Sarah Kaplan and Peter Dey write for the Globe and Mail that Corporate boards cannot afford to be laggards in a changing governance landscape.
As boards of directors reconvene in person and emerge from their virtual boardrooms, they will be well-advised to review and update the purpose of the corporation to reflect the realities of easing pandemic restrictions.
What does it mean to have a purpose? “Making money” is part of it, but will not be the sole purpose of the corporation. The corporation needs to make money to function. But making money alone gives no definition to why the corporation exists, and no framework within which a board of directors can assess the best interests of the corporation.
And, according to the Supreme Court of Canada’s 2008 BCE decision – which changed the legal landscape for Canadian boards – the best interests of the corporation must account for the interests of the corporation’s stakeholders, and not just the shareholders.
The pandemic has had two important effects on the implementation of this legal framework and on the future of corporate governance in Canada. First, the crisis has created many stresses for corporations from which boards of directors can derive insight. Boards will need to assess what they learned in the course of overseeing their companies through the pandemic, and to implement changes to make the company more resilient to future crises.
Second, the pandemic has created increased expectations of companies concerning their role in society – not just as engines of profits, but also contributors to the environmental and social well-being of citizens. These expectations are not just coming from everyday citizens and activists – investors are also getting into the game by increasing their focus on stewardship of companies’ environmental, social and governance (ESG) performance.
Indeed, these two impacts are interrelated, as emerging research in finance and management shows that the companies that attend most carefully to stakeholder interests are those that are more resilient to shocks…
To see the full op ed, check it out on the Globe and Mail site here.
