Peter A. Atkins, Marc S. Gerber, and Kenton J. King are partners at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum. 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); Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here); and 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).
I. The Current State of Play
The subjects falling within the purview of U.S. public company board of director oversight have grown to encompass virtually any subject that an investor, stakeholder or other party raises as being potentially material to a company and, therefore, needing board attention. [1] Many issues—often under the umbrella of “environmental, social and governance” (ESG) or “stakeholder” issues—have become well known to directors and are viewed as broadly applicable to most companies. Pressure from investors and others, in various forms and with increasing intensity, has been and continues to be applied to boards to address these issues promptly and more effectively. The failure by a board to deal with any such identified subject, or a board’s perceived inadequacy in doing so, often leads to questions being raised about the board’s performance of its oversight function.
In sum, directors remain the targets when investors or others look to hold companies responsible and accountable for perceived missteps relating to a constantly growing range of oversight subjects, many of which not long ago would have surprised public company boards of directors as being their responsibility.
