Many directors thinking beyond just shareholders, research shows
New research highlights the extent to which company directors have less shareholder-centric views than has traditionally been the case, or at least has been assumed. At the same time, those directors often believe they do not get credit for thinking beyond the shareholder base.
According to a report from Diligent Institute and the Rock Center for Corporate Governance at Stanford University, 89 percent of directors polled say it is important or very important for their company to take into account the interests of non-shareholder stakeholders, such as employees, local communities and the general public, as they pursue their business objectives.
‘If you just read the press, you’d be surprised,’ Dottie Schindlinger, vice president of thought leadership for Diligent, tells Corporate Secretary. Many directors recognize that companies that don’t take stakeholders’ interests into account will not succeed, she adds.
That does not mean directors are not taking shareholders seriously. Twenty-three percent of those interviewed say shareholder interests are significantly more important than stakeholder interests, while 32 percent say shareholder interests are slightly more important than stakeholder interests. More than one third (36 percent) say shareholder and stakeholder interests are equally important.
Directors also believe their companies are doing a good job vis-à-vis non-shareholders. According to the survey, 92 percent are somewhat or very satisfied with what the company does to meet the interests of these stakeholders. But many directors feel this work does not get recognition.
Almost half (43 percent) say they do not believe their most important stakeholders accurately understand the job their company does to meet their interests. In particular, 58 percent say the media does not accurately understand what their company does to meet stakeholders’ interests.
Many directors feel they are making the best decisions based on balancing a variety of interests and are not being given credit for doing so, Schindlinger says. She comments that this situation may be improved as companies move toward new types of disclosures and the adoption of reporting frameworks such as SASB’s, which will introduce greater consistency in reporting.
But directors have a more positive view of major shareholders. Fifty-six percent of those polled say their largest institutional investors understand what their company does to meet shareholder interests, while just 27 percent do not. Sixty percent of directors also believe their largest institutional shareholders genuinely care about stakeholders’ interests.
Diligent Institute and the Rock Center this summer surveyed almost 200 directors of public and private corporations. The survey was global, although 45 percent of the companies represented are based in the US. The report comes a few months after the Business Roundtable signaled a major shift in corporate thinking by stating that the purpose of a corporation should be the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders – rather than just the latter.
According to the research, US companies face more pressure from advocacy groups to act for stakeholders’ interests than companies elsewhere: 57 percent of non-US directors say they face high or moderate pressure, compared with just 31 percent of US respondents.
The report also suggests that BlackRock CEO Larry Fink’s January 2019 letter encouraging companies to consider societal issues as they pursue their business objectives is on boards’ radars. Among those directors whose companies received the letter, 83 percent say they agree or strongly agree with Fink’s sentiments. Almost two thirds (64 percent) of those receiving the letter discussed the ideas in it at a board meeting.