Despite recent developments and initiatives striving to protect and promote long-term corporate strategy and sustainable value creation,[1] short-term perspectives still predominate throughout the investment value chain and dominate decisions in boardrooms.[2] It is troubling how deeply the short-term mindset has permeated corporate culture across the globe. The markets relentless demand for profit growth on a quarterly basis has pushed CEOs and their executive teams “toward decisions they know to be costly, if not suicidal, mistakes”.[3] Short-termism undermines principled leadership, corporate social purpose or responsibility,[4] and the appropriate investment in long-term strategy, growth, and sustainable value creation.

The danger of the current assault on chief executives is it will force many down the simplest path open to them, the short-term pursuit of shareholder value — belatedly dubbed the “dumbest idea in the world” by none other than Jack Welch.

– Financial Times, November 2017[5]

Corporate short-termism has been the subject of ongoing debate among leaders in business, government, and academia. It is a serious problem,[6] threatening corporate sustainability and eroding public trust in corporations and their leadership. Short-termism raises important policy implications, and may be seen as an indictment of the current corporate governance arrangements.[7]

Boards and CEOs must move beyond “quarterly capitalism”,[8] particularly as the economic dangers of short-termism play out on the front pages of our newspapers, and it becomes recognized and accepted that long-term focused companies – balancing the interests of all its stakeholders (as opposed to just shareholders) – actually outperform their shorter-term peers on a range of key economic and financial metrics.[9]

Boards must be the “first line of defense against short-term pressures”,[10] assisting management in developing and implementing strategies to balance appropriate short-term and long-term objectives.[11]  Boards and executives “must infuse their organizations with the perspective that serving the interests of all major stakeholders” – shareholders, employees, suppliers, customers, creditors, communities, etc. – “is not at odds with the goal of maximizing corporate value; on the contrary, it’s essential to achieving that goal”.[12]

The main source of the problem, we believe, is the continuing pressure on public companies from financial markets to maximize short-term results.

– Harvard Business Review[13]

Overview

Business environments today are increasingly volatile[14] and there is a growing loss of trust in business, their Boards, and their corporate leaders.[15] As the world has become more complex, along the way powerful forces of “short-termism” has negatively afflicted corporate behaviour, the tenure of CEOs (the average American CEO trended downward to six years),[16] and arguably the lifespan of the average company (from about 60 years in the 1960s to approximately 30 years).[17] The five-year exit risk for public companies – particularly those traded in the U.S. – now stands at 32%, compared with a 5% risk 50 years ago.[18]

McKinsey has a new study out on an important topic — the question of whether companies systematically take too short a view and do not invest enough for the long term. If true, as many chief executives believe, this is a serious indictment of current corporate governance arrangements and has important policy implications.

– Financial Times, February 2017[19]

This age of disruption and loss of trust – and the threat posed by even more competition and disruption on the horizon – create real, genuine pressures (and even inappropriate incentives) within an organization that may undermine long-term strategy and planning.[20] It would be “nice to think” that no CEO or member of the leadership team ever felt afraid or vulnerable; that all Boards can maintain their professionalism and objectivity; that all C-Suite executives can resist the pressure of “short-termism” and the temptation of overly risky behaviour, of cutting corners, rationalizing the bending of rules, or even participating in malfeasance. But, unfortunately, this is not the case,[21] with “nearly three-quarters of business leaders” admitting to have taken “a professional decision that was at odds with their own ethical principles because of business pressures”.[22]

For too long, companies have sacrificed long-term value creation to generate short-term results, which quite predictably erodes sustainability.[23]

In a recent survey, 70% of respondents said that CEOs focus too much on short-term financial results, and nearly 60% said that they don’t focus enough on positive long-term impact. These findings mirror the growing chorus of voices in business and academia that point to short-termism as being a major threat to business.

– Harvard Business Review[24]

Societies and economies – not just individual businesses – pay a high price when citizens do not have trust in private sector leaders and their organizations, and Boards and executive leaders focus on short-term results (i.e. quarterly financial results; share buybacks, shareholder dividends[25]) at the expense of long-term interests. Think Carillion and the loss of 26,000 UK jobs and secure pensions,[26] Sears and the loss of 16,000 Canadian jobs and secure pensions,[27] and the threat of “many, many more very large corporate bankruptcies” in the U.S., Europe, and around the western world.[28] In respect to Carillion UK and Sears Canada, billions of dollars were paid in shareholder dividends – approved by executive management and their Boards – prior to the companies’ bankruptcies.

The effects of the short-termist phenomenon are troubling… more and more corporate leaders have responded with actions that can deliver immediate returns to shareholders, such as buybacks or dividend increases, while underinvesting in innovation, skilled workforces or essential capital expenditures necessary to sustain long-term growth. In 2014, dividends and buybacks… [in S&P 500 firms] alone totaled more than $900 billion… the highest level on record.

– Larry Fink, Chair and CEO, Blackrock[29]

There appear to be no “safe harbours” – neither scale nor experience is a safeguard.[30]  As technology increases exponentially, the number of factors that could influence a given organization is unfathomable.[31]

With this being the case, how do we future-proof our organizations?[32]

The answer: Boards and CEOs must take a broader view of their mandate for their business, and in society, beyond short-term gains. Board accountability is crucial. There is a need for an appropriate model of corporate leadership focused on long-term sustainable value creation, vision and strategy; ‘principled’ leadership; and values and purpose. In short, a business approach that creates long-term value by strategically embracing opportunities and managing risks deriving from economic, environmental and social developments.

Companies deliver superior results when executives manage for long-term value creation and resist pressure from analysts and investors to focus excessively on meeting Wall Street’s quarterly earnings expectations.

– Harvard Business Review[33]

The most effective organizations are led by Boards and executive leadership teams that focus and strategize on more than quarterly profits. The effective Board and C-suite executive looks out for – and appropriately balances – all of the organization’s stakeholders (not just shareholders), adheres to a set of core values and purpose, and builds trust.

Executive and Board stewardship at the institutional level involves ensuring that organizational values and strategies are appropriate, and the business sustainable.  The sustainability and success of an organization is built off of the trust in the enterprise by customers, employees, the general public, shareholders, creditors, suppliers, regulators, media, government, etc. The paramount way to acquire that trust is through good governance, long-term sustainable value creation, skillful management of risks, and the demonstration and incorporation of values and purpose into the core fabric of the organization:

“A business’ most valuable asset is its good name, its brand and reputation. In a recent survey released jointly by the World Economic Forum and the Fleishman-Hillard public relations firm, three-fifths of chief executives said they believed corporate brand and reputation represented more than 40% of their company’s market capitalization.

That value is the organization’s brand reputational value. Strong brand reputational value equals greater profits.”[34]

Business must focus on driving meaningful business results and contributions to society.[35] Building purpose-led and values-driven companies, and adopting multi-faceted long-term measures of success to reflect the company’s health – which includes broader societal outcomes – are key to strengthening and measuring trust, and the strategic goal of building long-term sustainable value.[36]

A successful company is led by an effective and entrepreneurial board, whose function is to promote the long-term sustainable success of the company, generate value for shareholders and contribute to wider society. The board should establish the company’s purpose, strategy and values, and satisfy itself that these and its culture are aligned.

– Ciarán Fenton, Can the FRC create a Phoenix from Carillion’s ashes?[37]

Introduction: Long-Term Corporate Strategy and Principled Leadership

Unfortunately, in today’s geopolitical and business environment trust in business continues to plummet. The Edelman Trust Barometer, a global survey, confirms that trust in business has declined dramatically across the world.[38]

Why is this important? Because most businesses cannot survive – let alone thrive – without the confidence and trust of its stakeholders. Some businesses can succeed in the short term without building or maintaining trust, but over the longer term, a business without trust negatively impacts its brand and reputation,[39] its competitiveness, and ultimately its bottom line.[40] It may eventually even lose its perception of legitimacy – its social “licence to operate”[41] if you will – among some stakeholders.[42]

More than half of Canadians (51 per cent) in our survey agree companies that only think about themselves and profits are bound to fail. A further 68 per cent believe CEOs are driven more by greed than a desire to make a positive difference in the world.

– Lisa Kemmel, President and CEO, Edelman Canada[43]

Accordingly, trust[44] is an important foundation for any corporate long-term strategic plan, and in today’s digital age a company’s values, ethics, and social purpose have reached the forefront of society and consumer consciousness.[45] A business is more likely to be sustainable through good cycles and bad because their stakeholders – all their stakeholders – trust them.

Trust (or lack thereof) is a central issue for corporate leadership,[46] and will not come back until there is a consensus – more or less – between corporations, its stakeholders, and the public on what business is here for.

To rebuild trust and restore faith in the system, institutions must step outside of their traditional roles and work toward a new, more integrated operating model that puts people — and the addressing of their fears — at the center of everything they do.

– 2017 Edelman Trust Barometer, Global Annual Study^[47]

Short-termism is viewed as a problem because it undermines long-term planning and investment, risk assessment and purpose, potentially undermining principled leadership, trust, and future economic growth – implications that hurt everyone. Nevertheless, despite the long-term risk to business, it is not hard to see why short-termism is so pervasive:[48]

“Average CEO tenure has dropped … over the past generation, giving CEOs more incentive to manage for the near-term and avoid decisions that may make long-term sense even though they don’t immediately improve the bottom line.

For example, managing the long term risks of climate change [or any other long-term risk relevant to a particular business sector] may require near term investments and commitments to new technologies, new personnel and new risk assessment tools that a CEO may just as soon leave to his or her successor. But most compensation packages are linked not to long-term value creation and skillful management of long-term risks, but to quarterly or annual bottom line performance.”

Today’s CEO and C-suite executive must integrate ‘business-in-the-economy’ (i.e. commercial realities of products, markets, and competitors), with both public policy and ‘business-in-society’ perspectives (i.e. societal and political realities,[49] legislation, litigation, etc.). Failure to do so may result in substantial corporate damage and loss of trust, because an organization that leads in such a restricted manner (i.e. “the business of business is business” outlook) is blind to long-term risks and outcomes that they should have been able to anticipate, since they are not positioned to understand – let alone plan and address – the full dimension of the risk and opportunity. Leadership acumen on business-in-society issues is imperative in addressing fundamental corporate issues,^[50] in particular long-term business strategy, risk management, and sustainable value creation.

There is palpable evidence of short-term pressures with those who matter most: the CEOs, executives and managers executing business strategy.[51] This problem is exacerbated by the unfortunate, but widespread, belief that “maximizing shareholder value”[52] is the number one responsibility of Boards, CEOs and their executive leadership teams. “But that’s confused as a matter of corporate law,[53] and a poor guide for managerial behavior—and it has a huge accountability problem baked into it” (i.e. shareholders have no legal duty to protect or serve the companies whose shares they own, and are shielded from legal responsibility for the companies’ debts and misdeeds).[54] Boards have a fiduciary duty to not just shareholders, but also employees, customers, the community (etc.). The health of the company itself, and the economic system generally, depends on getting the role of shareholders right[55] in the stakeholder continuum[56].

The error at the heart of corporate leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not.

–  Harvard Business Review[57]

The evidence is mounting that long-term strategic perspectives and the ability of corporations to leverage their core business to benefit all stakeholders (including shareholders, employees, customers, and the communities in which they operate) are important elements of trust and brand reputational value, as well as developing “both competitive advantage and responsible leadership in the years to come”.[58]

In today’s fractured world,[59] is it still possible – even critical – for people who disagree to escape their echo chambers and find common ground. Although we live in a complex world, “human beings wrote the rules of this game, so we decide when and how to change them”.[60]

When people do not feel that their leaders are working in their interest or addressing genuine needs, they lose confidence. To restore it … businesses must ensure that they are working effectively for all of their stakeholders.

– Douglas Elmendorf and Nitin Nohria, Restoring Trust in Leadership[61]

Looking ahead, businesses must put principled values-driven leadership at the heart of their missions.[62] Companies deliver superior results when executives manage for long-term value creation and resist pressure from analysts and investors to focus excessively on meeting Wall Street’s quarterly earnings expectations.[63] BlackRock CEO Larry Fink, who runs the world’s largest asset management firm with more than $6 trillion in assets, has written before that companies have been to focused on quarterly results,[64] and recently stated that “society is demanding that companies, both public and private, serve a social purpose”[65] – recognizing that service to a broader agenda ultimately drives not just trust and reputation, but success as well.  Boston Consulting Group’s[66] CEO Rich Lesser notes however, that all too often other demands can take precedence – CEOs and their executive leadership teams are under enormous pressure on a number of fronts.  And, “the fact remains that CEOs know missing earnings expectations or losing ground to competitors can come with severe penalties”.[67]

“Corporate short-termism” has been the subject of ongoing debate among leaders in business, government, and academia for more than 30 years. It is now generally accepted that companies that may be classified as “long term” outperform their shorter-term peers on a range of key economic and financial metrics. For the period of 2001 to 2014, for example, McKinsey found that:[68]

• Revenue of long-term firms cumulatively grew on average 47% more than the revenue of other firms, and with less volatility. Cumulatively the earnings of long-term firms grew 36% more on average over this period than those of other firms, and their economic profit grew 81% more on average.
• Long-term companies exhibit stronger financial performance over time. On average, their market capitalization grew $7 billion more than that of other firms. Their total return to shareholders was also superior, with a 50% greater likelihood that they would be in the top decile or top quartile. Although long-term firms took bigger hits to their market capitalization during the 2008 financial crisis than other firms, their share prices recovered more quickly after the crisis.
• Long-term firms added nearly 12,000 more jobs on average than other firms. Had all firms created as many jobs as the long-term firms, the US economy – for example – would have added more than 5 million additional jobs over this period. On the basis of this potential job creation, this suggests, on a preliminary basis, that the potential value unlocked by companies taking a longer-term approach was worth more than $1 trillion in forgone US GDP over the last decade; if these trends continue, it could be worth nearly $3 trillion through 2025.

