Sarasin & Partners has researched and written this paper as one of a series which considers the investment implications of environmental, social and governance issues. This research provides insights into a more sustainable investment approach, with consideration of shareholders, society and the environment at its core.
Large, stock exchange-listed companies occupy a central role within society. They can act as engines of production, provide jobs and training, contribute to economic growth, and foster innovation. As a result, corporations have many stakeholders; ensuring accountability to them is a challenge. In particular, the separation of ownership from management within companies creates a challenge for corporate accountability.
While it is practical for large, complex companies to separate the generation and implementation of business decisions (management) from their monitoring (ownership), the interests of managers often diverge from those of shareholders: this is known as an ‘agency problem’. In a system where companies are managed by professionals with limited stakes in ownership, and owned by shareholders with limited individual control over management, to whom are companies accountable? How are they held to account?
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