Key Take-Aways | November, 8, 2019

The Business Roundtable’s “Statement on the Purpose of a Corporation” – Where do We Go from Here?

- In response to recent criticism of their previous endorsement of shareholder primacy, the BRT’s new “Statement on the Purpose of a Corporation” shifts to say that for corporations to be successful, durable, and return value to shareholders, they must consider the interests and meet the fair expectations of a wide range of stakeholders in addition to shareholders. The release of the stat

ement may allow the BRT to serve as a platform for companies to share how they are working for the benefit of all stakeholders.

- The shift to a more stakeholder-centric model may help restore public trust in the business community, which some say is at an all-time low.

- While the Statement is not

viewed as a call for change in the law, in practice the Statement is likely leading to more discussion of stakeholder interests in the boardroom.

ESG – Perspectives from an Investor, Board Director, and Chief Governance Officer

- According to Michelle Edkins of BlackRock, ESG is a misnomer; governance should be treated as most important, because if the governance is right and risks are being appropriately managed, the environmental and social issues that are material and relevant to any particular business will get the appropriate attention.

- Investors like BlackRock care more about companies’ actions than about rhetoric around ESG issues (although supporting initiatives like the BRT’s Statement sends a positive signal).

- Human capital management is an especially important area of ESG to both regulators (who are developing disclosure requirements) and investors and will continue to be an area of increased scrutiny. Investors want answers to questions like: o Is this company the employer of choice in its industry and, if so, why?

• How is the company is recruiting? Is it attracting the right talent?

• How is the company showing its employees that it values them and what is it doing to retain them?

• How diverse is the workforce? How is the company ensuring an inclusive workplace?

• At what rate are the employees advancing within the company?

• What kind of training and development does the company offer its workforce, especially if disruption from automation is looming?

- Activists may be more focused on ESG issues (partially as a tactic to gain more votes, since these issues resonate with investors). Activism is also becoming more complex, and constituencies like employees are acting in activist-like roles (e.g., many employees are pushing companies to take a stand on social issues in a way that aligns with the employees’ values).

- Companies should pay careful attention as ESG metrics continue to develop, and make sure that they are aligned with whichever frameworks are likely to become the new standard.

The meeting summary is available for download here.