Research reveals – all things being equal – companies that outperform in important social and environmental areas achieve higher valuations and higher margins.[69]   A 2015 study suggests that highly “principled” CEOs resoundingly outperform their “self-focused” peers: CEOs whose employees marked them highly on character achieved an average Return on Assets of 9.35% over a two year period – nearly 5 times as much as CEOs with low character ratings.[70] It has been suggested that reputation loss can outweigh combined legal penalties by a factor of 3 to 5.[71]

Unfortunately, according to corporate executives themselves, the pressure on companies to generate short-term financial performance shows no sign of letting up. In fact, the latest results from a McKinsey Quarterly survey panel of over a thousand C-level executives and board directors show that a majority of respondents perceive that short-term pressure is growing.

– Rising to the challenge of short-termism[72]

The question is whether corporate leaders will continue to focus on short-term gains (rewarding shareholders) or take the long view (balancing the interests of the corporation and all their stakeholders, in particular the customer), or something in between: finding a balance between long-term and short-term initiatives may be key to managing large businesses and professional service firms:^[73]

“Most CEOs know they have to divide their attention among short-, medium-, and long-term perspectives, but the adaptable CEOs spent significantly more of their time – as much as 50% – thinking about the long term. Other executives, by contrast, devoted an average of 30% of their time to long-term thinking. We believe a long-term focus helps because it makes CEOs more likely to pick up on early signals. Highly adaptable CEOs regularly plug into broad information flows: They scan wide networks and diverse sources of data, finding relevance in information that may at first seem unrelated to their businesses. As a result, they sense change earlier and make strategic moves to take advantage of it.”

Many of a corporation’s challenges cannot be addressed with a quarterly mindset,^[74] or a weak leadership team:^[75]

“CEOs who ranked high on reliability … established business management systems that included a cadence of meetings, dashboards of metrics, clear accountability, and multiple channels for monitoring performance and making rapid course corrections. Most important, they surrounded themselves with strong teams.

Unfortunately, this was not true of all CEOs: The single most common mistake among first-time CEOs—committed by a surprisingly high 60% of them—was not getting the right team in place quickly enough. For CEOs choosing talent, the stakes are high and the misses obvious. The successful ones move decisively to upgrade talent. They set a high bar and focus on performance relevant to the role rather than personal comfort or loyalty—two criteria that often lead to bad calls.”

As much as corporations might vow to improve its governance, culture, and long term strategy – the pressure to deliver results may be enough to prevent any real change without strategic, responsible and ethical leadership. With the “wrong insular influence”, all too often companies have a hard time acting with a long term vision and strategy when that gets in the way of making more money in the short term.^[76]

Poor leadership and decision-making may take center stage when a Board and its executive leadership does not balance short-term financial success with other important long-term business imperatives. Decisions that value short-term revenue generation over other important aspects of performance can incentivize inappropriate conduct[77] as well as to undermine the skillset or ability to think strategically or long term:[78]

“Many executives in big companies attained their positions by excelling at getting things done. Unfortunately, a bias for doing rather than thinking can leave these executives ill-equipped for their new roles.

If you ask [executives and leaders] in a large organization to approach a strategic business problem, their focus often quickly narrows to proposing solutions. When asked why, many respond that they don’t have time to think.

How did we arrive in a state where [executives and leaders] do not recognize that thinking is part of their job? The answer reflects a relentless focus on execution in many large companies. A company becomes big by finding a successful business model — and then scaling it massively. This necessitates building a finely tuned system with highly standardized processes. To get promoted in such an environment requires an almost singular focus on execution [and short-termism]. In other words, it requires action more than thinking. However, once executives are promoted to a senior level, these new business leaders must be able to think strategically. Ironically, the very skills in execution that led to their promotions often make these executives ill-equipped for their new roles, since their strategy thinking muscles have withered from disuse.”

Along these lines, PepsiCo’s CEO Indra Nooyi has stated that “finance and accounting” appears of late to trump “strategy excessively”, noting that “a bunch of number-crunchers put out a spreadsheet and think that is strategy”.[79]

How an individual is incentivized, evaluated and compensated … tend to focus attention on maximizing short-term profit and crowd out other important concerns about longer-term value generation, needs of customers, and broader market integrity and ethics.

– Deloitte, Managing Conduct Risk^[80]

Boards, CEOs and their executive leadership teams must rethink the long view over “short-termism”, and the role of business in society. The way out: “the company’s health—not its shareholders’ wealth—should be the primary concern of those who manage corporations. That may sound like a small change, but it could make companies less vulnerable to damaging forms of activist investing—and make it easier for” Boards, CEOs and executive leadership to resist the “powerful forces of short-termism” and “focus on the long term”.[81]

Principled leadership, long-term strategic planning and vision, trust and social purpose are opportunities for corporations to dramatically differentiate themselves.  It is significant that ‘trust’ is being elevated to a C-suite leadership issue[82] by leading national and multinational organizations. The sustainability and success of an organization is built off of the trust in the enterprise (by customers, employees, the general public, shareholders, creditors, suppliers, regulators, media, government, etc.).[83] The best way to acquire that trust (and reputation)[84] is to demonstrate good governance, values of integrity and ethics in business practices, and incorporate these values into the core fabric of the organization. Why, because values drive behaviours, and behaviours drive outcomes^[85] – in this case: trust,[86] reputation,[87] and long-term sustainable performance.[88]

To “prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate”.[89]

Clearly, citizens should be able to expect more from their leaders. To that end, as the deans of the Harvard Kennedy School and the Harvard Business School, respectively, we strive to impart the values of effective leadership to our students. We teach them that leadership is not about opportunism or winning at any cost. It is about advancing the common good and making a difference in the world.

– Douglas Elmendorf and Nitin Nohria, Restoring Trust in Leadership[90]

Why is there a loss of Trust in Leadership

Business is not running as usual and this is putting extreme pressure on leaders across the world, in corporate organizations, BigLaw, and government.[91] You hear words like “unprecedented,” “uncharted” and “uncertain” used a lot more these days to describe the times we are in.[92] A volatile global economy and disruptive change has impacted business – and organizations are facing enormous competitive and sustainability challenges.[93]

While the events that have undermined trust in big business in recent years are often perceived as a series of stand-alone crises, many of them can be categorized within wider global trends. These include scandals and corruption, poor corporate governance and corporate social purpose, but as well rapidly rising executive pay,[94] a failure to balance short term financial gains (i.e. rewarding institutional shareholders) with a long term perspective,[95] growing disparity in both income and opportunity (and a broader perception that many people have been left behind in the era of automation and globalization), systematic tax evasion, and political polarization in an increasingly disaffected and divided society and geopolitical environment. Combined with a perception of inadequate responses from leaders, regulators and governments, these trends have reinforced widespread public and employee distrust of business as a whole.[96] In 2017:[97]

“71% of respondents globally considered government officials not credible or only somewhat credible, and 63% of respondents had the same dismal view of CEOs. This should not come as a surprise. Across dozens of countries, people have been airing their grievances against the status quo through social media, protests, consumer choice, and the ballot box.”

Company leaders are facing a crisis. Nearly one-third of employees don’t trust management.

– Forbes[98]

Within these parameters, excessive short-termism can affect the most fundamental decisions that boards and corporate executives make.[99]  This is part of the reason we may be experiencing what has been described as a crisis in leadership[100] and trust.[101] A deficiency of trust is indexed as a critical problem confronted by business leaders today:[102]

“There are new expectations of corporate leaders. Nearly 7 in 10 respondents say that building trust is the No. 1 job for CEOs, ahead of high-quality products and services. Nearly two-thirds say they want CEOs to take the lead on policy change instead of waiting for government, which now ranks significantly below business in trust in most markets.”

Once we understand the hard, measurable economics of trust, it’s like putting on a new pair of glasses. Everywhere we look, we can see quantifiable impact. If we have a low-trust organization, we’re paying a tax. While these taxes may not conveniently show up on the income statement as “trust taxes,” they’re still there, disguised as other problems.

– Stephen M.R. Covey[103]

In a year marked by turbulence across the world, the 2018 Edelman Trust Barometer noted that “trust in institutions in the United States crashed, posting the steepest, most dramatic general population decline the Trust Barometer has ever measured”.[104] Trust in companies headquartered in the U.S. has dropped five points from 55 to 50% just in the last year, after having already fallen from 61% in 2014. This is much below trust accorded companies based in Canada and Switzerland at 68 and 67%, respectively.[105] According to Richard Wagner, the Chief Justice of the Supreme Court of Canada:[106]

Transparency, [the Chief Justice] said, is a necessary adaptation in a world losing faith in democratic norms.

“When you see what’s going on outside our country, it’s a bit scary,” [the Chief Justice] said, referring – without specifying any countries – to a loss of respect for democratic institutions, minority rights and judicial independence.

[The Chief Justice] praised the state of affairs in Canada – but warned against complacency.

“I think we are very lucky in Canada to have strong institutions, compared to other countries where some basic principles are under attack.” But, [the Chief Justice] continued, Canadians should not take their democratic “assets” for granted. “I think we have to protect those assets. I think we have to work for it on a daily basis.”

In line with the Chief Justice’s thoughts, according to the 2018 Edelman Trust Barometer, there may be increased expectations of corporate leaders. According to the global survey, approximately 70% of the respondents say that building trust is the “No. 1 job for CEOs”. Nearly 66% say they want CEOs to take the lead on policy change instead of waiting for government, which now ranks significantly below business in trust in most markets.[107] The consequences of a loss of belief in reliable information are volatility, societal polarization and an ebbing of faith in society’s governing structures, slowing economic growth and tempting leaders to make short-sighted policy choices.[108]In this environment, one leading CEO, in a candid assessment of what is happening in the business world’ noted that he is seeing:[109]

“… ‘many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. … As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges.’

It is a refrain that we’re hearing more and more from various pockets of the business community, and in fact last year company leaders found themselves taking stands on issues like immigration policy, race relations, gay rights and more.”

However, CEOs are underperforming in all of the 16 trust-building leadership attributes that the global Edelman Trust Barometer survey measured in 2017, and remains largely unchanged in 2018. The organization’s leadership can be perceived to lack integrity in their business conduct by focusing too much on short-term financial results.[110]

Among the informed public, the trust crash is even steeper, with trust declining 23 points, dropping the U.S. from sixth to last place out of the 28 countries surveyed. The informed public trust crash is universal across age, region and gender.

– 2018 Edelman Trust Barometer[111]

For organizations that cannot properly act with a long-term vision and strategy, it is important that their Boards and executive leadership teams – and this includes the General Counsel – evaluate their short-term economic objectives in light of long-term concerns that include sustainable value creation, maintaining a reputation for corporate responsibility, complying with the law and doing the “right thing”, and managerial integrity.[112]

Excessive short-termism is affecting the most fundamental decisions that boards and corporate executives make.[113] There are a number of causes of short-termism and its intensifying power, most troubling the pressure on companies and their executive leadership teams to generate short-term financial performance:[114]

• 61% of executives and directors say that they would cut discretionary spending to avoid risking an earnings miss.
• 47% would delay starting a new project to avoid missing an earnings miss, even if doing so led to a potential sacrifice in value.
• A record level of stock buybacks in the U.S. and historic lows in new capital investment.
• A majority of executives surveyed feel the balance between short-term accountability and long-term success “has fallen out of whack”; 65% noting the short-term pressure they face has increased in the past five years.

Academic studies have linked the possible effects of short-termism to lower investment rates among publicly traded firms and decreased returns over a multiyear time horizon.

