Some Thoughts for Boards of Directors in 2019

Some Thoughts for Boards of Directors in 2019

By Martin Lipton, Steven A. Rosenblum, Karessa L. Cain,
Amanda S. Blackett and Kathleen C. Iannone

December 14, 2018

In recent years, it has become increasingly evident that the activism-driven corporate world is relatively fragile and is proving to be unsustainable, particularly when viewed in the broader context of rapidly changing political and social norms and increasing divisiveness across many planes of the social contract. The exponential widening of income inequality, the increasing sense of urgency around climate change, and the widespread socioeconomic upheaval resulting from the displacement of human capital by technology have all been filtering into the debate about the role and governance of the corporate ecosystem. Persuasive academic and empirical evidence has established the causal link between short-termism and widespread harms to GDP, national productivity and competitiveness, innovation, wages and employment. In addition, the concepts of sustainability, ESG (environment, social and governance) and “corporate purpose” have all been gaining traction in the corporate governance lexicon.

There is now a growing recognition in the investment community that expectations of shareholders and other stakeholders should extend beyond the financial bottom line, and that the sustainability and credibility of a corporation’s long-term strategy cannot be assessed without taking into account the interdependencies between a corporation and its employees, customers, communities, the environment and other stakeholders. This represents a clear pivot away from Milton Friedman’s 1960s ex cathedra doctrinal pronouncement that “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

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