Should Shareholder Primacy Still be The Purpose of Corporations?
27 June 2017 at 8:35 am
The upcoming Global Purposeful Leadership Summit will join a global conversation around challenging the notion of shareholder primacy as the primary responsibility of corporations.
Over the past years, we have been focused on demonstrating the importance of leadership and employee engagement to create sustainable business outcomes.
Moving forward, we are joining a global conversation around challenging the notion of shareholder primacy as the primary responsibility of corporations. We believe continued focus on short-term results due to shareholder primacy is not sustainable and we need to explore how we can engage business leaders to move to a more stakeholder centric approach to business, which creates value for employees, suppliers, consumers, government, community and environment.
One of our panellists at the Global Purposeful Leadership Summit, Judith Fox (ex-Governance Institute), opened the discussion a few years ago by publishing a paper on Shareholder Primacy – Is There Need for Change?
To quote: “The corporate social licence to operate is seen to be under pressure due to a misalignment of societal expectations about the role of companies and the way in which they should conduct their affairs, and the social and environmental impacts of corporate activity designed to generate wealth.”
As we have seen in many corporations to date, taking only a short-term approach to business can impact stakeholders adversely through employee turnover, unhappy customers or damage to the environment, which in turn impacts the long-term performance of businesses.
So what is the role of corporate governance in this?
As Judith points out: “The primary philosophy driving the modern corporate governance movement and much of the reforms undertaken to the Corporations Act in recent years has been investor protection. The ideas of directors as agents of shareholders and shareholders as owners of the company are central to prevailing conceptions of corporate governance. The argument against a shareholder primacy approach is that it is a corporate governance model that puts the private interest ahead of the public interest This is therefore a key governance issue.”
We are also inviting a governance expert Paige Morrow, from Purpose of the Corporation, Brussels, to share the latest developments in Europe, who are ahead of the curve.
It is still possible to create sustainable business outcomes with existing governance models, but having a clear mandate would make it much easier for leaders to do so and enable businesses to play a bigger part in addressing societal challenges. There are purposeful leaders such as who have already adopted a stakeholder approach to business but it has taken a lot of courage and resilience to stay true to their purpose.
I hope you can join us to applaud their leadership and learn from their experiences at the Global Purposeful Leadership Summit.