– Harvard Business Review[115]

Given the prevalence of short-term pressures, it is not surprising that many executives believe their companies are using time horizons in their strategic planning that are too short. Sixty percent of executives say their management teams should use a time horizon of at least three years for formal strategic planning, as opposed to two years or less:[116]

“Respondents also report mixed results with codifying elements of their long-term strategies. The survey tested how far along respondents believed they were implementing ten key elements of a long-term strategy, from expressing a clear statement of purpose to providing medium- and long-term metrics with a detailed execution roadmap and link to long-term value creation. In fact, there was only one element – the company’s mission and vision – that a majority of respondents say is very formalized at their companies. At the same time, about one-quarter of executives say their companies haven’t formally articulated either their views on major market trends or their sources of competitive advantage. In order to maximize the value of such strategic planning exercises, companies must balance the length of the horizons over which they plan and the extent to which plans are formalized with the need for agility and flexibility in today’s business environment. Long horizons and codified strategies cannot be an excuse for intransigence. They should be rigorously reviewed on an ongoing basis to ensure they incorporate ongoing developments and remain relevant over the long term. Achieving this balance lies at the core of long-term, sustainable value creation.”

The “current average American CEO’s tenure is six years”, having trended downward over the last forty years as “shareholders became increasingly focused on quarterly performance”.  Carlos Ghosn (CEO, Renault-Nissan-Mitsubishi Alliance) notes that – from his perspective – this is a “real problem” in light of the fact that “this is a typical time frame for the ‘revolutions’ that lead to industry dominance”:  in the current business environment, important strategy and long term “value-adding initiatives” are “simply impossible to see through to completion if you fire your CEO as soon as the company’s stock misses expectations”.[117] While he “considers quarterly results important”, this CEO “recognizes that when you are making investments for long-term industry success, you have to make sacrifices”. However, a CEO and their executive team cannot do this alone: CEO Ghosn complements his organization’s Board for their trust and support that allowed him to “do what’s necessary for leading ahead of massive shifts like the move to self-driving cars”.[118]

However, companies with headquarters in developing markets were significantly more likely to report increasing short-term pressure (82%) than their peers in Europe (64%) or North America (65%).[119] This is a worrisome trend in emerging market companies, as they have less established corporate governance procedures such that they may be even more vulnerable to such short-term pressure than their North American and European counterparts.[120]

Speaking up and taking a corporate leadership position beyond “short-term financial results” requires courage and conviction. There are no shortcuts to rebuilding trust and doing the right thing as corporate stewards of the organizations that executives and Boards represent and lead. Principled leadership and governance, long-term strategic planning and vision, and purpose are opportunities for corporations to dramatically differentiate themselves and drive sustainable long term value.

 [F]or the first time in the history of [the Edelman Trust Barometer, Global Annual] study, global companies headquartered in Canada are the most trusted in the world. We must leverage the attributes that have made Canadian companies so reputable in the first place – our values and sense of purpose – both domestically and on the global stage.

– Lisa Kemmel, President and CEO, Edelman Canada[121]

Short-Termism: A Primer

There are a number of drivers of ‘myopic short-termism”,^[122] including: (1) greater competition, (2) economic uncertainty, (3) higher earnings expectations from executive team and/or board, (4) vocal activist investors, and (5) less flexibility to manage earnings.[123] However, the core of the problem is the “continuing pressure on public companies from financial markets to maximize short-term results”:[124]

“[A]lthough some executives have managed to ignore this pressure, it’s unrealistic to expect corporate leaders to do so over time without stronger support from investors themselves. A crucial breakthrough would occur if the major players in the market, particularly the big asset owners, joined the fight—something we believe is in the best interests of their constituents.”

Most important, the dialogue has clarified for me the nature of the deep reform that I believe business must lead—nothing less than a shift from what I call quarterly capitalism to what might be referred to as long-term capitalism.

– Dominic Barton, Global Managing Partner, McKinsey & Company[125]

As noted by Dominic Barton, to break free of the “tyranny of short-termism”, leadership must start with those who provide capital.[126] Thankfully, the ongoing “corporate short-termism” debate was recently taken up – rather forcefully – by Laurence Fink, the chief executive at BlackRock, the world’s biggest investment firm with more than $6 trillion.[127]  In a 2016 letter to corporate chief executives this business leader addressed short-termism both in corporate America and Europe, and specifically recommended that CEOs and their executive leadership teams – including their Boards – must resist the “powerful forces of short-termism” and better articulate their plans for the future. This remarkable letter is printed in full below (emphasis added):[128]

“Over the past several years, I have written to the CEOs of leading companies urging resistance to the powerful forces of short-termism afflicting corporate behavior. Reducing these pressures and working instead to invest in long-term growth remains an issue of paramount importance for BlackRock’s clients, most of whom are saving for retirement and other long-term goals, as well as for the entire global economy.

While we’ve heard strong support from corporate leaders for taking such a long-term view, many companies continue to engage in practices that may undermine their ability to invest for the future. Dividends paid out by S&P 500 companies in 2015 amounted to the highest proportion of their earnings since 2009. As of the end of the third quarter of 2015, buybacks were up 27% over 12 months. We certainly support returning excess cash to shareholders, but not at the expense of value-creating investment. We continue to urge companies to adopt balanced capital plans, appropriate for their respective industries, that support strategies for long-term growth.

We also believe that companies have an obligation to be open and transparent about their growth plans so that shareholders can evaluate them and companies’ progress in executing on those plans.

We are asking that every CEO lay out for shareholders each year a strategic framework for long-term value creation. Additionally, because boards have a critical role to play in strategic planning, we believe CEOs should explicitly affirm that their boards have reviewed those plans. BlackRock’s corporate governance team, in their engagement with companies, will be looking for this framework and board review.

Annual shareholder letters and other communications to shareholders are too often backwards-looking and don’t do enough to articulate management’s vision and plans for the future. This perspective on the future, however, is what investors and all stakeholders truly need, including, for example, how the company is navigating the competitive landscape, how it is innovating, how it is adapting to technological disruption or geopolitical events, where it is investing and how it is developing its talent. As part of this effort, companies should work to develop financial metrics, suitable for each company and industry, that support a framework for long-term growth. Components of long-term compensation should be linked to these metrics.

We recognize that companies operate in fluid environments and face a challenging mix of external dynamics. Given the right context, long-term shareholders will understand, and even expect, that you will need to pivot in response to the changing environments you are navigating. But one reason for investors’ short-term horizons is that companies have not sufficiently educated them about the ecosystems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses.

Without clearly articulated plans, companies risk losing the faith of long-term investors. Companies also expose themselves to the pressures of investors focused on maximizing near-term profit at the expense of long-term value. Indeed, some short-term investors (and analysts) offer more compelling visions for companies than the companies themselves, allowing these perspectives to fill the void and build support for potentially destabilizing actions.

Those activists who focus on long-term value creation sometimes do offer better strategies than management. In those cases, BlackRock’s corporate governance team will support activist plans. During the 2015 proxy season, in the 18 largest U.S. proxy contests (as measured by market cap), BlackRock voted with activists 39% of the time.

Nonetheless, we believe that companies are usually better served when ideas for value creation are part of an overall framework developed and driven by the company, rather than forced upon them in a proxy fight. With a better understanding of your long-term strategy, the process by which it is determined, and the external factors affecting your business, shareholders can put your annual financial results in the proper context.

Over time, as companies do a better job laying out their long-term growth frameworks, the need diminishes for quarterly EPS guidance, and we would urge companies to move away from providing it. Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need. To be clear, we do believe companies should still report quarterly results – “long-termism” should not be a substitute for transparency – but CEOs should be more focused in these reports on demonstrating progress against their strategic plans than a one-penny deviation from their EPS targets or analyst consensus estimates.

With clearly communicated and understood long-term plans in place, quarterly earnings reports would be transformed from an instrument of incessant short-termism into a building block of long-term behavior. They would serve as a useful “electrocardiogram” for companies, providing information on how companies are performing against the “baseline EKG” of their long-term plan for value creation.

We also are proposing that companies explicitly affirm to shareholders that their boards have reviewed their strategic plans. This review should be a rigorous process that provides the board the necessary context and allows for a robust debate. Boards have an obligation to review, understand, discuss and challenge a company’s strategy.

Generating sustainable returns over time requires a sharper focus not only on governance, but also on environmental and social factors facing companies today. These issues offer both risks and opportunities, but for too long, companies have not considered them core to their business – even when the world’s political leaders are increasingly focused on them, as demonstrated by the Paris Climate Accord. Over the long-term, environmental, social and governance (ESG) issues – ranging from climate change to diversity to board effectiveness – have real and quantifiable financial impacts.

At companies where ESG issues are handled well, they are often a signal of operational excellence. BlackRock has been undertaking a multi-year effort to integrate ESG considerations into our investment processes, and we expect companies to have strategies to manage these issues. Recent action from the U.S. Department of Labor makes clear that pension fund fiduciaries can include ESG factors in their decision making as well. We recognize that the culture of short-term results is not something that can be solved by CEOs and their boards alone. Investors, the media and public officials all have a role to play. In Washington (and other capitals), long-term is often defined as simply the next election cycle, an attitude that is eroding the economic foundations of our country.

Public officials must adopt policies that will support long-term value creation. Companies, for their part, must recognize that while advocating for more infrastructure or comprehensive tax reform may not bear fruit in the next quarter or two, the absence of effective long-term policies in these areas undermines the economic ecosystem in which companies function – and with it, their chances for long-term growth.

…

Over the past few years, we’ve seen more and more discussion around how to foster a long-term mindset. While these discussions are encouraging, we will only achieve our goal by changing practices and policies, and CEOs of America’s leading companies have a vital role to play in that debate.

Corporate leaders have historically been a source of optimism about the future of our economy. At a time when there is so much anxiety and uncertainty in the capital markets, in our political discourse and across our society more broadly, it is critical that investors in particular hear a forward-looking vision about your own company’s prospects and the public policy you need to achieve consistent, sustainable growth. The solutions to these challenges are in our hands, and I ask that you join me in helping to answer them.”

Exceptional leaders have the ability to look into their company’s future and make clear, concrete goals that will benefit their organization. They are confident and optimistic, inspiring enthusiasm in those around them. Being a visionary is about managing change while striking a balance between stability and growth. You must incorporate new approaches without getting distracted from the main goals. Being a visionary means understanding that continuous change is occurring all around you, so what worked in the past may not always work now. Practice being adaptable and agile as you implement new strategies and allow your business model to evolve over time.[129]

Advocacy against short-termism is not new—a slew of articles over the past 5 years in publications from the Financial Times to the Harvard Business Review have established the contours and scale of this problem.

– Rising to the challenge of short-termism[130]

Corporate Social Purpose / Corporate Social Responsibility: A Primer

CEO acumen on public policy and business-in-society issues is essential in addressing fundamental corporate issues and business strategy – and the Board of Directors has an important role in assuring that the CEO brings these perspectives to their job.  The issues around which any particular business should engage will differ depending on the company and industry sector, but each has urgent issues that must be addressed.

When you start focusing on the long term and you really want to transform the company, investors are typically impatient. And they’re highly critical. If you are doing something truly strategic, it evokes criticism. They kept telling me, ‘Why are you Mother Teresa?’

–  Indra Nooyi, CEO PepsiCo[131]

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attack on business are turning a blind eye to impending forces that have the potential fundamentally to alter their strategic future.

In the world of business, the financial bottom-line and shareholder return on investment have long been the main drivers for companies in measuring their success. However, one of the paradoxes of business is that the most profitable companies are not those that are most profit-focused. The Harvard Business Review identifies the importance of corporate social purpose or responsibility (CSR), noting that “those companies able to harness the power of purpose to drive performance and profitability enjoy a distinct competitive advantage”.[132] This is a reprise of a 1994 study that found that companies — those guided by a purpose beyond just making money — returned six times more to shareholders than explicitly profit-driven rivals.[133]  In the same vein, the Boston Consulting Group conducted a comprehensive study of how companies are integrating the pursuit of societal impact into their strategies and operation:[134]

“Our study included a quantitative analysis of more than 300 companies, using metrics on company performance in environmental, social, and governance – commonly referred to as ESG – topics. … We found clear links between nonfinancial and financial performance. Our quantitative analysis showed that nonfinancial performance on certain ESG topics had statistically significant impact on company valuations and on margins.”

These findings provide a new guidepost to leaders, helping them identify industry-specific arears where they have the best opportunity to enhance both TSI (Total Societal Impact) and TSR (Total Shareholder Return).

– Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group[135]

Corporate social responsibility or purpose encompasses dual objectives—pursuing benefits for the business and for society.  Like business ethics, the term CSR is used in multiple, and not always compatible, senses. Definitions vary, and in fact many supposed definitions of CSR do not read like definitions at all. CSR may best be understood as the field that examines (and in some cases implements) a company’s social responsibilities—that is, its responsibilities not to particular stakeholders, but to society “as a whole”.[136]

CSR is about building trust and reputation by contributing to the health and welfare of the organization and society, operating transparently and ethically.[137] Three main factors support this shift:[138]

• Stakeholders (such as employees, customers, governments) are pressuring companies to play a more prominent role in addressing critical challenges – such as economic inclusion, climate change, diversity, and a secure retirement[139].
• Investors are increasingly focusing on companies’ social and environmental practices as evidence mounts that performance in those areas affects returns over the long term.
• Standards are being developed for which environmental, social, and governance (ESG) topics are financially material by industry, and data on company performance in these areas is becoming more available and reliable, increasing transparency and drawing more scrutiny.

