Andrew Carrick, Vice-President, Customer Success, Diligent, highlights the findings of a new global report assessing directors’ views on stakeholders and society.
Recently, more than 180 CEOs in the Business Roundtable amended the association’s Statement on the Purpose of a Corporation and for the first time embraced a commitment to address the interests of all stakeholders – not just shareholders. A new report, Stakeholders Take Centre Stage: Director Views on Priorities and Society, by the Diligent Institute in partnership with the Rock Centre for Corporate Governance at Stanford University, shows that boards of directors consider stakeholder needs a key priority.
The report found that 89% of the 200 company directors surveyed consider and represent the full range of stakeholder interests, both from shareholders and other stakeholders. Moreover, 92% of these board members feel that their company is doing a good job of that representation.
The directors surveyed have particular sensitivity on this issue, partly in response to pressure from advocacy groups, which more than half (57%) of directors surveyed say have influence. But the survey shows that there is a pervasive concern by directors around the world for shareholder rights and stakeholder issues, as most directors (77%) do not believe that shareholder interests are prioritised over stakeholder interests.
‘Broadly, my role as an independent board member [involves] strategic oversight and management accountability,’ says one non-executive director in response to a survey question. ‘In each of those cases, we have to take into account many impacted parties, and not just shareholders.’
The survey queried respondents about BlackRock Chairman and CEO Larry Fink’s support for increased prioritisation of stakeholder interests by boards. Fink, as leader of one of the world’s largest asset managers with US$6.84 trillion in assets under management, has great influence on international governance policy. It is worth noting that almost all (94%) of the directors surveyed agree with Fink that ‘Society is increasingly looking to companies, both public and private, to address pressing social and economic issues,’ and 65% say they are motivated by this statement to implement new initiatives that address these issues.
One respondent qualifies this perspective: ‘I want to hear what stakeholder concerns are. I want to hear with equal weight, but I may not act with equal weight. Our job is to decide, take input from all kinds of sources, and make sense of it.’
Directors reject accusation of ‘short-termism’
Boards are often accused of taking a short-term view, strategising intensely for the bottom line each quarter rather than planning for the longer term in a way that would encompass all stakeholders. Directors surveyed strongly rejected the accusation of ‘short-termism,’ with 72% of respondents saying their company predominantly considers an investment horizon of three or more years in managing the business and 25% of respondents adopt an investment horizon of one to two years. Practically none (4%) use an investment horizon of less than a year.
Says one director: ‘Investment horizon varies a lot by company, depending on where they are on the maturity curve, market influences and what the competitive landscape looks like. There may be times that a company rightfully should be focused on the short term, but in general, they should be more focused on the long term.’
With an eye to long-term strategy, the environment is directors’ largest long-term worry. 41% of directors say that environmental issues, including climate change, pollution, waste or recycling, are the single most important environmental, social and governance (ESG)-related issue that has the power to negatively impact their business over the long term.
‘The environment cannot speak for itself, but there are NGOs and people who speak on its behalf. We treat the environment as effectively represented by those people and monitor the environment as a stakeholder in the same way,’ explains one director.
Other issues that are top concerns for directors are increased taxes and regulations (19%), macroeconomic factors that influence trade and the economy (18%) and workforce-related issues including the availability of employees, unionisation and regulation (14%).
Employees are the most important stakeholders
In terms of attention to stakeholder concerns, the survey shows that the vast majority of directors (87%) give a priority to employee concerns. This is not surprising because employees have a direct influence on the success or failure of strategy and operations. In Asia and Oceania there is little interest in creating a board-level position for employee representatives of the type found in Europe. Yet board members do understand the importance of the employee perspective: ‘If you’re not responding to the needs, wants and interests of employees, I guarantee customers will suffer. They’ll respond in ways that are negative to the business and your investors will suffer. This is an ecosystem that is interrelated,’ one director comments.
Another director points out: ‘If you treat your employees terribly, have a lousy culture and are not competitive in compensation, how are you ever going to achieve shareholder returns?’
The wider implications
It can be concluded from the survey that corporate leaders are taking ownership for leadership in the communities they serve. It is certain that board members are spending attention, time and resources to fulfil these leadership roles. As Larry Fink says in a letter to CEOs at the companies BlackRock invests in: ‘One thing, however, is certain: the world needs your leadership. As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions and communities where they operate, particularly on issues central to the world’s future prosperity. Companies cannot solve every issue of public importance, but there are many – from retirement to infrastructure to preparing workers for the jobs of the future – that cannot be solved without corporate leadership.’
Andrew Carrick, Vice-President, Customer Success