By Paige Morrow
Today we face complex challenges that cannot be addressed by government or civil society alone, such as growing inequality, climate change, doing business within the limits of the planet’s resource boundaries, and negotiating the complicated relationship between globalization, development and human rights.
After the financial crisis, we've seen considerable debate about the role of corporations in society. It has become broadly accepted that corporations -- particularly the world’s largest publicly-traded corporations – need to be governed with respect for society and the environment. What is the role of companies in addressing the challenges of the 21st century? And how can their governance contribute to the greater good?
Listed below are a few key principles for creating long-term sustainable value and building resilience in big, publicly-traded companies, as well as some actions that businesses can take to move in the right direction.
The purpose of the publicly-traded company should be to create sustainable long-term value while contributing to societal well-being and environmental sustainability -- not just short-term shareholder value.
Corporations should create real value for customers and wealth for shareholders as joint and mutually-reinforcing objectives, while taking account of environmental sustainability and societal well-being.
What next? Companies can embed a clear statement of purpose and corresponding rights and responsibilities of directors, shareholders, and other stakeholders in governance documents and articles of incorporation.
What next? Ensure that incentive structures and metrics are aligned with a company-specific, long-term value creation strategy that integrates financial and non-financial objectives.
A business strategy that profits at their expense can quickly undercut a corporation’s social license. Moreover, the scale and complexity of social, environmental and economic challenges facing our societies require that businesses actively contribute to solving rather than causing them.
What next? Use a corporate form or governance arrangement that provides control or monitoring rights to stakeholders.
What next? This one is mostly for regulators. There is a need to clarify the content of fiduciary duties with respect to specific environmental and social issues, e.g. systemic financial stability in the case of banks, the mitigation of environmental impacts for mining companies, and the development of fair and sustainable supply chain models for the garment industry.
At the same time, investors are increasingly interested in the value creation process and there is a clear trend among successful corporations towards reporting on long-term value creation. This is supported by research that shows that corporations with good ESG performance and reporting outperform their peers on the stock market in the long-term and benefit from lower cost of capital.
What next? Companies can adopt the International Integrated Reporting (IR) Framework to meaningfully report on their value creation strategy, taking into account intangible assets and non-financial capitals.
These recommendations have been taken the ‘Corporate Governance for a Changing World: Report from a Global Roundtable Series,' which contains further thoughts about next steps for creating inclusive, sustainable and purposeful companies. The report presents an emerging comprehensive approach to corporate governance that can assist corporations to focus on a broad understanding of their purpose, long-term sustainable value, building resilience, and sustaining a strong social license.
Image credit: Pixabay
Paige Morrow is head of Brussels Operations at Frank Bold, a purpose-driven law firm. The firm leads the Purpose of the Corporation Project, which invites businesses, academics, policymakers, and civil society to debate the future of publicly traded companies. Connect with us on @purposeofcorp or on our Linkedin Group.