Mr. Fink’s declaration is different because his constituency in this case is the business community itself. It pits him, to some degree, against many of the companies that he’s invested in, which hold the view that their only duty is to produce profits for their shareholders, an argument long espoused by economists like Milton Friedman.

– New York Times, Blackrock’s Message: Contribute to Society, or Risk Our Support[140]

“Trust, not money, is the currency of business” – generating “tangible business benefits, with measureable fiscal and non-fiscal impacts”.[141] In a follow up letter to chief executives of the world’s largest public companies this year, Laurence Fink of BlackRock expanded on his message in respect to “environmental, social and governance issues” and, in doing so, significantly contributed to the debate over corporate social responsibility. The BlackRock CEO’s letter was written in “the context society’s rising expectations for companies. People are demanding that companies have a social purpose and demonstrate leadership on key issues”. And, according to this business leader, “they are right to: without a sense of purpose, no company, either public or private, can achieve its full potential or meet its obligations to society”.[142] The BlackRock CEO’s letter may be a watershed moment on Wall Street, one that raises a number of questions about the CRA debate and reasonable expectations of capitalism[143] (emphasis added):[144]

“… Since the financial crisis, those with capital have reaped enormous benefits. At the same time, many individuals across the world are facing a combination of low rates, low wage growth, and inadequate retirement systems. Many don’t have the financial capacity, the resources, or the tools to save effectively; those who are invested are too often over-allocated to cash. For millions, the prospect of a secure retirement is slipping further and further away – especially among workers with less education, whose job security is increasingly tenuous. I believe these trends are a major source of the anxiety and polarization that we see across the world today.

We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate.

Without a sense of purpose, no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth. It will remain exposed to activist campaigns that articulate a clearer goal, even if that goal serves only the shortest and narrowest of objectives. And ultimately, that company will provide subpar returns to the investors who depend on it to finance their retirement, home purchases, or higher education.

… I have written before that companies have been too focused on quarterly results.

… companies must be able to describe their strategy for long-term growth. I want to reiterate our request, outlined in past letters, that you publicly articulate your company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by your board of directors. This demonstrates to investors that your board is engaged with the strategic direction of the company. When we meet with directors, we also expect them to describe the Board process for overseeing your strategy.

The statement of long-term strategy is essential to understanding a company’s actions and policies, its preparation for potential challenges, and the context of its shorter-term decisions. Your company’s strategy must articulate a path to achieve financial performance. To sustain that performance, however, you must also understand the societal impact of your business as well as the ways that broad, structural trends – from slow wage growth to rising automation to climate change – affect your potential for growth.

These strategy statements are not meant to be set in stone – rather, they should continue to evolve along with the business environment ….  [A] central reason for the rise of activism – and wasteful proxy fights – is that companies have not been explicit enough about their long-term strategies.

… it is your responsibility to explain to shareholders how major legislative or regulatory changes will impact not just next year’s balance sheet, but also your long-term strategy for growth. …

The board’s engagement in developing your long-term strategy is essential because an engaged board and a long-term approach are valuable indicators of a company’s ability to create long-term value for shareholders. Just as we seek deeper conversation between companies and shareholders, we also ask that directors assume deeper involvement with a firm’s long-term strategy. Boards meet only periodically, but their responsibility is continuous. Directors whose knowledge is derived only from sporadic meetings are not fulfilling their duty to shareholders. Likewise, executives who view boards as a nuisance only undermine themselves and the company’s prospects for long-term growth.

We also will continue to emphasize the importance of a diverse board. Boards with a diverse mix of genders, ethnicities, career experiences, and ways of thinking have, as a result, a more diverse and aware mindset. They are less likely to succumb to groupthink or miss new threats to a company’s business model. And they are better able to identify opportunities that promote long-term growth.

Furthermore, the board is essential to helping a company articulate and pursue its purpose, as well as respond to the questions that are increasingly important to its investors, its consumers, and the communities in which it operates. In the current environment, these stakeholders are demanding that companies exercise leadership on a broader range of issues. And they are right to: a company’s ability to manage environmental, social, and governance matters demonstrates the leadership and good governance that is so essential to sustainable growth ….

Companies must ask themselves: What role do we play in the community? How are we managing our impact on the environment? Are we working to create a diverse workforce? Are we adapting to technological change? Are we providing the retraining and opportunities that our employees and our business will need to adjust to an increasingly automated world? Are we using behavioral finance and other tools to prepare workers for retirement, so that they invest in a way that that will help them achieve their goals?”

It may be a watershed moment on Wall Street, one that raises all sorts of questions about the very nature of capitalism.

– New York Times, Blackrock’s Message: Contribute to Society, or Risk Our Support[145]

In this respect, the United Nations has implemented “sustainable development goals”[146] covering a broad range of social, environmental, and economic issues (i.e. gender equality, education, poverty, climate change, environment, etc). These goals came into effect on January 1, 2016 and – although not widely adopted by companies in North America yet – have been implemented by leading organizations in the Fortune Global 500 (such as Microsoft).  The research identifies links between having a sustainability strategy, goals and reports to improved financial performance:[147]

“[The Centre for Sustainability and Excellence] 2nd annual North America Sustainability Reporting research shows US lagging Europe despite better revenue returns for corporations with strong reporting practices. …  The most significant finding of Sustainability Reporting Trends in North America 2017 is that companies with the highest rankings on CSRHub had better financial performance than companies with lower rankings as indicated by revenue during the period 2014-2016.  These companies have recognized the importance of a comprehensive sustainability reporting strategy that includes goals, and externally assuring performance information and data. …

Adoption of the UN Sustainability Development Goals (SDGs) has proceeded slowly in North America. However, 41% of businesses are expected to embed SDGs into their strategy and business practices within five years, and 71% of businesses say they are already planning how they will incorporate the SDGs.”

Companies with an eye on their “triple bottom line”—economic, environmental and social sustainability—outperform their less fastidious peers on the stockmarket.

– The Economist[148]

Business leaders “should not fear their greater advocacy of the contract between business and society. More than two centuries ago, Rousseau’s social contract helped to seed the idea among political leaders that they must serve the public good, lest their own legitimacy be threatened. The CEOs of today’s big corporations should take the opportunity to consider, restate and reinforce their own social contracts in order to help secure, for the long term, the invested billions of their shareholders”.[149]

In 2017, the world’s top 100 companies with the best CSR reputations included Microsoft, IKEA Group, Campbell Soup Company, Siemens, Apple, and Unilever.[150]

The house burned in front of them but they wanted the data to prove it. That is the audacity and ridiculousness of making the business case: convincing one of the obvious. If the smoke doesn’t alarm you, the fire certainly should.

– Bernard Coleman III[151]

A Way Forward for Boards and CEOs

The issue of short-termism is “a serious indictment of the current corporate governance arrangements and” indeed “has important policy implications”.[152]

It’s about rewiring the fundamental ways we govern, manage, and lead corporations.… business and finance must jettison their short-term orientation and revamp incentives and structures in order to focus their organizations on the long term.

– Dominic Barton, Global Managing Partner, McKinsey & Company[153]

Studies and surveys clearly demonstrate that executives and Boards know they should lengthen their time horizons. The key to breaking the “negative feedback loop driving corporate short-termism” lies in empowering executives and directors to develop long-term strategies to manage these trends. Without that authority and support, uncertainty and competition can encourage short-term perspectives rather than reasons to develop a long-term approach.[154]

Stemming the rise in short-termism is difficult for corporations and their leadership teams to do on their own. If “industry peers” choose to respond to increased competition by striving to consistently hit short-term earnings targets (and perhaps sacrificing valuable opportunities in the process), it is challenging “for any one company to deviate without facing the ire of the market”.[155]

‘Every day we see CEOs fired because shares didn’t move in the last year. Short tenure is a big problem.’ However, CEO [Ghosn] predicted that [BlackRock CEO Larry] Fink’s letter will ‘spark change in the financial community’.

– Carlos Ghosn, CEO, Renault-Nissan-Mitsubishi Alliance [156]

The key message for Boards, CEOs and their executive leadership teams “is not only that the rewards from managing for the long term are enormous; it’s also that, despite strong countervailing pressures, real change is possible”.[157] From a governance perspective “the practical implications of company-centered governance are far-reaching. In Boardrooms adopting this approach, we would expect to see some or all of the” following “features”:[158]

• Greater likelihood of a staggered board to facilitate continuity and the transfer of institutional knowledge.
• More board-level attention to succession planning and leadership development.
• More board time devoted to strategies for the company’s continuing growth and renewal.
• Closer links between executive compensation and achieving the company’s strategic goals.
• More attention to risk analysis and political, social, and environmental uncertainty.
• A strategic (rather than narrowly financial) approach to resource allocation.
• A stronger focus on investments in new capabilities and innovation.
• More-conservative use of leverage as a cushion against market volatility.
• Concern with corporate citizenship, social responsibility, and ethical issues that goes beyond legal compliance.

Going forward, steps need to be taken in respect to policies such as executive compensation and tenure, aligning incentives to long-term financial performance (ie. most compensation packages are not linked to long-term value creation and skillful management of long-term risks, but rather quarterly or annual bottom line performance);[159] on strategic planning, where companies can develop long-term plans to unlock value and align them with articulated views on their vision, competitive advantage(s), and other long-term elements of strategy; and on how companies engage their shareholder (investor) bases, focusing conversations on long-term value creation rather than quarterly results.[160]

A company’s financial performance and well-being is always regarded as one of the most important benchmarks and concerns for its Board, CEO and executive leadership team. As such, it is important to address the benefits that any proposed long-term course of action offers the company. Bottom-line financial evidence is important, and may be appropriately enhanced if there is also a natural link between a proposed corporate action and a corporate social purpose (i.e. through indirect measures of productivity, cost savings, reduction of risks, opportunities for innovation and capture of new markets, etc). Benefits of adopting a CSR sustainability initiative include: (a) opportunities to differentiate from competitors; (b) building trust and brand reputation value; and (b) a strong correlation with creating improved financial performance[161] in profits and business opportunities.[162]

The Strategic Investor Initiative have recommended a series of questions to help executive leadership teams and Boards to discuss, develop, and articulate an appropriate strategic framework for long term value creation:[163]

(a) What are the key risk factors and mega-trends your business faces over the next three to seven years, and how have these influenced corporate strategy?

(b) How do you identify your financially material business issues and which frameworks do you use for reporting on these issues?

(c) How do you describe your corporate purpose and how do you help your employees share your vision for the company’s role in society?

(d) How do you manage your future human capital requirements over the long-term and how do you communicate your future human capital management to your investors?

(e) What is the corporation’s framework or strategy for interacting with its shareholders and key stakeholders?

(f) How will the composition of your board (today and in the future) help guide the company to its long-term strategic goals?

(g) What is the role of the board in setting corporate strategy, setting incentives for and overseeing management?

As the conclusion of this type of exercise, the final documented corporate long-term strategy for the organization should include, at minimum, the following elements:[164]

1. Clear statement of purpose, mission, and vision.
2. Explanation of how the company’s business model creates long-term value by identifying key value drivers at the reporting unit level.
3. Management’s view of the market, major trends impacting the market, potential for growth, the company’s relative positioning, and underlying assumptions (e.g., macroeconomic factors).
4. The sources of competitive advantage (i.e. talent, access to resources, or other assets) that enable the company to execute its strategy and win in the marketplace, clearly substantiated by fact.
5. Disclosure of strategic goals ultimately tied to drivers of value creation (e.g., returns on invested capital, organic revenue growth) in the context of current and future market trends, and the company’s competitive advantage.
6. Detailed execution roadmap that defines short-, medium-, and long-term actions linked to key milestones and strategic goals targeted at long-term value creation (note: with the ability to pivot as may be required in response to changing environments /unforeseen circumstances).
7. Medium- and long-term metrics and targets that indicate the company’s ability to deliver on its strategy (i.e. customer satisfaction over time, brand strength, product pipeline investment and returns). Explanation of how the selected metrics will be measured and tracked consistently.
8. Explanation of how capital and non-capital investments, including the mix of resource allocation, will yield sustained competitive advantage and the creation of long-term value.
9. Overview of risks and their mitigation plans, including sustainability challenges (e.g., environmental, social, and governance issues).
10. Articulation of how executive and director compensation tie to long-term value creation and strategic goals.

