The death of shareholder primacy

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For 100 years, what’s known as shareholder primacy as been a key guiding principle for companies and corporations. It maintains that shareholder interests should have top priority relative to all other corporate stakeholders -- including, sometimes, the greater public good. 

Shareholder primacy gives shareholders the power to directly participate in corporate decision-making. Shareholders often have the power to amend corporate charters and to hold referendums on business decisions. They elect boards, who are then expected to run the corporation for their benefit.

But shareholder primacy has long been at odds with corporate social responsibility efforts. And this summer, the U.S. Business Roundtable formally abandoned the view that maximizing shareholder value should be a company’s primary goal. Instead, the Business Roundtable urged companies to work for the benefit of all stakeholders,” including the public, suppliers, employees and the communities in which they operate.

No wonder.

In recent years, we’ve seen the profound impact corporations can have when they decide to take a stand. From Walmart to Unilever, Nike and HP, some of the world’s best-known brands are confronting issues that include climate change, gun violence, police brutality and the gender pay gap.

That’s because the public, employees and paying customers alike are demanding they take action.

And, increasingly, shareholders -- especially millennials and Gen X-ers, currently aged 39 to 54 -- are focused on sustainable and socially responsible investing. It’s not just retail investors, either: Larry Fink, head of BlackRock, the biggest asset manager in the world, now demands the CEOs of companies that BlackRock invests in pursue purpose as well as profit.

This rapidly evolving corporate ecosystem is likely why, in the United States, 86% of S&P 500 companies produced corporate social responsibility reports in 2018.

But, astonishingly, only half of Canada’s S&P/TSX companies did.

And that’s foolhardy.

The evidence is clear

There have been multiple studies in recent years that have determined that impact investing is growing rapidly, and that socially responsible companies are outperforming on the stock market. Citing the non-profit Forum for Sustainable and Responsible Investment, the Wall Street Journal recently reported that ESG (environmental, social and governance-influenced) investing now accounts for at least 26% of professionally managed assets in the U.S., up from 18% in 2016. 

BlackRock estimates that ESG ETFs will amass US$400 billion by 2028, compared to just US$25 billion last year. And impact investments have outperformed their benchmark for eight of the last 10 years, according to the latest MSCI ESG Leaders Index

A study by Amundi also determined that over the past decade, companies most committed to ESG and CSR have out-performed on the stock market.

The Global Impact Investing Network recently reported that almost US$140 billion was invested in impact investment strategies in 2018, up from just $10.6 billion in 2014.

So why are Canadian companies lagging behind? After all, the companies making high-profile efforts to do good have largely been rewarded with enhanced reputations … and profits. So it’s particularly short-sighted for Canadian companies to drag their heels on CSR and ESG.

If your company isn’t investing in efforts to embrace CSR initiatives, it’s not a matter of if, but when, you’ll begin alienating shareholders and customers alike.

You need all hands on deck to find a social purpose that aligns with your business objectives, and then to produce detailed content, from annual and quarterly shareholder reports to fulsome social media content, that tells your story in a compelling and engaging way. The time is now to assure investors that purpose is just as important to your company as profit.

If you need the assistance of a team of experts to communicate your ESG and CSR efforts in a compelling way that makes your stakeholders sit up and take notice, contact us today.