Many of the challenges that corporations and their boards have encountered in 2020 will continue to be front and center in 2021, including the COVID-19 pandemic, the movement to address racial injustice and broad-based socioeconomic inequality, an accelerating sense of urgency around climate change, technological innovation and an evolving political and regulatory climate. These trends have underscored the key themes of sustainability, resilience and corporate purpose, and are prompting new perspectives on the ways that corporations must operate to manage the multiple stakeholder interests that are critical to the health and long-term success of their businesses. And, in this environment, boards are seeking to optimize their functioning and leadership role to navigate these challenges as well as the evolving expectations of stakeholders.

Summarized below are highlights and practical suggestions for corporations and boards to consider in the new year.

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The ever-evolving challenges facing corporate boards prompt periodic updates to a snapshot of what is expected from the board of directors of a public company—not just the legal rules, or the principles published by institutional investors and various corporate and investor associations, but also the aspirational “best practices” that have come to have equivalent influence on board and company behavior. The coronavirus pandemic and resulting economic turbulence, combined with the wide embrace of ESG, stakeholder governance and sustainable long-term investment strategies, is propelling a decisive inflection point in the responsibilities of boards of directors. The 2020 statement of corporate purpose by the World Economic Forum is a concise and cogent reflection of the current thinking of most of the leading corporations, institutional investors, asset managers and their organizations, as well as governments and regulators outside the United States:

The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders—employees, customers, suppliers, local communities and society at large. The best way to understand and harmonize the divergent interests of all stakeholders is through a shared commitment to policies and decisions that strengthen the long-term prosperity of a company.

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As we approach the first anniversary of the Business Roundtable’s abandonment of shareholder primacy and embrace of stakeholder governance, and the fourth anniversary of our development for the World Economic Forum of The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, we thought it useful to consider in broader context the key issues of corporate governance and investor stewardship today. While there is no universal consensus, the question underlying these issues can be expressed as: What is the corporation trying to achieve? What is its objective?

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The past six months have been marked by a profound upheaval that has accelerated the growing focus on both the purpose of the corporation and the role of the board in overseeing and leading the corporation in ways that promote sustainable business success. For a number of years, there has been a growing sense of urgency around issues such as climate change, environmental degradation, globalization, workplace inequality and the need to keep pace with rapidly evolving technologies. Then, in recent months, the COVID-19 pandemic prompted a systemic shock, which has been accompanied by a long overdue awakening regarding endemic racial injustice. The convergence of these events has accelerated the focus on environmental, social and governance (ESG) issues and stakeholder capitalism as operational and strategic imperatives that are core to corporations’ abilities to compete and succeed. The well-being of employees and other stakeholders, and the ability to engage in more sustainable ways of doing business, are not a nice-to-have luxury or a branding exercise, but rather a basic building block of corporate value. There is an essential nexus between “value” and “values.”

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On April 27, 2020, France’s financial markets regulator, the Autorité des marchés financiers (“AMF”), released a report containing certain proposals and observations regarding shareholder activism. The report was issued following the AMF’s review of recent activism matters in France, including its recent €20m fine levied against Elliott Management for obstructing an investigation into a takeover bid and failing to adequately disclose its positions in connection with the 2015 tender offer by XPO Logistics for Norbert Dentressangle.

In its report, the AMF recommended lowering the mandatory reporting threshold for investors to publicly disclose their ownership from 5% to 3% of the issuer’s share capital or voting rights, as is already the case in a number of other European jurisdictions. The AMF announced that it would be modifying its guidance on “quiet periods” to clarify that issuers may provide any information necessary to respond to public statements about them by activist investors, and that it would be supporting proposals to expand the required disclosures on short-selling to include information on activist investors’ exposure to debt instruments. The AMF also requested legislation to give it additional capabilities to provide rapid responses in the activist campaign context—specifically, the AMF proposed that its ability to require additional disclosures if errors or omissions have been found in public statements be expanded from issuers to also capture investors, and that the obligations imposed on bidders and targets in takeover bid situations, including due diligence obligations for public statements, also be applied to their shareholders.

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