In transitioning to long-termism, it is important to incorporate long-term metrics, “which should be viewed as equal in importance to GAAP financial measures”. This requires moving beyond traditional sustainability or ESG (environmental, social, and governance) key performance indicators – that measure past performance – and embracing a greater focus on evaluating long-term planning and future-oriented KPIs, metrics, and targets that measure long-term value creation.[165]

From a public policy perspective, good corporate governance would suggest that CEOs and their executive leadership teams should publicly articulate their company’s strategic framework for long-term value creation and explicitly affirm that it has been reviewed by their board of directors. The board’s engagement in developing long-term strategy is essential – an engaged board and a long-term approach are valuable indicators of a company’s ability to create long-term sustainable value for not just shareholders, but all stakeholders. Board accountability is crucial.[166]

A company-centered model of governance would not relieve corporations of the need to provide a return over time that reflected the cost of capital. But they would be open to a wider range of strategic positions and time horizons and would more easily attract investors who shared their goals.

–  Harvard Business Review[167]

Conclusion

Increasingly corporate executives, managers, and their employees are articulating a desire to be identified with an organization that stands for something more than quarterly earnings. They want to work for an organization whose values align with their own. They want to take pride in what they produce. They want to admire the people with whom they work.[168] The problem is the fear that employees have that the business is “only interested in talking to shareholders, and not to employees about their jobs”[169] and their concerns (for example secure pensions), making things worse in respect to the growing trust gap.

Trust is … a critical factor of companies’ license to operate and is increasingly on the attention of business leaders.

– Rob Peters, Standard of Trust Leadership: A Clear Business Case for Trust[170]

Businesses need to show “they are listening to the wishes of their employees, customers, and other stakeholders, and are acting on them. They should show they are not just concerned about short-term profits, but about issues that matter in the ‘real’ world”.[171] “Corporate short-termism” has been the subject of ongoing debate among leaders in business, government, and academia for decades.  In this respect, UK Prime Minister Theresa May recently stated in respect to private sector ‘pension abuse’:[172]

[A] free society – and a free market – only works when everyone plays by the same rules. While I don’t believe the government should involve itself in the day-to-day management of businesses, the state can and should help to rebalance the system in favour of ordinary working people. …

In the spring, we will set out new tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end. …

By this time next year, all listed companies will have to … explain how they take into account their employees’ interests at board level, giving unscrupulous employers nowhere to hide.

And, for the first time, businesses will have to demonstrate that they have taken into account the long-term consequences of their decisions. Too often, we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success. Our best businesses know that is not a responsible way to run a company and those who do so will be forced to explain themselves. …

[E]very successful business is built on a thriving, supportive society. But that support is conditional – it can only exist as long as we all playing by the same rules.

As prime minister, I’m determined to ensure we do – to level the playing field….”

Society is demanding that companies, both public and private, serve a social purpose … To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.

– New York Times, Blackrock’s Message: Contribute to Society, or Risk Our Support[173]

Companies have long focused on maximizing total shareholder return for investors over other stakeholders.[174]  For corporate leadership to win the trust issue in these trying times will take a genuine reinvention of the way many organizations operate – an emphasis on the issue as a strategic priority is required, or risk the serious consequences.[175] At the end of the day, business must demonstrate a genuine commitment to the long term.[176] And, this will require corporations and their executive leadership teams to articulate their long-term thinking, and set out in writing their long-term plans – reviewed and approved by their Boards.

There are important policy implications here for government, corporate leaders, and academics. There is a need to develop thoughtful and effective public policy. Legislative reform is taking “a stronger hold in the U.K. and Europe”, while in the U.S. “leading American companies and institutional investors are pushing for a private sector solution to increase long-term economic growth”.[177] A serious review of the UK’s pending white paper[178] – due in March 2018 – will likely be on the agenda of policymakers in many jurisdictions across the world, including Canada, Australia, and the United States.

And, for the first time, businesses will have to demonstrate that they have taken into account the long-term consequences of their decisions. Too often, we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success. Our best businesses know that is not a responsible way to run a company and those who do so will be forced to explain themselves.

– UK Prime Minister, Theresa May[179]

Now is the time to challenge the “shareholder owner” based model of corporate governance – “its mantra of maximizing shareholder value is distracting companies and their leaders from the innovation, strategic renewal, and investment in the future that require their attention”[180] for the benefit of all stakeholders.

Eric Sigurdson

 

Endnotes:

[1] For example: M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017:

“In addition to innovative alternatives, numerous institutional investors and corporate governance thought leaders are rethinking the mainstream relationship between all boards of directors and institutional investors to promote a healthier focus on long-term investment. While legislative reform has taken a stronger hold in the U.K. and Europe, leading American companies and institutional investors are pushing for a private sector solution to increase long-term economic growth. Common sense Corporate Governance Principles and The New Paradigm: A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth were published in hopes of recalibrating the relationship between boards and institutional investors to protect the economy against the short-term myopic approach to management and investing that promises to impede long-term economic prosperity. Under a similar aim, the Investor Stewardship Group published its Stewardship Principles and Corporate Governance Principles, set to become effective in January 2018, to establish a framework with six principles for investor stewardship and six principles for corporate governance to promote long-term value creation in American business. A Synthesized Paradigm for Corporate Governance, Investor Stewardship, and Engagement provides a synthesis of these and others in the hope that companies and investors would agree on a common approach. In fact, over 100 companies to date have signed The Compact for Responsive and Responsible Leadership: A Roadmap for Sustainable Long-Term Growth and Opportunity, sponsored by the World Economic Forum, which includes the key features of The New Paradigm.

Similarly, the BlackRock Investment Stewardship team has proactively outlined five focus areas for its engagement efforts: Governance, Corporate Strategy for the Long-Term, Executive Compensation that Promotes Long-Termism, Disclosure of Climate Risks, and Human Capital Management. BlackRock’s outline reflects a number of key trends, including heightened transparency by institutional investors, more engagement by “passive” investors, and continued disintermediation of proxy advisory firms. In the United Kingdom, The Investor Forum was founded to provide an intermediary to represent the views of its investor members to investee companies in the hope of reducing activism, and appears to have achieved a successful start.

Similarly, in June 2017, the Coalition for Inclusive Capitalism and Ernst & Young jointly announced the launch of a project on long-term value creation. Noting among other elements that trust and social cohesion are necessary ingredients for the long-term success of capitalism, the project will emphasize reporting mechanisms and credible measurements supporting long-term value, developing and testing a framework to better reflect the full value companies create beyond simply financial value. There is widespread agreement that focusing on long-term investment will promote long-term economic growth. The next step is a consensus between companies and investors on a common path of action that will lead to restored trust and cohesion around long-term goals.”

[2] Dominic Barton and Mark Wiseman, Focusing Capital on the Long Term, Harvard Business Review, January-February 2014; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Where companies with a long-term view outperform their peers, McKinsey Global Institute, February 2017; M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017.

[3] S&P Dow Jones Indices (sponsored content), Long-Termism Versus Short-Termism: Time for the Pendulum to Shift?, Institutional Investor, June 13, 2016; Roger L. Martin, Yes, Short-Termism Really Is a Problem, Harvard Business Review, October 9, 2015.

[4] Corporate social responsibility (CSR) and its many other names: Corporate responsibility, sustainability, corporate social responsibility, sustainable development, corporate accountability, creating shared value, citizenship, and just plain social responsibility or social purpose.

[5] Andrew Hill, Why we should all feel sorry for corporate leaders, Financial Times, November 19, 2017.

[6] Roger L. Martin, Yes, Short-Termism Really Is a Problem, Harvard Business Review, October 9, 2015; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[7] See for example, Martin Lipton, Steven Rosenblum, Sabastian Niles, Sara Lewis, and Kisho Watanabe, The New Paradigm, A Roadmap for an Implicit Corporate Governance Partnership Between Corporations and Investors to Achieve Sustainable Long-Term Investment and Growth, International Business Council of the World Economic Forum, September 2, 2016; M. Lipton, Some Thoughts for Boards of Directors in 2017, Harvard Law School Forum on Corporate Governance and Financial Regulation, December 2016; Lawrence Summers, The jury is still out on corporate short-termism, Financial Times, February 9, 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[8] Mindy Lubber, Ending Quarterly Capitalism, Forbes, February 21, 2012; Dominic Barton and Mark Wiseman, Focusing Capital on the Long Term, Harvard Business Review, January-February 2014.

[9] Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Where companies with a long-term view outperform their peers, McKinsey Global Institute, February 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017. Also see, M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017; M. Lipton, Some Thoughts for Boards of Directors in 2016, Harvard Law School Forum on Corporate Governance and Financial Regulation, December 2015:

“In response to short-termist pressures brought by hedge funds and activist shareholders, companies have been fundamentally altering their business strategies to forego long-term investments in favor of stock buybacks, dividends and other near-term capital returns. At this point, theoretical debates about the pros and cons of a shareholder-centric governance model have been superseded by observable, quantifiable trends and behaviors. For example, according to Standard & Poor’s, dividends and stock buybacks in the U.S. totaled more than $900 billion in 2014—the highest level on record, and last December, a Conference Board presentation compiled data demonstrating that capital investment by U.S. public companies has decreased and is less than that of private companies.

Against this backdrop, however, there have recently been signs of a growing recognition that the current status quo presents a cognizable, systemic threat to the sustainability and future prosperity of the American economy.”

[10] M. Lipton, Some Thoughts for Boards of Directors in 2016, Harvard Law School Forum on Corporate Governance and Financial Regulation, December 2015.

[11] M. Lipton, Some Thoughts for Boards of Directors in 2017, Harvard Law School Forum on Corporate Governance and Financial Regulation, December 2016.

[12] Dominic Barton, Capital for the Long Term, Harvard Business Review, March 2011. M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017:

“The primacy of shareholder value as the exclusive objective of corporations, as articulated by Milton Friedman and then thoroughly embraced by Wall Street, has come under scrutiny by regulators, academics, politicians and even investors. While the corporate governance initiatives of the past year cannot be categorized as an abandonment of the shareholder primacy agenda, there are signs that academic commentators, legislators and some investors are looking at more nuanced and tempered approaches to creating shareholder value.

In his 2013 book, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It, and a series of brilliant articles and lectures, Colin Mayer of the University of Oxford has convincingly rejected shareholder value primacy and put forth proposals to reconceive the business corporation so that it is committed to all its stakeholders, including the community and the general economy. His new book, Prosperity: Better Business Makes the Greater Good, to be published by Oxford University Press in 2018, continues the theme of his earlier publications and will be required reading.”

[13] Dominic Barton and Mark Wiseman, Focusing Capital on the Long Term, Harvard Business Review, January-February 2014.

[14] Martin Reeves and Lisanne Puschel, Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations, Boston Consulting Group (BCG), December 2, 2015.

[15] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com.

[16] Richard Feloni, The CEO of the world’s largest automotive company sees a ‘real problem’ holding companies back, Business Insider, February 8, 2018. Also see, Mindy Lubber, Ending Quarterly Capitalism, Forbes, February 21, 2012.

[17] Martin Reeves and Lisanne Puschel, Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations, Boston Consulting Group (BCG), December 2, 2015.

[18] Martin Reeves and Lisanne Puschel, Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations, Boston Consulting Group (BCG), December 2, 2015. Also see, Julie Bort, Retiring Cisco CEO delivers dire prediction: 40% of companies will be dead in 10 years, Business Insider, June 8, 2015.

[19] Lawrence Summers, The jury is still out on corporate short-termism, Financial Times, February 9, 2017. Also see, Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[20] Per-Ola Karlsson, DeAnne Aguirre, and Kristin Rivera, Are CEOs Less Ethical Than in the Past?, Strategy and Business, May 15, 2017:

1. Organizational and external influences. Unethical behavior is typically triggered by some kind of pressure or incentive. Financial pressures (such as bonus packages or stock options) are often assumed to be the primary driver of bad behavior. But this is a misconception. Rather, social pressures tend to create larger problems. Employees and managers may be unwilling to admit they can’t meet performance targets. An organization that prides itself on never missing a quarterly earnings target, for example, may inadvertently create this kind of pressure.
2. Business processes. Weak business practices or lax financial controls create opportunities for unethical behavior. Most large companies in developed countries have robust financial controls, and these have been strengthened over the last two decades by the requirements of the Sarbanes-Oxley Act in the U.S. and similar laws elsewhere.
3. Individual ethical decision making.  Employees who break the rules must first convince themselves that their actions are justifiable, a process known as rationalization. In some cases, they feel they have no alternative if they are to keep their job or meet their performance targets. In other cases, they convince themselves that their conduct isn’t really wrong, or that it is justified because the organization’s culture or leadership implicitly condones it.

Also see: Ivy Walker, Ethikos Classic: Following the Boss’s Orders Might Land You in Jail, Compliance and Ethics.org, May 23, 2017 (reprinted from Classic Ethikos, The Journal of Practical Business Ethics, July/August 2016); Michael Hiltzik, At United Airlines and Wells Fargo, toxic corporate culture starts with the CEO, Los Angeles Times, April 11, 2017;  Susan Ochs, The Leadership Blind Spots at Wells Fargo, Harvard Business Review, October 6, 2016 (“The post-scandal scrutiny of Wells Fargo’s culture has so far focused on the high-pressure sales environment that drove employees to create as many as two million fake accounts. Former employees have alleged a “soul-crushing” culture of fear and daily intimidation by managers, where they were pressured to reach extreme sales goals, some by breaking the law.”).

