Frank Bold is hosting the Creating Sustainable Companies Summit today bringing together leading thinkers, businesses, policymakers and civil society in Brussels to uncover the future for the next generation of corporations and future of corporate governance.
Keynote speeches will be delivered by Věra Jourová, EU Commissioner for Justice, Consumers and Gender Equality; John Kay, well known author, economist and columnist at Financial Times; and Richard Howitt, MEP and incoming CEO of the International Integrated Reporting Council. In total, more than 30 high level speakers and over 140 participants will discuss a corporate governance framework that fosters the creation of inclusive and sustainable businesses. See the complete list here: http://summit2016.purposeofcorporation.org/#speakers.
On this occasion, a major report entitled Corporate Governance for a Changing World: Report of a Global Roundtable Series will be released. Following the outcome of a global consultation as part of the Purpose of the Corporation Project, the report aims to capture long-term sustainable value and identify desired outcomes and principles of corporate governance fit for the challenges of the 21st century. Over the past two years, more than 260 leaders in business management, investment, regulation, academic and civil society communities were brought together at events in Breukelen (the Netherlands), Brussels, London, New York, Oslo, Paris, and Zurich.
The report is available here: http://www.purposeofcorporation.org/corporate-governance-for-a-changing-world_report.pdf
The role of corporations in contemporary society
After the financial crisis, there has been considerable debate about the role of corporations in society. It has become broadly accepted that corporations – particularly the world’s largest publicly traded corporations – should be governed with respect for the society and the environment. This is because corporations are dependent on the broader institutional and systemic framework within which they operate for their long-term survival. In addition, the most pressing of society’s problems cannot be solved by regulation alone without contributions from corporations, such as the attainment of the UN Sustainable Development Goals.
The current model of corporate governance has led companies to focus on maximising short-term shareholder value. This has a range of unintended consequences: inappropriate focus on the short-term, excessive executive pay, underestimation of systemic risks and undermines corporate resilience by redirecting corporate resources away from innovation, development, and human capital. Ignoring the long-term interests of corporations and of the society also hurts investors and end beneficiaries with a long-term horizon for their investment, mostly people who are saving to fund retirement or support their children’s education.
In 2012, John Kay, keynote speaker at the summit, wrote : “Short-termism, or myopic behaviour, is the natural human tendency to make decisions in search of immediate gratification at the expense of future returns, decisions which we subsequently regret”.
With this context in mind, the global roundtables series sought to answer a number of central questions. The results have been synthesised in the report:
- How can corporate governance contribute to robust long-term value creation for companies?
- What is the role of stakeholders, including shareholders, in fostering a long-term focus on sustainable behaviour?
- What incentives for short-termism exist in law, corporate governance codes and business practice?
Developing a new governance model
The report presents a summary of reflections on these questions and best practices in seven areas:
- Embedding purpose in the governance structure of the corporation.
- Clarifying fiduciary duties to restore the focus to long-term value creation.
- Strengthening the role of the board to pursue a broad and long-term view of corporate purpose.
- Revising incentive structures for directors and executives.
- Engaging stakeholders in corporate governance.
- Improving shareholder engagement to foster patient capital.
- Integrating intangibles, non-financial capitals and ESG matters into corporate accounting and reporting models.
The report presents an emerging comprehensive approach to corporate governance that can assist corporations to develop a broad understanding of their purpose, as well as build a corporate strategy that will deliver long-term sustainable value, build organisational resilience, and sustain a strong social license. This approach can be beneficial to a wide set of stakeholders who take part in or are affected by corporate governance, as it aligns corporate strategy with the broader interests of society by taking account of systemic risks such as climate change and growing inequality.
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