Call to Action on Sustainable Corporate Governance

Professor Mervyn King S.C. is IIRC Chair Emeritus and author of King corporate governance codes; Paul Polman is Co-Founder & Chair of IMAGINE and former CEO of Unilever; Kerrie Waring is CEO of the International Corporate Governance Network; Bob Moritz is Global Chairman at PricewaterhouseCoopers LLP; and Gilbert Van Hassel is CEO of Robeco. This post is based on their open letter. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).

As leaders in business, investment and financial institutions, and academia we welcome and encourage efforts in jurisdictions around the world to take action to embed the concept of sustainable development in corporate governance law, codes and initiatives.

Business sustainability, sustainable finance, corporate purpose and long-term value creation must begin with company boards and the systems of governance under which companies operate.

Director organisations have recognised the urgency of the climate crisis and the need to accelerate progress towards Paris and Sustainable Development Goals. To be able to do so, it is crucial that directors positively orientate towards long-term value creation rather than short-term profit maximisation for the company.

Business organisations have committed to move away from the concept of shareholder primacy towards fully addressing sustainability and ensuring that no stakeholders are significantly harmed.  Although the law already provides Board members with wide discretion when making decisions on behalf of the company on sustainability issues, incentives within existing corporate governance models too often prevent them from taking concrete steps to act on these intentions.

These moves are also supported by many investors who insist that companies include environmental, social and governance considerations in their risk management.

Unless and until the systems of corporate governance are reformed to reflect these challenges, they will act as countervailing forces against achieving sustainability objectives.

As we are nearing the point of no return in the climate crisis, the time has come to act.

This is not simply about businesses adopting sustainability reporting or strategy, but about corporate governance systems redirecting focus towards how companies create and preserve value—for themselves and their stakeholders.

We express our support for the current European Commission examination and consultation on proposals for sustainable corporate governance, focusing on Board oversight, mandatory due diligence and aligning Board and executive remuneration to sustainability objectives. We agree that this initiative is essential to implement the EU’s Green Deal and its Sustainable Finance action plan.

We call on all in the business community to express support for these developments, recognising that, far from being preconceived, the notion of sustainable corporate governance has been evolving for a long time, from the very first King code more than twenty years ago right up to current actions on sustainable finance.

Sustainable corporate governance can become integral to post-Covid economic recovery, not just in Europe but around the world. We point to clear research findings that sustainable corporate performance equates with better long-term value-creation for the company, encompassed in the concept of sustainable competitiveness.

In conclusion, we affirm that the size of the transformation required in our economy towards sustainability, must include the way in which companies are governed. This stands amongst the root causes of today’s unsustainable business practices. There is a pressing need for comprehensive corporate governance frameworks to achieve true business sustainability.

Yours sincerely,

Professor Mervyn King S.C., IIRC Chair Emeritus and author of King corporate governance codes

Paul Polman, Co-Founder & Chair, IMAGINE (former CEO of Unilever)

Kerrie Waring, CEO, International Corporate Governance Network

Bob Moritz, Global Chairman, PwC

Gilbert Van Hassel, CEO, Robeco

The letter is further supported by over 90 academics, including leading experts Professor Bob Tricker, Professor Robert G. Eccles (University of Oxford), Professor Gerald Davis (University of Michigan), Associate Professor Ioannis Ioannou (London Business School), Professor Armand Hatchuel (Mines ParisTech, PSL Research University) and Professor Blanche Segrestin (Mines ParisTech, PSL Research University).

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One Comment

  1. Sean Lyons
    Posted Thursday, March 11, 2021 at 11:02 am | Permalink

    This represents an important message to governance bodies and corporate boards around the world. I regard the following of particular importance:

    “This is not simply about businesses adopting sustainability reporting or strategy, but about corporate governance systems redirecting focus towards how companies create and preserve value—for themselves and their stakeholders.”

    I have recently addressed this important matter in some detail in my paper entitled “Value Preservation Increasingly Acknowledged as Primary Purpose and Fiduciary Duty”