[21] Rita Trehan, Avoiding Corporate Scandals, theCsuite.co.uk, November 28, 2016. Also see, Kate Isaacs, David Langstaff, and Russell Eisenstat, 4 Ways CEOs Can Conquer Short-Termism, Harvard Business Review, February 24, 2017; Matt Turner, Here is the Letter the world’s largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere, Business Insider, February 2, 2016 (“Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”); Dan Cable and Freek Vermeulen, Stop Paying Executives for Performance, Harvard Business Review, February 23, 2016; Greg Keenan, Air Canada stock drops after CEO challenges ‘short-term investors to sell, Globe and Mail, February 17, 2016; Seymour Bruchman and Blair Jones, When Did Long-term Incentives Become so Short-term?, Semler Insight (Semler Brossy), June 2016.

[22] Roger Trapp, Leaders Seeking Wisdom Need an Ethical Dimension, Forbes, January 31, 2018; Amrop 2017 Leadership Study, Wise Decision-Making: Stepping Up to Sustainable Business Performance, amrop.com.

[23] Bill McNabb, Strategic Investor Initiative Advisory Board Co-Chair, CECP.co. [CECP is a CEO led coalition that believes that a company’s social strategy — how it engages with key stakeholders including employees, communities, investors, and customers —determines company success. Founded in 1999 by actor and philanthropist Paul Newman and other business leaders to create a better world through business, CECP has grown to a movement of more than 200 of the world’s largest companies that represent $7 trillion in revenues, $18.6 billion in societal investment, 13 million employees, and $15 trillion in assets under management. CECP helps companies transform their social strategy by providing customized connections and networking, counsel and support, benchmarking and trends, and awareness building and recognition]. Also see, Brian Tomlinson and Mark Tulay, 7 questions every CEO should be able to answer, WEForum.org, February 6, 2018.

[24] Kate Isaacs, David Langstaff, and Russell Eisenstat, 4 Ways CEOs Can Conquer Short-Termism, Harvard Business Review, February 24, 2017.

[25] Companies reward their shareholders in two main ways — by paying dividends or buying back their shares. Paying dividends and buying back shares can significantly boost shareholder returns.

[26] Rob Davies, Carillion ignored warnings about pensions, documents reveal, The Guardian, February 5, 2018; Hallie Detrick, What You Need to Know about the Collapse of Carillion, a UK Construction Giant, Fortune, January 15, 2018; Alexadra Richards, Prime Minister to stop private sector ‘pension abuse’ in the wake of Carillion collapse, Evening Standard, January 21, 2018;  Kimikode Freytas-Tamura, Collapse of U.K. Construction Giant Rattles the Government, New York Times, January 15, 2018; Theresa May, Boardroom excesses can no longer be tolerated. The economy has to work for all, The Guardian, January 20, 2018:

“[A] free society – and a free market – only works when everyone plays by the same rules. While I don’t believe the government should involve itself in the day-to-day management of businesses, the state can and should help to rebalance the system in favour of ordinary working people. …

In the spring, we will set out new tough new rules for executives who try to line their own pockets by putting their workers’ pensions at risk – an unacceptable abuse that we will end. …

By this time next year, all listed companies will have to … explain how they take into account their employees’ interests at board level, giving unscrupulous employers nowhere to hide.

And, for the first time, businesses will have to demonstrate that they have taken into account the long-term consequences of their decisions. Too often, we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success. Our best businesses know that is not a responsible way to run a company and those who do so will be forced to explain themselves.

The state also has a role to play when things go wrong and companies fail, as Carillion did last week. Not by bailing out the directors with a blank cheque – it will be the shareholders of Carillion, not taxpayers, who pay the price for the company’s collapse – but by stepping in and supporting those affected. …

[E]very successful business is built on a thriving, supportive society. But that support is conditional – it can only exist as long as we all playing by the same rules.

As prime minister, I’m determined to ensure we do – to level the playing field and stand up to the small minority of businesses that give the majority a bad name.”

[27] Sophia Harris, Sears pensioners try to recoup missing money by going after billions paid to shareholders, CBC.ca, February 13, 2018; Lauren Thomas, Sears CEO under pressure from Sears Canada creditors as retirees seek pension funds, CNBC.com, February 12, 2018; F. Kopun, Will 16,000 Sears Canada retirees see their pensions?: Sears Canada paid millions in dividends while its pension went underfunded. Now the former employees may end up paying the price, Toronto Star, Jan. 20, 2018:

“In 2005, U.S. hedge fund manager Edward Lampert gained control of Sears Roebuck in the U.S., becoming the controlling shareholder of Sears Canada. He would retain a controlling interest in Sears Canada, through Sears Holdings and later through his hedge fund, ESL & Associates, that has fluctuated, but which continues to this day.

Between Dec. 9, 2005 and Dec. 9, 2013, Sears Canada paid $3.4 billion in dividends to shareholders, including $2 billion in 2005, $377 million in 2010, $102 million in 2012 and $509 million in 2013.

The dividends were being funded by the sale of some of the company’s most important assets, including the Sears Credit and Financial Services operations, which was profitable and contributed a large portion of Sears Canada’s total earnings. It was sold for $2.4 billion in 2005. Sears sold leases to flagship stores in Toronto, Calgary and Vancouver.

Same-store sales dropped every year after 2005. Operating income dropped every year after 2007, swinging to losses in 2011 that deepened annually.

Between 2005 and 2011, the average dividend yield for Sears shareholders was 17.8 per cent, compared to the average dividend yield of approximately 3 per cent for companies on the TSX.

In a letter dated Jan 20, 2014, the lawyer representing pensioners put the issue to Sears Canada this way:

“The substance of Sears Canada’s management conduct is asset stripping, and has resulted in a company with negative operating earnings and cash flow and deteriorating key performance measures.

“Sears is on a path where it will not have sufficient cash to meet its funding obligations under the Sears Canada Plan and retiree benefit plans.”

The fact that Sears was selling off assets to pay handsome dividends to shareholders has raised the question of governance. The dividend payments were approved by a board of directors.”

[28] Global Pension Ponzi – Carillion Collapse One of Many to Come, Zero Hedge.com, January 22, 2018; Attracta Mooney, US and Europe have world’s worst-funded corporate pension schemes, Financial Times, September 9, 2017; Terry Savage, Coming Pension Defaults, Huffington Post, January 4, 2018.

[29] Jesse M. Fried (Harvard Law School) and Charles C.Y. Wang (Harvard Business School), Short-Termism and Capital Flows, Working Paper 17-062, 2017:

“As the debate over short-termism continues to intensify, market participants and policymakers have increasingly focused on what is seen as a major market-wide symptom of activism-induced short-termism: the distribution of large amounts of cash to shareholders through share repurchases and dividends.

Much of the focus on shareholder payouts is due to the work of economist William Lazonick, who has repeatedly and forcefully argued that these shareholder payouts—and buybacks in particular—impair firms’ ability to invest, innovate, and provide good wages. In the introduction to his most well-known work, an influential 2014 Harvard Business Review article entitled “Profits Without Prosperity,” Lazonick set out his main claim: “Corporate profitability is not translating into widespread economic prosperity. The allocation of corporate profits to stock buy-backs deserves much of the blame.”

Also see: M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017.

[30] Martin Reeves and Lisanne Pushchel, Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations, Boston Consulting Group (BCG), December 2, 2015. See, Richard Clough, General Electric may be headed for a breakup as company takes $6.2B hit, Financial Post, January 16, 2018; Hallie Detrick, What You Need to Know about the Collapse of Carillion, a UK Construction Giant, Fortune, January 15, 2018; Lauren Thomas, Bankruptcies will continue to rock retail in 2018. Here’s what you need to watch, CNBC.com, December 13, 2017; Vince Martin, 9 Companies that Might not Survive to see 2018, InvestorPlace.com, June 30, 2017.

[31] Alison Randel, Companies are cutting their lifespans in half by ignoring one type of employee, Quartz, March 28, 2017.

[32] Interesting introductory phrase, see: Alison Randel, Companies are cutting their lifespans in half by ignoring one type of employee, Quartz, March 28, 2017; Martin Reeves and Lisanne Puschel, Die Another Day: What Leaders Can Do About the Shrinking Life Expectancy of Corporations, Boston Consulting Group (BCG), December 2, 2015.

[33] Dominic Barton, James Manyika, and Sarah Keohane Williamson, Finally, Evidence that Managing for the Long Term Pays Off, Harvard Business Review, February 7, 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[34] Alexander F. Brigham and Stefan Linssen, Your Brand Reputational Value is Irreplaceable. Protect It, Forbes, February 1, 2010; Deepa Prahalad, Why Trust Matters More than Ever for Brands, Harvard Business Review, December 8, 2011; 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com. Also see, Protecting Brand and Reputation: Getting it Right from the Get Go, Wall Street Journal, September 19, 2016 [sponsored content from Deloitte]; Linda Fisher Thornton, 7 Reasons Ethics Matters in Brand Value, Leading in Context.com, June 6, 2012; What is your company’s reputational value, Deloitte, 2015; Sandra Macleod, Measuring and Managing Brand Reputation: How CSR and Other Factors Influence Reputational Value, Sustainable Brands.com, December 7, 2016; Kate Hilpern, How to measure brand value, Raconteur, April 28, 2015; Reputation’s Role in Unlocking Brand Value, Nielsen.com, March 12, 2015.

[35] Lisa Kimmel, Canadians want CEOs to step up. Will they? (Op-ed), Globe and Mail, February 14, 2018.

[36] Bill McFarland, What’s on the minds of Canadian CEOs in 2018?, LinkedIn, February 12, 2018.

[37] Ciarán Fenton, Can the FRC create a Phoenix from Carillion’s ashes?, LinkedIn, January 31, 2018. (referring to “the Financial Reporting Council’s proposed new governance code hosted by PWC, under Chatham House Rules”).

[38] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com; 2017 Edelman Trust Barometer, Global Annual Study, Edelman.com.

[39] Reputation strategists often liken brand to a promise and say reputation is what you earn by keeping the promise (or what you lose by breaking it). A respected brand can burnish a company’s reputation. But when a brand sours, reputation suffers. – Building a Corporate Reputation of Integrity, Ethics Resource Center (www.ethics.org/fellows), 2011.

[40] Casimiro Almeida M. Graca, Coelho Arnaldo, The role of corporate reputation on co-operants behavior and organizational performance, Journal of Management Development, Vol. 35 Issue: 1, pp.17-37, 2016.

David Wilkinson, Does the reputation of your organisation make any practical difference to its employees?, The Oxford Review, January 2016 (“the reputation of the organisation also predicts the longer-term performance of the organisation”).

[41] WEF Leadership (Trust and Performance Equation Project prepared in collaboration with PwC), The Evolution of Trust in Business: From Delivery to Values, World Economic Forum, January 2015; David Horsager, Trust Edge, 2012; Joachim Klewes and Robert Wreschniok, editors, Reputation Capital: Building and Maintaining Trust in the 21^st Century, 2009. Also see, Leeora Black and Sara Bice, Defining the Elusive and Essential Social Licence to Operate, ACCSR.com.au, 2011.

What is the definition of the ‘social licence to operate’? At ACCSR we use the definition developed by Robert Boutilier and Ian Thomson, a Canadian consultant. The social licence is the level of acceptance or approval continually granted to an organisation’s operations or project by local community and other stakeholders. It has four levels from lowest to highest: withdrawal, acceptance, approval and psychological identification. Most companies or projects are in the acceptance or approval range most of the time. It can vary across time or between stakeholder groups in response to actions by the company and/or its stakeholders.

What’s the difference between the social licence and reputation? The social licence is a perception of legitimacy – does the company go about its business in a proper way? Reputation is the overall favourability of the image of a company or project. Think of reputation as more ‘affective’; it’s more of an emotional like and dislike.   But the social licence and reputation operate through the same channels; they spread in the same ways, through interactions with and between stakeholders. …

 Does the idea of the social licence embody a fundamental shift in the power relationship between companies and communities? The social licence to operate reminds communities that they do have collective power. When companies use the term, ‘social licence’, they are acknowledging the power communities have. When communities talk about a company’s social licence to operate, it makes their power more explicit. What’s interesting is that, although the social licence has only recently materialised in the mainstream amongst major companies, it’s an idea which has been central to the success of democratic societies since at least the 18^th century, so perhaps it’s uptake is not so much about a power shift as an active recognition of what we’ve known for a very long time.”

Also see, Building a Corporate Reputation of Integrity, Ethics Resource Center (www.ethics.org/fellows), 2011 – “Some commentators have suggested a good reputation provides a company with the social license to operate.”

