer in New York earlier this year was asked to consider how to manage the increasingly widespread transition away from shareholder primacy amid growing investor interest in companies that pay attention to other groups.

Stakeholder capitalism took on much higher prominence in 2019 when 181 CEOs of major US companies signed the Business Roundtable’s Statement on the purpose of a corporation, urging issuers to look to the interests of not only 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 principal purpose as maximizing shareholder return.

Since 2019, developments such as the need to protect employees during the Covid-19 pandemic, a heightened focus on racial equity, greater awareness of the climate crisis and supply-chain crises have all ramped up discussions about stakeholder capitalism and its current or potential role.

Corporate Secretary research to be released early next month suggests that stakeholder capitalism has taken root in board discussions and is playing a role in research into stakeholder groups and directors’ engagement with non-shareholders.

Companies and their boards need to know where they are in terms of their expressions of commitment to their stakeholders and their performance in meeting that commitment – for example, by having data on wages and diversity among their employees – Martin Whittaker, CEO of JUST Capital, told attendees. They need to know where they stand currently and have an ‘authentic game plan’ for reaching goals, he said.

Many companies appear reluctant to tell a ‘bad story’ if they have some way to go in achieving stakeholder-focused 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.

Fellow 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 are creating long-term value, a key part of which is having 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 their support for stakeholders and do another by virtue of their political spending and lobbying – for example, by their involvement in industry groups that push back against policies aimed at tackling the climate crisis. It is important for people in general to buy into stakeholder capitalism but such a disconnect between messaging and actions can create cynicism about ‘woke capitalism,’ Zinner noted.

Byron Loflin, global head of board advisory at Nasdaq, disputed the notion advanced by some critics that stakeholder capitalism is a euphemism for socialism. His work with boards and corporate secretaries highlights that for the most part people care about more than just themselves, he said. The concept of stakeholder capitalism and pressure from investors to pursue it create an atmosphere in which companies compete to do things well, he added.

Indeed, Loflin said a transition to that model can help advance both capitalism and democracy – and where governance professionals meet resistance on their board to the concept, education can be the key response.

Elsewhere during the forum, Joshua Kaufman, chief legal officer at IPG DXTRA and Sonia Kowal, president at Zevin Asset Management, discussed the roles and duties boards have regarding geopolitical stress and crises. For example, the SEC has been asking US public companies about how Russia’s war on Ukraine has affected their finances, and its questions may relate to boards’ oversight of war-related risks, too.

Boards also need to be aware of potential conflict zones – such as China and Taiwan – by making sure they can manage potential supply-chain and reputational issues and have the right policies and procedures in place, attendees were advised.

During another session, Deborah Rubin, senior partner and head of board and CEO services with RHR International, spoke about her work conducting deep-dive board evaluations. Among other things, she addressed questions about what such evaluations involve, why it is best to conduct them every three years, the signs in a board’s dynamic that are difficult for directors or management to spot and how to assess boards’ needs regarding their ESG duties.  

Among other sessions, Shearman & Sterling partner Gillian Emmett Moldowan discussed SEC regulatory moves in the fields of climate change and human capital management. Overall, she characterized the commission’s efforts as a new or modern take on risk assessments by posing three questions:

  • What are the key risks companies are dealing with?
  • Are existing disclosure requirements sufficient to ensure investors are informed about those risks?
  • Are the board and management giving sufficient attention to these risk?

Climate change and human capital management are among the important areas where risks have ratcheted up 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.


Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...