In earlier times, corporations were not only about generating profits. Corporate culture only started shifting in the 1970s, when US scholars promoted the idea of maximising shareholder value as a company’s sole purpose. This belief has led companies to excessively focus on on short-term profits and is now embedded in business thinking and education.
Frank Bold has released a video animation to review the purpose of the corporation and the myths of the shareholder value maximisation model: https://youtu.be/mwLhoR04Qe8
A backgrounder is available online offering further information and data studies. See below some examples that illustrate the need to rethink the current model of corporate governance:
 US Public listed companies consumed 51% of net income in stock buybacks (buying back their own shares) and paid out 35% in dividends, leaving just 14% for all other purposes.
The latest UN Global Compact–Accenture CEO study found that 93% of the 1,000 CEOs interviewed across 103 countries and 27 industries see sustainability as important to the future success of their business.
In 1970s Britain, £10 out of every £100 of profit was paid in dividends to shareholders. Today UK companies pay out £70 of every £100.
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More than 250 leading international academics endorse new vision for corporate governance
The Modern Corporation Project at Cass Business School has released five succinct statements that question the fundamentals of the current mainstream model of corporate governance.
The statements on Company Law, Economics, Accounting, Management and Politics seek to foster the development of a wide-ranging debate on the nature and consequences of contemporary corporate governance, which has put radical shareholder primacy at the centre of corporate attention. The statements provide a cross-jurisdictional and cross-disciplinary consensus for the development of a new vision on corporate governance.
Signatories include Lynn Stout, Cornell University; Jean-Philippe Robé, Sciences Po; Simon Deakin, University of Cambridge; and William Lazonick, University of Massachusetts.
Read about the publication of the statements in our press release, the Oxford Business Law Blog and the Economic Sociology and Political Economy (ES/PE) community. If you have an academic affiliation and wish to become a signatory, you can still sign the statements through the Modern Corporation website.
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UK Parliament BIS Committee consultation on corporate governance
The inquiry followed on the Committee’s recent investigations into BHS and Sports Direct and aimed to examine the issues of executive pay, directors duties and the composition of boardrooms.
The Modern Corporation Project and Frank Bold submitted a written response based on the findings of our 'Corporate Governance for a Changing World' report. Both the report and our submission synthesise leading academic and practitioner-driven research on potential solutions.
Executive Summary
Full response
The inquiry reflects a growing consensus across the political spectrum and within the business community that the current corporate governance framework fails to support long-term sustainability, both in terms of financial performance and broader environmental and social objectives.
The UK Government has now published a 'Green Paper on corporate governance reform' and will accept submissions until February 17.
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RECENT DEVELOPMENTS IN CORPORATE GOVERNANCE:
- United Kingdom: Two leading barristers published a new legal opinion on the legal duties of pension fund trustees in relation to climate change risks: those who fail to consider them could be exposing themselves to legal challenge.
- Australia: A legal opinion commissioned by CPD in partnership with the Future Business Council demonstrates that Australian company directors who fail to consider the impact of foreseeable climate change risks on their business properly could be held personally liable for breaching the duty of due care and diligence they owe to their companies.
- Europe: The Commission has established a 'High level expert group on sustainable finance' and is now waiting to hear back its recommendations. Related to the latter, the results of the Commission's consultation on long-term sustainable investment have just been published. Read more about it here: http://www.purposeofcorporation.org/en/news/5270-european-developments-on-long-term-and-sustainable-investment
- Europe: A new study shows extraordinary growth of green bonds and signals potential in financing Europe's climate and environment goals. In a press release, WWF called for "credible, fully-developed and widely-accepted industry standards for green bonds (...) to ensure that the market thrives and benefits the sustainable economy."
- Europe: The Shareholder Rights Directive trialogue negotiations are expected to conclude soon with an agreement to move forward with the adoption of the law. For more information: http://esharp.eu/opinion/improving-eu-corporate-governance
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RECOMMENDED EVENTS:
- PRI Global Guide to Responsible Investment Regulation (26 January, London). More information here.
- Swiss Global Compact Dialogue 2017 on Sustainable and Responsible Business (February 2, Bern). More information here
- NewCo Shift Forum An Executive Conference on Capitalism at a Crossroads (February 6-8, San Francisco). More information here.
- Blueprint Immersion Workshop (March 29 - 31, Cambridge). More information here
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Multinational B Corporations: Big Business as a Force for Social Good. By Paige Morrow in NewCo Shift. https://shift.newco.co/multinational-b-corporations-big-business-as-a-force-for-social-good-c29268f12e9c#.fyn7gib1v
He's right the economy is sick - and businesses like Trump's are part of the disease. By Mariana Mazzucato in The Guardian.
https://www.theguardian.com/commentisfree/2016/nov/14/trump-us-economy-sick-businesses-like-his-value-creation
New Theory in Corporate Governance Undermines Theories Relied on by Proponents of Short-Termism and Shareholder Activism. By Martin Lipton, Wachtell, Lipton, Rosen & Katz in the Harvard Law School Forum. https://corpgov.law.harvard.edu/2016/11/25/new-theory-in-corporate-governance-undermines-theories-relied-on-by-proponents-of-short-termism-and-shareholder-activism/
Shareholder Value in Banking: Legal Fiction and Financial Stability. By Dr Jay Cullen in Finance Watch. http://www.finance-watch.org/hot-topics/blog/1308-shareholder-value-in-banking
Doing business with respect for human rights. A guidance tool for companies. By Shift Project, Oxfam and Global Compact Network Netherlands. https://www.businessrespecthumanrights.org/image/2016/10/24/business_respect_human_rights_full.pdf
Plaidoyer en faveur d'une "économie de marché responsable" 15 high level personalities call for an end to financial capitalism excessively based in maximising profit. http://www.lemonde.fr/idees/article/2016/11/16/la-france-doit-passer-a-une-economie-de-marche-responsable_5031791_3232.html
Imagine....there's a world where companies truly care for their longevity. First Impressions from Frank Bold’s Creating Sustainable Companies Summit in Bizolutioners. https://bizolutioners.wordpress.com/2016/10/25/imaginetheres-a-world-where-we-truly-care-for-companies-longevity/
The Maturity Institute to set Global Standard for CEO Remuneration. By Paul Kearns. http://www.hrmaturity.com/mi-to-set-global-standard-for-ceo-remuneration/
PRI publishes new guide for asset owners on ESG integration. https://www.unpri.org/press-releases/pri-publishes-new-guide-for-asset-owners-on-esg-integration
Lastly, don't miss the video animation released by the Reconstruction of the State, an initiative led by Frank Bold. "How citizens pushed through 5 anti-corruption laws: The story of Reconstruction of the State" https://www.opensocietyfoundations.org/voices/corruption-czech-republic-finally-meets-its-match
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LinkedIn Group: If you wish to participate in the discussion and be informed of the latest developments on corporate governance, we encourage you to join our private LinkedIn Group.
Quick note about us: The Purpose of the Corporation project provides a strategic, open-source platform for leading experts and organisations interested in promoting the long-term health and sustainability of publicly listed companies, policy making and business management. It is an initiative led by Frank Bold, a purpose driven law firm using the power of business and non-profit approaches to solve social and environmental problems.
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