Some Thoughts for Boards of Directors in 2021

Martin Lipton, Steven A. Rosenblum,
Karessa L. Cain, Hannah Clark and Bita Assad

Many of the challenges that corporations and their boards have encountered in 2020 will continue to be front and center in 2021, including the COVID-19 pandemic, the movement to address racial injustice and broad-based socioeconomic inequality, an accelerating sense of urgency around climate change, technological innovation and an evolving political and regulatory climate.  These trends have underscored the key themes of sustainability, resilience and corporate purpose, and are prompting new perspectives on the ways that corporations must operate to manage the multiple stakeholder interests that are critical to the health and long-term success of their businesses.  And, in this environment, boards are seeking to optimize their functioning and leadership role to navigate these challenges as well as the evolving expectations of stakeholders.

Summarized below are highlights and practical suggestions for corporations and boards to consider in the new year.

Corporate Purpose and Strategy

• It is more important than ever to have a clear understanding of, and conviction about, the corporation’s purpose.  As BlackRock CEO Larry Fink has observed, “Companies and investors with a strong sense of purpose and a long-term approach will be better able to navigate this crisis and its aftermath.”  This view has been expressed by many major investors who, in the aggregate, manage shares representing voting control of almost all major public companies.
• Our broad formulation of corporate purpose focuses on conducting a lawful, ethical, profitable and sustainable business in order to ensure its success and grow its value over the long term.  This should be tailored for any given corporation, including by articulating the particular objectives and values that animate the corporation’s business strategy, and taking into consideration key corporate constituencies such as shareholders, employees, suppliers, customers and communities.
• Many boards have been seeking practical guidance as to how they should partner with management in both developing and communicating the corporation’s purpose.  In this regard, the Enacting Purpose Initiative recently released a report, entitled “Enacting Purpose within the Modern Corporation,” which provides a framework for how corporations can translate corporate purpose into practice.  The report provides guidance on how corporations can: (1) adopt a clear and simple statement of purpose, (2) connect the statement of purpose to the corporation’s decision-making, (3) build support and organization-wide acceptance of the defined corporate purpose, (4) establish measures of performance that evaluate the corporation’s success in delivering on its stated purpose and (5) ensure that leadership exemplifies and communicates the corporation’s purpose through narrative strategies.  While the current report is largely designed for European and UK corporations, a similar framework for U.S.-based corporations is expected to be issued in the spring of 2021.
• In addition, a recent McKinsey report identifies five specific actions that boards may take to embed a sense of purpose in their corporations: (1) build an authentic purpose narrative with management, engaging stakeholders proactively, (2) own purpose in board practices, including board composition and agenda, (3) assess purpose commitments to ensure goals are defined and clear, and that there is accountability at all levels of the corporation, (4) use purpose as a lens in making key board decisions, including those regarding strategy, risk, performance management and governance and (5) drive organizational accountability for purpose through management evaluations and reporting.

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