Amidst the pandemic, the “corporate purpose” debate continues. A few say it’s even intensified, given some companies’ need to prioritize long-term viability and employee well-being over dividend payments or other capital allocation decisions that would benefit shareholders. A recent Wachtell Lipton memo defines “purpose” as:
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.
In response to Wachtell’s positions, Skadden published a 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 a 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:
93% of shareholders believe that purpose is a necessary grounding for a successful long-term strategy
Nearly half of the participating investors suggested that they expect the company’s purpose to be in line with the UN Sustainable Development Goals
86% expect firms to report on the delivery of purpose – with 75% emphasizing the need for KPIs
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
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
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
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.
Liz Dunshee, TheCorporateCounsel.net July 1, 2020
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