Tag: stakeholder capitalism
Disney decision to speak out on issue of social significance within board’s business judgment
Boards and their advisors seeking to navigate the culture wars and their often conflicting pressures from a variety of stakeholders and outside groups may find some comfort and guidance in this recent decision from the Delaware Chancery Court in Simeone v. The Walt Disney Company. The case involved a books-and-records demand from a stockholder asserting a potential breach of fiduciary duty by Disney’s directors and officers in their determination to publicly oppose Florida’s so-called “Don’t Say Gay” bill. Originally, Disney was silent on the bill. However, following reproaches from employees and other creative partners, Disney’s board deliberated at a special meeting, and the company changed course and publicly criticized the bill. The Court declined to grant the plaintiff’s books-and-records request, concluding that the plaintiff had not provided a credible basis from which to infer wrongdoing and thus had not “demonstrated a proper purpose to inspect books and records.” Rather, the Court concluded, the Disney board had made a business decision to reverse course—“a decision that cannot provide a credible basis to suspect potential mismanagement irrespective of its outcome.” Under Delaware’s business judgment rule, directors have “significant discretion to guide corporate strategy—including on social and political issues.” Importantly, the Court confirmed that, in exercising its business judgment, a board may take into account the interests of non-stockholder corporate stakeholders where those interests are “rationally related” to building long-term value.
What we need to know about corporate governance—but don’t
In this paper, Seven Gaping Holes in Our Knowledge of Corporate Governance, from the Rock Center for Corporate Governance at Stanford, the authors observe that it “is extremely difficult to produce high-quality, fundamental insights into corporate governance.” Why is that? Well there are lots of reasons. According to the authors, instead of the theory, measurement and analysis that you might expect—given that corporate governance is a social science—the “dialogue about corporate governance is dominated by rhetoric, assertions, and opinions that—while strongly held—are not necessarily supported by either applicable theory or empirical evidence.” And even empirical work from academics has serious shortcomings, often detecting a pattern that is not amenable to specific application or making findings that are too specific to generalize. Or, studies might find correlation but not permit attribution of causation; or it may be hard to suss out key variables that may not be publicly observable. As a result, there remain “central issues where insufficient or inadequate study has left us unable to answer basic questions, and where key assumptions relied upon by experts have not been verified or validated.” The paper attempts to identify some of them and home in on potential further areas of study.
Is stakeholder capitalism still capitalism?
Emphatically yes, says the highly influential CEO of BlackRock, Larry Fink, in his latest annual letter to CEOs. BlackRock, according to the NYT, now manages $10 trillion in assets, so the company would be persuasive even if its CEO never put pen to paper (or fingers to keyboard), but for a number of years, Fink has staked out positions in his annual letters on a variety of social and environmental issues that made companies (and media) pay attention. At the Northwestern Law Securities Regulation Institute in 2021, former SEC Chair Mary Schapiro said that, at companies where she was on the board, Fink’s 2020 statement (which announced a number of initiatives designed to put “sustainability at the center of [BlackRock’s] investment approach”) had had “an enormous impact last year.” However, he has also had his denigrators, and this year’s letter allocates a lot of terrain to deflecting criticism that his positions are more aligned with “woke” politics than with making money for shareholders. Not so, he contends, stakeholder capitalism is capitalism: BlackRock’s conviction “is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders.” Ultimately, he asserts, cultivating these beneficial relationships will drive long-term value. How will this year’s letter land?
Leadership survey: How prepared are leaders to face key business issues? Do executives think boards give good advice?
While it’s certainly not yet in the rear-view mirror, as we start to see COVID-19 begin to fade as an all-consuming crisis for business—thank you science and scientists!—what are the next issues that corporate leaders must face and how ready are they to face them? Consultant Russell Reynolds Associates has just released its 2021 Global Leadership Monitor?, designed to track top business issues and monitor leadership preparedness. Some of the more interesting findings: In terms of “stakeholder capitalism,” while customers are top of the heap, employees come in second as key stakeholders—ahead of stockholders. Most fascinating perhaps is this revelation: 40% of CEOs and other C-Suite executives “don’t believe the executive team receives good advice and input from the board.”
World Economic Forum offers stakeholder principles for the COVID-19 era
Several leaders of the World Economic Forum have published Stakeholder Principles in the COVID Era, characterizing the “business community’s contribution” as “to be leaders of responsiveness and stewards of resilience.” Nice cadence—I like it. But what does it mean in practice?
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