An approach to stakeholder capitalism
During its 50-year history, Morrow Sodali has achieved pre-eminence in corporate governance counseling and shareholder services by anticipating market developments and bringing together a comprehensive set of resources and expertise that are closely aligned with the expanding obligations companies face in dealing with owners and market forces.
The advent of ESG, the reassessment of corporate purpose and the expansion of corporate responsibility to include a newly prominent audience of stakeholders has fundamentally changed the way corporations are perceived. Gone are the days of shareholder primacy in which traditional financial reporting, accounting standards and stock price were the unquestioned measures of corporate well-being.
Today, in this new era of stakeholder capitalism, companies are being evaluated in a broader societal context. Stakeholders – including shareholders – are now taking a deeper dive into companies’ ESG policies and conduct. Firms now face a virtual deluge of demands for information about climate change, human capital management, sustainability, governance and more.
Companies are also facing a thicket of revised disclosure rules and competing standards and metrics promoted by regulators, NGOs and special interest groups. At the same time, there is market pressure to standardize ESG principles and metrics in order to make stakeholder capitalism provide the same level of market comparability as traditional financial accounting standards.
Meeting new demandsMorrow Sodali’s organizing principle with respect to ESG and stakeholder capitalism is that these new demands are in no way inconsistent with the long-standing business practices of well-managed companies. In the words of Harvard Business School Professor George Serafeim: ‘ESG analysis should be a part of good corporate and investment management.’
In line with this perception, Morrow Sodali anticipated the emerging ESG demand and prepared clients to deal with it well before it became a matter of widespread public attention – just as the firm had done in years past with hostile takeovers, governance reforms and shareholder activism.
Anticipating the direction ESG issues and stakeholder capitalism would take, Morrow Sodali’s first step was to expand the scope of our analytics and market intelligence activities to include ESG topics. In particular, our early efforts were focused on helping companies prepare for institutional investor pressure, proxy votes and shareholder activism on a variety of ESG issues, especially climate change and related executive compensation policies.
As the nascent stakeholder movement was emerging, Morrow Sodali was assembling new teams of ESG experts globally and expanding our engagement activities to reach out to all stakeholders whose interests are deemed material. Our advisory and analytical services now bring us into much closer strategic relationships with both our corporate clients and their investors and stakeholders.
As the external world of regulators, special interest groups, academics and politicians continues to struggle with the contradictions of understanding and measuring ESG issues, Morrow Sodali’s single-minded objective is to help our corporate clients, both public and private, meet the demands of stakeholder capitalism and maintain their strategic balance in a rapidly changing marketplace.
Morrow Sodali’s approach to ESG and stakeholder capitalismMorrow Sodali’s ESG and stakeholder programs are rooted in the company's traditional corporate governance counseling and shareholder services, but with expanded expertise and resources that address today’s issues.
Our goal has always been early diagnosis rather than cure – helping companies anticipate challenges and deal with them before problems arise, thereby enabling managers to concentrate on running the business.
With this goal in mind, Morrow Sodali’s programs are designed to help companies successfully negotiate their sustainability journey and meet the challenges of managing their stakeholder and ESG issues.
Morrow Sodali monitors these rapidly changing and often conflicting standards with a view to helping clients prioritize and determine which issues have the greatest potential impact on the business and which standards are most appropriate for individual firms. Most importantly, Morrow Sodali helps clients determine how to prioritize and measure the importance of these ESG/stakeholder issues in the context of their particular business circumstances.
Following this assessment, we analyze each firm's unique stakeholder profile and help develop programs for corporate reporting, shareholder engagement, communication, management of shareholder resolutions and the voting process. The Morrow Sodali ESG program includes the following basic elements:
Morrow Sodali recognizes that stakeholder capitalism is not a zero-sum game. What is good for stakeholders is also good for shareholders. Our decades of work dealing with shareholder issues are the groundwork for our expanded ESG program. Both stakeholders and long-term shareholders want companies to perform well, produce profits and grow. Managing ESG and stakeholder issues has become a critical requirement for running a successful business enterprise.
The words of attorney Martin Lipton, from a Wachtell Lipton client memorandum entitled ESG, stakeholder governance and the duty of the corporation in September 2022, are useful to understand from a legal perspective how companies should approach the responsibilities of stakeholder capitalism:
‘A holistic, stakeholder view of corporate purpose does not exalt ESG as the sole or weightiest consideration – to the contrary, it recognizes that the various elements of ESG are among numerous considerations that are essential to a company’s sustainability and that must be carefully balanced by the board and management, in consultation with shareholders, to ensure the long-term health and prosperity of the business.’