Baker McKenzie recently collaborated with the World Economic Forum in the publication of a white paper entitled, “The Modern Dilemma: Balancing Short- and Long-Term Business Pressures."
The leadership challenge of balancing short- and long-term business pressures, and doing so in an ethical way in which both a company and its stakeholders can thrive, is a challenge that is well-known to all business leaders. To address this challenge, in 2016 the International Business Council (IBC), an organization committed to advancing global economies, initiated the CEOs' Modern Dilemma series.
Over the past 12 months The Forum's Investors Team and Baker McKenzie interviewed a number of CEOs and chairpersons of the Forum's International Business Council and the Community of Chairpersons. Baker McKenzie also surveyed legal requirements in a number of countries to understand whether reporting requirements and various other legal considerations might influence the dilemmas confronting CEOs and boards. Our examination of reporting requirements primarily concerned the shift from quarterly reporting to six monthly reporting and whether it focused on longer-term viability. To complement this, we assessed a number of regulatory drivers so as to examine whether they might address or assist efforts to balance decision making around short-term and long-term interests of a company in the boardroom.
Key reflections arising from our research included:
- Quarterly reporting, where it is still obligatory, is not of itself the reason for short-termism; there are many other factors at play.
- There is an asymmetry in director versus shareholder legal duties towards the companies they serve or hold shares in, respectively. Until these duties are aligned, as a result of regulation or other means, it is difficult to see how diverging interests can be made to coalesce whilst maintaining the best interests of the company as the common vision.
- Corporate governance has been, and continues to be, on an interesting journey. In examining that journey we see an ongoing shift in the balance of power and accountability between the various actors, which include boards, management, shareholders, investors and other stakeholders.
Baker McKenzie Corporate Governance partner Beatriz Araujo reflects on these conclusions: “Corporate governance is on a journey -- it started with the concept of 'management control,' which was eventually challenged by shareholders resulting in the move to 'shareholder primacy' – what we are beginning to see now is a reaction to this, with progressively more expectations around investor stewardship as well as a more pronounced focus by regulators on other stakeholders (employees, customers, suppliers, the community and the environment); I am coining this new phase in the evolution of corporate governance as the era of 'stakeholder capitalism.'"
Click here to access the full report.
First published on the Harvard Law School Forum on Corporate Governance and Financial Regulation, 20 June 2019