July 1, 2020
Tangible “Corporate Purpose”: Investor Views
Amidst the pandemic,
the “corporate purpose” debate continues – a few say it’s even
intensified, given some companies’ need to prioritize long-term
viability & employee well-being over dividend payments or other
capital allocation decisions that would benefit shareholders. A recent
Wachtell Lipton memo
defines “purpose” as:
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The purpose of a corporation is to
conduct a lawful, ethical, profitable and sustainable
business in order to create value over the long-term,
which requires consideration of the stakeholders that are
critical to its success (shareholders, employees, customers,
suppliers, creditors and communities), as determined by
the corporation and the board of directors using its
business judgment and with regular engagement with
shareholders, who are essential partners in supporting the
corporation’s pursuit of this mission.
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In
response to Wachtell’s positions, Skadden published this
memo –
which argues that shareholder primacy is still the name of the game.
And practically speaking, companies’ ability to accommodate
non-shareholder stakeholders is likely to turn on shareholder
preferences.
That’s why this
recent
SquareWell Partners survey
– of investors who collectively manage over $22 trillion in assets –
is a worthwhile read. It covers whether “corporate purpose” is
relevant to investors, who they believe should be responsible for
delivering it, how it should be measured and how investors intend to
hold companies responsible for putting it into practice. Here are a
few key takeaways (also see this
Harvard Law School blog):
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1. 93% of shareholders believe
that purpose is a necessary grounding for a successful
long-term strategy
2. Nearly half of the participating investors
suggested that they expect the company’s purpose to be in
line with the UN Sustainable Development Goals
3.
86% expect firms to report on the delivery of purpose –
with 75% emphasizing the need for KPIs
4. Most
investors suggest that the company’s purpose has a
dedicated section within their annual report (or
equivalent document) closely followed by a formal
statement from the board addressing the company’s purpose
5. Investors will look to see if there is consistent
disclosure regarding the implementation of the purpose,
stakeholder concerns, employee turnover, etc. to evaluate
whether the company’s purpose is effective
6. Only
one-third of participating investors expect to have a vote
on a company’s purpose but almost two-thirds are engaging
with companies on the topic
7. Whilst a quarter of
the participating investors suggested that they will not
oppose any agenda items if they are not satisfied with a
company’s purpose, investors will most likely target the
election of board members (including the board chair),
discharge (where possible), etc.
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♦♦♦
– Liz Dunshee
Posted by Liz Dunshee
Permalink:
https://www.thecorporatecounsel.net/blog/2020/07/tangible-corporate-purpose-investor-views.html
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