August 29, 2016

BRT’s Updated Governance Principles: What’s Good for the Goose…

The Business Roundtable recently updated its “Corporate Governance Principles” for the first time since 2012.  The updates focus on encouraging more shareholder engagement, boardroom diversity, and cybersecurity.  But the most interesting part of the update may be its call for increased shareholder responsibility & accountability.

The BRT contends that an increase in shareholder access to the boardroom requires an increase in transparency regarding the “nature of [a shareholder’s] identity and ownership, even in cases where the federal securities laws may not specifically require disclosure.”  But its call for shareholder responsibility goes well beyond that:

More fundamentally, we believe that the responsibility of shareholders extends beyond disclosure. We sense that there is a rising belief that shareholders cannot seek additional empowerment without assuming some accountability for the goal of long-term value creation for all shareholders. Moreover, we believe that shareholders should not use their investments in U.S. public companies for purposes that are not in keeping with the purposes of for-profit public enterprises, including but not limited to the advancement of personal or social agendas unrelated and/or immaterial to the company’s business strategy.

Well, when you put it that way – sure, personal and social agendas that aren’t material to the company’s business have no place in the shareholder dialogue.  We can’t argue about that, right?

Should Shareholders Be Engaging Over Social Issues?

Okay, maybe we can argue about that. There are a lot of investors who would take issue with the BRT’s position on advancing “personal or social agendas.”  Some heavy hitters contend that the environmental, social and governance (ESG) issues that others would lump into this category are closely linked with long-term value creation.  For example, here’s an excerpt of what BlackRock’s Investment Stewardship team says on the subject:

ESG considerations are integral to our investment stewardship activities. Our clients are long-term investors and it is over the longer term that ESG risks and opportunities tend to be material and have the potential to impact financial returns. The best companies ensure that their investors, as well as other constituents of the company, have enough information to understand the drivers of, and risks to, sustainable financial performance.

When it’s put like this, disagreeing with the importance of ESG issues sounds akin to disrespecting mom or apple pie.

The problem with this debate is that vague concepts like “sustainable financial performance,” “long-term value creation,” and the need to avoid agendas “that are not in keeping with the purposes of for-profit public enterprises” don’t add a whole lot to the conversation about where to draw the line between legitimate investment concerns and frivolous personal agendas.

Poll: Should Shareholders Be Engaging Over Social Issues?

Please take a moment to participate in this anonymous poll:

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John Jenkins