Modern Governance 8.0: New Report from Stanford’s Rock Center and Diligent Institute Reveals Corporate Directors Are Less Shareholder-Centric and Success Is No Longer Defined Solely by Shareholder Returns
In a new report released today, Diligent Institute and the Rock Center for Corporate Governance at Stanford University found that board directors consider both shareholder and stakeholder needs when making strategic decisions – reinforcing a stakeholder movement that embraces modern governance. The report, “Stakeholders Take Center Stage: Director Views on Priorities and Society,” includes responses and interviews with nearly 200 directors of public and private corporations globally. According to the survey, a vast majority of corporate directors (89%) believe it is important or very important for their company to consider the interests of non-shareholder stakeholders – such as employees, local communities, and the general public – as they work to achieve business objectives.
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The findings of this report echo the sentiments of the recent Business Roundtable “Statement on the Purpose of a Corporation,” signed by 183 CEOs of major U.S. corporations. For the first time, these leaders embraced a commitment to address the interests of all stakeholders—not just shareholders—in corporate strategies.
“Our report provides context to the commitments made by the Business Roundtable this Fall and demonstrates that corporate directors strike a healthy balance between shareholder needs but also those of employees and society. Directors indicated that prioritizing the needs of employees is vital in creating long-term shareholder value,” commented Brian Stafford, CEO of Diligent. “Further, we found that directors pay considerable attention to important stakeholders, particularly their workforce, in their long-term business planning; embracing the notion that doing good for your stakeholders – especially customers, employees, and the communities we operate in – should also give companies a competitive advantage.”
Despite directors feeling satisfied with the job their company does to meet stakeholder interests (92%), directors voiced concern about the stakeholders’ perceptions. Only 57% of directors believe their most important stakeholders accurately understand the work the company is doing to address stakeholders’ interests.
“In terms of recognition of the value they place on employee and community interests, corporate directors feel the general public is missing the story,” said David Larcker, Faculty Director of Stanford’s Corporate Governance Research Initiative, Diligent Institute Advisory Board Member, and report co-author. “Or, perhaps the story isn’t being told well enough by the companies themselves—or a combination.”
While directors recognize that tensions exist between shareholder and stakeholder interests, most believe their companies strike a successful balance mitigating this tension. In general, directors reject the notion that their companies have a short-term investment horizon in running their businesses. The study also shows that directors are largely satisfied with their environmental, social, and governance-related efforts; however, they do not believe the outside world understands or appreciates the work they do.
“Leaders that are truly focused on the long-term strategy of the business understand the integral role other stakeholders play in achieving their goals. Those that take this approach are becoming practitioners of modern governance—a category Diligent introduced to the market earlier this year and a new framework for directors to govern by,” said Stafford. “In many ways, Larry Fink’s letter was the precursor to modern governance. Board directors are now improving visibility across their organizations and across their industries, while prioritizing stakeholder interests.”
In terms of trends outside the U.S., survey results showed non-U.S. organizations face greater pressure from external constituents to do more for stakeholders than U.S. companies. Over half of directors of non-U.S. companies said they receive high or moderate pressure from advocacy groups, while only 30% of U.S. directors agree. The same contrast also holds true in terms of pressure from investors.
“Our data shows that directors outside of the U.S. pay more attention to a broad array of stakeholder interests,” said Brian Tayan, researcher for the Rock Center and the report’s co-author. “However, at the same time, they tend to be less satisfied with their sustainability efforts than U.S. directors. It might be that they hold the companies they govern to a higher standard, or that U.S. directors do a better job of putting their plans into action.”
Diligent is leading the way in modern governance. Diligent empowers leaders to turn governance into a competitive advantage through unparalleled insight and highly secure, integrated SaaS applications, helping organizations thrive and endure in today’s complex, global landscape. The company’s trusted, cloud-based applications streamline the day-to-day work of board management and committees, support collaboration and secure information sharing throughout the organization, manage subsidiary and entity data, and deliver the insights and information leaders need to mitigate governance deficits and seize new opportunities.
The largest global network of corporate directors and executives, Diligent is relied on by more than 16,000 organizations and 650,000 leaders in over 90 countries. With award-winning customer service across the globe, Diligent serves more than 50% of the Fortune 1000, 70% of the FTSE 100, and 65% of the ASX.
Visit www.diligent.com to learn how modern governance helps organizations outperform their peers and the competition.
About The Rock Center for Corporate Governance
The Arthur and Toni Rembe Rock Center for Corporate Governance is a joint initiative of Stanford Law School and Stanford Graduate School of Business. The center was created to advance the understanding and practice of corporate governance in a cross-disciplinary environment where leading academics, business leaders, policymakers, practitioners, and regulators can meet and work together.
Greg Nyhan, 646-215-6884
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