Rethinking the purpose of the corporation
Posted June 14, 2018
It's time to flip the switch from shareholder to stakeholder capitalism
In 1976 two economists (Jensen and Meckling) introduced the concept of agency costs – the costs of aligning the incentives of different corporate actors. This characterization of the mission of corporate law has led to a 40 plus year search for an organizational Holy Grail – how to align the interests of shareholders and managers (and of controlling and minority shareholders) through a series of techniques, including regulatory standards, independent directors, take-overs and activist shareholders. The advent of the efficient market hypothesis reinforced the focus on market pricing as the arbiter of corporate performance (and of short-term shareholder value as the purpose of the corporation).Continue Reading...
Posted May 2, 2018
Governments across Canada need to catch up when it comes to increased climate risk disclosure
Policy-making is increasingly focused on the “appearance” of progress, wherein maintaining appearances becomes an excuse for side-stepping many of the difficult policy choices that must be made. Addressing climate risk has become a critical example of kicking the can down the road – there still seems to be a view that climate risk can be “managed” with aspirational statements and standards.
Consider the behaviour of some of the world’s largest asset managers in response to shareholder resolutions last year at nine major U.S. utilities asking for reporting on their exposure to the forces driving a 2 C transition – regulatory, technological, legal and meteorological. Ten large institutional investors controlled one of every three shares voted, but only one of them consistently voted to support increased climate risk disclosure. Three of the biggest (by shareholdings) voted against all nine resolutions, even as they profess a commitment to engagement on environmental (and other social, environmental and governance) issues and, in one case, sent public letters challenging CEOs of major corporations to explain how their company is “navigating the competitive landscape, how it is innovating, how it is adapting to technological disruption or geo-political events.”Continue Reading...