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Oct 12, 2021

Directors need to be held accountable for corporate purpose commitments, report says

Paper suggests regulators should be given new powers to hold directors and controlling owners accountable

Board directors should be held accountable for determining and implementing the purposes of their companies, according to a British Academy report.

Corporate purpose has been an evolving topic in recent years. In August 2019, the Business Roundtable released its Statement on Corporate Purpose, which outlined a modern standard for corporate responsibility.

Shortly after that, in 2020, the World Economic Forum launched a new Davos Manifesto with the objective of building a more sustainable, inclusive world.

In light of these efforts, the British Academy – a fellowship of scholars and researchers in the humanities and social sciences – believes that directors should be held accountable for their companies’ promises related to corporate purpose.

In order to strengthen accountability for corporate purposes, the report suggests that regulators should be given new powers to hold directors and controlling owners to account for their corporate purposes.

It adds that regulators should require utilities, banks and other licensed companies they oversee to adopt purposes that align with their public interests and engage with their stakeholders about them.

In order to promote more effective implementation of corporate purpose, the report suggests that regulators should address impediments that may exist to companies having long-term committed shareholders.

The report argues that regulators should encourage international standard setters to promote systems of measurement and accounting for company purposes and ensure that financial reports reflect the costs and profits of delivering them.

Investors should engage with companies about the nature and implementation of their purpose and evaluate their performance against it, according to the report.

At present there are problems surrounding measurement in terms of corporate purpose – such as what to measure, how to measure it, how to report it and how to use data to evaluate performance. This is exacerbated by the confusion between ESG and measurement of purpose, according to the report’s authors.

‘Research and engagement has found that companies should move away from the narrow measurement of financial performance to a broader approach, where purpose should be the driver of companies’ measurement systems,’ the authors add.