[42] Company stakeholders: A stakeholder is a party that has an interest in a company, and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees and customers. However, the modern theory of the idea goes beyond this original notion to include additional stakeholders such as a community, government or trade association. [Investopedia.com and Wikipedia]

 Primary Stakeholders – usually internal stakeholders, are those that engage in economic transactions with the business. (For example stockholders, customers, suppliers, creditors, and employees).

Secondary Stakeholders – usually external stakeholders, are those who – although they do not engage in direct economic exchange with the business – are affected by or can affect its actions (for example the general public, government, communities, activist groups, business support groups, and the media).

Also see: M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017:

“In his 2013 book, Firm Commitment: Why the Corporation is Failing Us and How to Restore Trust in It, and a series of brilliant articles and lectures, Colin Mayer of the University of Oxford has convincingly rejected shareholder value primacy and put forth proposals to reconceive the business corporation so that it is committed to all its stakeholders, including the community and the general economy. His new book, Prosperity: Better Business Makes the Greater Good, to be published by Oxford University Press in 2018, continues the theme of his earlier publications and will be required reading.”

[43] Lisa Kimmel, Canadians want CEOs to step up. Will they? (Op-ed), Globe and Mail, February 14, 2018.

[44] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com. Also see, Deepa Prahalad, Why Trust Matters More than Ever for Brands, Harvard Business Review, December 8, 2011

[45] Barbara White-Sax, How ethics bring unprecedented value to your organization, PRWeek.com, January 8, 2018.

[46] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com; 2018 Edelman Trust Barometer, Global Annual Study, Edelman.com

[47] 2017 Edelman Trust Barometer, Global Annual Study, Edelman.com.

[48] Mindy Lubber, Ending Quarterly Capitalism, Forbes, February 21, 2012.

[49] For example: Nationally and internationally there are challenges of extraordinary scale and complexity – the economy (economic insecurity, globalization, technology and trade), human rights (racism), environmental protection (global warming, pollution, global water crisis/drought), civil liberties, national security and terrorism and war (nuclear proliferation), corporate governance and tax avoidance, civil and criminal justice, global population growth, immigration and demographic change, cultural change, and entrenched poverty (wealth and income inequality, hunger/food security, medical care, education).

[50] Harvard Business Review, The ‘Business in Society’ Imperatives for CEOs, Global Advisors, December 20, 2016. Also see, for example: Ian Davis, Business and Society: The biggest contract – building social issues into strategy, big business can recast the debate about its role, The Economist, May 26, 2005.

[51] S&P Dow Jones Indices (sponsored content), Long-Termism Versus Short-Termism: Time for the Pendulum to Shift?, Institutional Investor, June 13, 2016; Roger L. Martin, Yes, Short-Termism Really Is a Problem, Harvard Business Review, October 9, 2015.

[52] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017:

“The ideas underlying the agency-based model can be found in Milton Friedman’s well-known New York Times Magazine article of 1970 denouncing corporate “social responsibility” as a socialist doctrine. Friedman takes shareholders’ ownership of the corporation as a given. He asserts that “the manager is the agent of the individuals who own the corporation” and, further, that the manager’s primary “responsibility is to conduct the business in accordance with [the owners’] desires.” He characterizes the executive as “an agent serving the interests of his principal.” These ideas were further developed in the 1976 Journal of Financial Economics article “Theory of the Firm,” by Michael Jensen and William Meckling, who set forth the theory’s basic premises:

• Shareholders own the corporation and are “principals” with original authority to manage the corporation’s business and affairs.
• Managers are delegated decision-making authority by the corporation’s shareholders and are thus “agents” of the shareholders.
• As agents of the shareholders, managers are obliged to conduct the corporation’s business in accordance with shareholders’ desires.
• Shareholders want business to be conducted in a way that maximizes their own economic returns. (The assumption that shareholders are unanimous in this objective is implicit throughout the article.)”

[53] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017:

“The Model’s Flaws: Let’s look at where these ideas go astray.

1. Agency theory is at odds with corporate law: Legally, shareholders do not have the rights of “owners” of the corporation, and managers are not shareholders’ “agents.” …
2. The theory is out of step with ordinary usage: Shareholders are not owners of the corporation in any traditional sense of the term, nor do they have owners’ traditional incentives to exercise care in managing it. …
3. The theory is rife with moral hazard: Shareholders are not accountable as owners for the company’s activities, nor do they have the responsibilities that officers and directors do to protect the company’s interests. …
4. The theory’s doctrine of alignment spreads moral hazard throughout a company and narrows management’s field of vision. …
5. The theory’s assumption of shareholder uniformity is contrary to fact: Shareholders do not all have the same objectives and cannot be treated as a single “owner.” ….”.

[54] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017.

[55] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017.

[56] Company stakeholders: A stakeholder is a party that has an interest in a company, and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees and customers. However, the modern theory of the idea goes beyond this original notion to include additional stakeholders such as a community, government or trade association. [Investopedia.com and Wikipedia]

 Primary Stakeholders – usually internal stakeholders, are those that engage in economic transactions with the business. (For example stockholders, customers, suppliers, creditors, and employees).

Secondary Stakeholders – usually external stakeholders, are those who – although they do not engage in direct economic exchange with the business – are affected by or can affect its actions (for example the general public, government, communities, activist groups, business support groups, and the media).

[57] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017.

[58] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser Shalini Unnikrsihnan, Wendy Woods, David Young, Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group, October 2017. Also see, Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Where companies with a long-term view outperform their peers, McKinsey Global Institute, February 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017;  Matt Turner, Here is the letter the world’s largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere, Business Insider, February 2, 2016; Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018.

[59] World Economic Forum in Davos out to heal ‘a fractured world’, Deutsche Welle (DW.com), January 23, 2018:

The topic of this year’s World Economic Forum (WEF) meeting in Davos is “Creating a shared future in a fractured world.” The motto is in direct contrast to US President Donald Trump’s “America first” policy which also involves large-scale protectionism and isolationist security policies.

“There is today a real danger of a collapse of our global systems,” said WEF founder Klaus Schwab. “But change is not just happening — it’s in our hands to improve the state of the world and that is what the World Economic Forum stands for.”

[60] Valerie Keller, Healing a fractured world by changing the rules of the game, LinkedIn, January 24, 2018.

[61] Douglas Elmendorf and Nitin Nohria, Restoring Trust in Leadership, Project Syndicate.org, January 29, 2018. [Douglas Elmendorf is Dean and Professor of Public Policy at Harvard Kennedy School. Nitin Nohria is Dean at Harvard Business School.]

[62] Douglas Elmendorf and Nitin Nohria, Restoring Trust in Leadership, Project Syndicate.org, January 29, 2018.

[63] Dominic Barton, James Manyika, and Sarah Keohane Williamson, Finally, Evidence that Managing for the Long Term Pays Off, Harvard Business Review, February 7, 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[64] Matt Turner, Here is the letter the world’s largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere, Business Insider, February 2, 2016. – The letter focuses on short-termism both in corporate America and Europe, but also in politics, and asks CEOs to better articulate their plans for the future.

[65] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018; World Economic Forum in Davos out to heal ‘a fractured world’, Deutsche Welle (DW.com), January 23, 2018.

[66] The Boston Consulting Group (BCG) is a global management consulting firm and advisor on business strategy. BCG partners with clients from the private, public and not-for-profit sectors. BCG is a private company with more than 90 offices in 50 countries.

[67] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser Shalini Unnikrsihnan, Wendy Woods, David Young, Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group, October 2017.

[68] Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Where companies with a long-term view outperform their peers, McKinsey Global Institute, February 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[69] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser Shalini Unnikrsihnan, Wendy Woods, David Young, Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group, October 2017. Also see, Clare Cotton, How to square profit and sustainability?, LinkedIn, February 6, 2018; The Sustainability Imperative: New Insights on Consumer Expectations, Nielsen.com, 2015.

[70] F. Kiel, Measuring the Return on Character, Harvard Business Review, April 20, 2015; Amrop 2017 Leadership Study, Wise Decision-Making: Stepping Up to Sustainable Business Performance, amrop.com, page 3.

[71] Amrop 2017 Leadership Study, Wise Decision-Making: Stepping Up to Sustainable Business Performance, amrop.com, page 3; Professor I. Walter, Reputational Risk and Conflicts of Interest in Banking and Finance: The Evidence So Far, Working Paper 2006, and Eurekahedge.com June 2007.

[72] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[73] John Simons, CEOs Should Focus on Long Term, Study Says: Authors contend that switching from short-term gains to a long view improves profits and sales, Wall Street Journal, December 27, 2016; Bill Snyder, Pepsi CEO: Break with the Past, and Don’t play too Nice, Stanford Business.edu, May 31, 2016; Alana Semuels, How to Stop Short-Term Thinking at America’s Companies, The Atlantic, December 30, 2016; Elena Lytkina Botelho, Kim Rosenkoetter Powell, Stephen Kincaid, and Dina Wang, What Sets Successful CEOs Apart, Harvard Business Review, May-June 2017. Also see, Mark Murphy, Wall Street Just Exposed Why Employee Engagement is Such a Joke in some Companies, Forbes, April 30, 2017.

[74] Alana Semuels, How to Stop Short-Term Thinking at America’s Companies, The Atlantic, December 30, 2016. For discussion of short and long term strategy, and discussion re purpose of organization and duty to stakeholders (shareholders and public/society), also see: David Beatty, How activist investors are transforming the role of public-company boards, McKinsey.com, January 2017; American Prosperity Project (an initiative spearheaded by the Aspen Institute – aspeninstitute.org – to encourage companies and the nation to engage in more long-term thinking):

“The American Prosperity Project is a nonpartisan framework for long-term investment to support our families and communities and reinvigorate the economy to create jobs and prosperity. There is no viable model under which either business or government can or should shoulder the responsibility for long-term investment alone; both are required.

The time is right for a national conversation about long-term investment in infrastructure, basic science, education and training for workers who feel the brunt of globalization and technology. We need to focus on the critical levers for economic growth along with sources of revenue to help pay for it, as well as ways to overcome the short-term thinking currently baked into government policy and business protocols.

The ideas offered here have been developed under the auspices of the Aspen Institute in consultation with a non-partisan working group of experts in public policy formation, tax and regulation, business, and corporate law and governance. …”

Alana Semuels, How to Stop Short-Term Thinking at America’s Companies, The Atlantic, December 30, 2016:

“It may be difficult to get other companies to follow. After all, few other company CEOs likely have a worldview similar to that of [Paul] Polman [CEO British-Dutch conglomerate Unilever], who is well-known for his independent streak.

“Ultimately, the purpose of a company is to serve society, and in doing so shareholders will equally benefit over time,” he told me. Many heads of companies, by contrast, believe that they have a duty to serve shareholders, and hope that the company will benefit over time. This is a mistaken assumption—as Cornell Professor Lynn Stout has argued in her book, The Shareholder Value Myth: How Putting Shareholders First Harms Investors, Corporations, and the Public. CEOs think they have to put shareholders first, but they can put the interests of society first, if they choose. Still, many CEOs personally benefit when they act on behalf of shareholders; the way they are paid and evaluated depends on short-term success. It’s likely that their incentives will need to change before they act to stop short-termism on their own.”

[75] Elena Lytkina Botelho, Kim Rosenkoetter Powell, Stephen Kincaid, and Dina Wang, What Sets Successful CEOs Apart, Harvard Business Review, May-June 2017.

[76] Peter J. Henning, When Money Gets in the Way of Corporate Ethics, New York Times, April 17, 2017.

[77] See, for example: Eric Sigurdson, Corporate and Government Scandals: A Crisis in ‘Trust’ – Integrity and Leadership in the age of disruption, upheaval and globalization, Sigurdson Post, May 31, 2017; Eric Sigurdson, Corporate Leadership and Culture: United Airlines and the Re-accommodated Doctor – guiding principles for Boards, C-suite executives, and General Counsel, Sigurdson Post, May 2, 2017.

[78] Duncan Simester, The Lost Art of Thinking in Large Organizations, MIT Sloan Management Review, June 3, 2016.

[79] Ben Marlow and Tim Wallace, ‘Larry’s Letter’ drives charge for reimagining of global capitalism, The Telegraph.co.uk, January 28, 2018.

[80] Center for Regulatory Strategy, Managing Conduct Risk: Addressing Drivers, Restoring Trust, Deloitte, 2017.

[81] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017.

[82] Remi Trudel and June Cotte, Does Being Ethical Pay?, Wall Street Journal, May 12, 2008.

[83] Patricia Lotich, 6 Ways to Demonstrate Ethics and Integrity in Your Business, Thriving Small Business.com, August 24, 2016. Also see, Ben Heineman, Jr., Inside the in-house counsel revolution, The Lawyer Daily, April 25, 2017. Also see, Through the Looking Glass: General Counsel Report 2016, KMPG, September 2016.

[84] Casimiro Almeida M. Graca, Coelho Arnaldo, The role of corporate reputation on co-operants behavior and organizational performance, Journal of Management Development, Vol. 35 Issue: 1, pp.17-37, 2016.

David Wilkinson, Does the reputation of your organisation make any practical difference to its employees?, The Oxford Review, January 2016:

“Reputation depends on five areas of performance:

1. The reliability of the management, particularly financially. Good financial controls and management helps to build trust
2. Consistency of the perceived quality of the products and services offered. This includes the service people get at all points of contact with the organisation.
3. Environmental responsibility, this includes the wider environment and health of the globe and local environment. It also includes social environment, for example, whether it looks after the community its workers come from.
4. Customer orientation. Does the organisation or company, and its people, focus on helping their customers meet their long-term needs and wants.
5. How it treats its employees.”

[85] Wayne Brody and Mark Rowe, Corporate Culture and Compliance in the 21^st Century, New York Law Journal: Compliance, October 27, 2014. Also see, David Greenberg, Ethics and Compliance in the 21^st Century, Abbc.org (LRN corp), September 2015; Michael Rasmussen, Compliance Risk Management in the 21^st Century, Corporate Integrity, September 2011.

[86] Joyce E. A. Russell, Career Coach: Are you an ethical leader?, Washington Post, March 23, 2014.

[87] Building a Corporate Reputation of Integrity, Ethics Resource Center (www.ethics.org/fellows), 2011 – “…overriding consensus that trust and ethical conduct [integrity] are at the heart of reputation….”. Eric Sigurdson, Corporate and Government Scandals: A Crisis in ‘Trust’ – Integrity and Leadership in the age of disruption, upheaval and globalization, Sigurdson Post, May 31, 2017.

[88] Casimiro Almeida M. Graca, Coelho Arnaldo, The role of corporate reputation on co-operants behavior and organizational performance, Journal of Management Development, Vol. 35 Issue: 1, pp.17-37, 2016.

David Wilkinson, Does the reputation of your organisation make any practical difference to its employees?, The Oxford Review, January 2016 (“the reputation of the organisation also predicts the longer-term performance of the organisation”).

[89] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018; Laurence Fink (Chairman and CEO, BlackRock), Larry Fink’s Annual Letter to CEOS: A Sense of Purpose, BlackRock.com, January 2018; Ben Marlow and Tim Wallace, ‘Larry’s Letter’ drives charge for reimagining of global capitalism, The Telegraph.co.uk, January 28, 2018.

[90] Douglas Elmendorf and Nitin Nohria, Restoring Trust in Leadership, Project Syndicate.org, January 29, 2018 (Douglas Elmendorf is Dean and Professor of Public Policy at Harvard Kennedy School. Nitin Nohria is Dean at Harvard Business School). Also see, Peter Moizer, Corporate social responsibility is an essential part of today’s MBA, Financial Times, February 6, 2018:

“Businesses are aware that what they do has an impact on society and the environment. This change has been reflected in the way that corporate social responsibility and ethics are taught in UK business schools, particularly on MBA programmes. While MBA students expect to learn about finance, operations, marketing and strategy, an insight into to the latest CSR thinking and ethics is also expected. …

After recognising that graduates needed a more thorough understanding of CSR, Leeds University Business School has refined its approach to teaching the subject. And it is one of a number of business schools — including Warwick, Cass and EDHEC — which signed up to the United Nations’ Principles for Responsible Management Education. These principles encourage practical action to incorporate business ethics, environmental and sustainable development issues within curricular and student engagement activities. …

Business schools have a role to play in helping companies meet the challenges of social responsibility and ethics.”

[91] Bill George, VUCA 2.0: A Strategy For Steady Leadership in an Unsteady World, Forbes, February 17, 2017.

[92] Susan Peters, How Will You Lead in the Emergent Era?, LinkedIn, May 8, 2017.

[93] Rita Trehan, Avoiding Corporate Scandals, theCsuite.co.uk, November 28, 2016. Also see, Gianfranco Casati and Omar Abbosh, Spotting the danger signs of ‘slow disruption’, South China Morning Post, May 19, 2017:

“Business disruption today can strike companies quickly, with a “big bang” when a product that is better and cheaper than anything else on the market suddenly becomes available.

But it can also creep up on you slowly. And when it hits, it hits hard.   …

This gradual-to-sudden decline is exactly the problem we identify in several industries today. Our analysis of the performance of more than 1,200 companies in six of the most asset-heavy sectors – telecommunications, utilities, energy, materials, automotive, and industrials – revealed that incumbents in these industries are falling prey to what we call “compressive disruption”. And the first distinguishing feature of this gradual or “slow” form of disruption is a prolonged decline in profit margins, even as revenue is increasing. …

Stagnant revenue growth … is the second indicator of an industry headed toward potentially rapid decline.

Combine these trends with the potential for industry leaders to believe they are invulnerable to rapid decline – a result of possibly decades of industry stability and perceived high barriers to entry – and you have got a recipe for trouble.

The good news is that companies still have time to act to fend off the potentially devastating effects of compressive disruption.”

[94] Remuneration Principles: clarifying expectations, Hermes Investment Management, November 2016; WEF Leadership, Trust and Performance Equation Project prepared in collaboration with PwC, The Evolution of Trust in Business: From Delivery to Values, World Economic Forum, January 2015; Jill Treanor, Rising executive pay threatening reputation of big business – report, The Guardian, November 14, 2016:

“The phenomenon of rapidly rising rewards for top talent, while not limited to corporate executive pay, is beginning to threaten the public company’s licence to operate and thus potential long-term value.”

[95] Kate Isaacs, David Langstaff, and Russell Eisenstat, 4 Ways CEOs Can Conquer Short-Termism, Harvard Business Review, February 24, 2017; Matt Turner, Here is the Letter the world’s largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere, Business Insider, February 2, 2016 (“Today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”); Seymour Bruchman and Blair Jones, When Did Long-term Incentives Become so Short-term?, Semler Insight (Semler Brossy), June 2016; David Beatty, How activist investors are transforming the role of public-company boards, McKinsey.com, January 2017; American Prosperity Project (an initiative spearheaded by the Aspen Institute – aspeninstitute.org – to encourage companies and the nation to engage in more long-term thinking):

“The American Prosperity Project is a nonpartisan framework for long-term investment to support our families and communities and reinvigorate the economy to create jobs and prosperity. There is no viable model under which either business or government can or should shoulder the responsibility for long-term investment alone; both are required.

The time is right for a national conversation about long-term investment in infrastructure, basic science, education and training for workers who feel the brunt of globalization and technology. We need to focus on the critical levers for economic growth along with sources of revenue to help pay for it, as well as ways to overcome the short-term thinking currently baked into government policy and business protocols.

The ideas offered here have been developed under the auspices of the Aspen Institute in consultation with a non-partisan working group of experts in public policy formation, tax and regulation, business, and corporate law and governance….”

[96] WEF Leadership, Trust and Performance Equation Project prepared in collaboration with PwC, The Evolution of Trust in Business: From Delivery to Values, World Economic Forum, January 2015; Eric Sigurdson, Global Populism: Corporate Strategy, Engagement & Leadership in 2017 – ‘the year of living dangerously, Sigurdson Post, January 18, 2017. See, John Simons, CEOs Should Focus on Long Term, Study Says: Authors contend that switching from short-term gains to a long view improves profits and sales, Wall Street Journal, December 27, 2016; Bill Snyder, Pepsi CEO: Break with the Past, and Don’t play too Nice, Stanford Business.edu, May 31, 2016; Alana Semuels, How to Stop Short-Term Thinking at America’s Companies, The Atlantic, December 30, 2016; Elena Lytkina Botelho, Kim Rosenkoetter Powell, Stephen Kincaid, and Dina Wang, What Sets Successful CEOs Apart, Harvard Business Review, May-June 2017; Mark Murphy, Wall Street Just Exposed Why Employee Engagement is Such a Joke in some Companies, Forbes, April 30, 2017; Jill Treanor, Rising executive pay threatening reputation of big business – report, The Guardian, November 14, 2016; Dori Meinert, Why Employees Don’t Trust their Leaders: why repairing the executive-employee relationship is paramount, Society for Human Resource Management (shrm.org), June 1, 2016;

[97] Douglas Elmendorf and Nitin Nohria, Restoring Trust in Leadership, Project Syndicate.org, January 29, 2018.

• Douglas Elmendorf is Dean and Professor of Public Policy at Harvard Kennedy School.
• Nitin Nohria is Dean at Harvard Business School.

[98] Kimberly Fries, 8 Essential Qualities that Define Great Leadership, February 8, 2018.

[99] Dominic Barton, James Manyika, and Sarah Keohane Williamson, Finally, Evidence that Managing for the Long Term Pays Off, Harvard Business Review, February 7, 2017; Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[100] Ty Kiisel, Without It, No Real Success is Possible, Forbes, February 5, 2013.

[101] 2017 Edelman Trust Barometer, Global Annual Study, Edelman.com; Stuart McNish, Losing Faith in Institutions, Linkedin.com (Conversations that Matter (Host Stuart McNish, Guest Bridgitte Anderson of Edelman), May 19, 2017.

[102] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com.

[103] Stephen Covey, The Business Case for Trust, Chief Executive.net, June 4, 2007.

[104] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com.

[105] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com.

[106] Blair Gable, New Chief Justice Richard Wagner spelling out court decisions for the masses, Globe and Mail, February 1, 2018.

[107] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com.

[108] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com.

[109] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018.

[110] Sisi Wang, Four ways CEOs can win back the public’s trust, Canadian Business, February 26, 2016; 2016 Edelman Trust Barometer, Global Annual Study, Edelman.com; 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com. Also see, Dan Cable and Freek Vermeulen, Stop Paying Executives for Performance, Harvard Business Review, February 23, 2016.

[111] 2018 Edelman Trust Barometer, Global Annual Study, Executive Summary, Edelman.com.

[112] Deborah L. Rhode, In the Interests of Justice: Reforming the Legal Profession, 2000. Also see, Paul D. Paton, Corporate Counsel as Corporate Conscience: Ethics and Integrity in the Post-Enron Era, Canadian Bar Review, Vol. 84, page 533, 2006.

[113] Dominic Barton, James Manyika, and Sarah Keohane Williamson, Finally, Evidence that Managing for the Long Term Pays Off, Harvard Business Review, February 7, 2017; Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016;

[114] Dominic Barton, James Manyika, and Sarah Keohane Williamson, Finally, Evidence that Managing for the Long Term Pays Off, Harvard Business Review, February 7, 2017; Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[115] Dominic Barton, James Manyika, and Sarah Keohane Williamson, Finally, Evidence that Managing for the Long Term Pays Off, Harvard Business Review, February 7, 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.  Also see, John Asker, Joan Farre-Mensa, Alexander Ljungqvist, Corporate Investment and Stock Market Listings: A Puzzle?, Review of Financial Studies 28, no. 2 (February 2015).

[116] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[117] Richard Feloni, The CEO of the world’s largest automotive company sees a ‘real problem’ holding companies back, Business Insider, February 8, 2018.

[118] Richard Feloni, The CEO of the world’s largest automotive company sees a ‘real problem’ holding companies back, Business Insider, February 8, 2018.

[119] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[120] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[121] Lisa Kimmel, Canadians want CEOs to step up. Will they? (Op-ed), Globe and Mail, February 14, 2018. Also see, 2018 Edelman Trust Barometer, Global Annual Study, Edelman.com.

[122] Alana Semuels, How to Stop Short-Term Thinking at America’s Companies, The Atlantic, December 30, 2016. Also see for example: Christine Lagarde, The Role of Business in Supporting a more Inclusive Global Economy, Conference on Inclusive Capitalism, New York, International Monetary Fund, October 10, 2016

[123] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[124] Dominic Barton and Mark Wiseman, Focusing Capital on the Long Term, Harvard Business Review, January-February 2014.

[125] Dominic Barton, Capitalism for the Long Term, Harvard Business Review, March 2011.

[126] Dominic Barton, Capitalism for the Long Term, Harvard Business Review, March 2011.

[127] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018: “BlackRock … manages more than $6 trillion in investments through 401(k) plans, exchange-traded funds and mutual funds, making it the largest investor in the world.”

[128] Matt Turner, Here is the letter the world’s largest investor, BlackRock CEO Larry Fink, just sent to CEOs everywhere, Business Insider, February 2, 2016. – The letter focuses on short-termism both in corporate America and Europe, but also in politics, and asks CEOs to better articulate their plans for the future. Also see, Myles Udland, Hillary: Corporate America is obsessed with ‘quarterly capitalism’ – here’s how I’d change that, Business Insider, April 1, 2016:

“In letters to CEOs of the S&P 500— the benchmark stock index which houses America’s 500 largest publicly traded companies — over the last two years, BlackRock CEO Larry Fink has argued that the best path forward for their companies, the US economy, and the financial markets is to stop worrying about meeting short-term financial goals.

Fink’s most recent letter called for each CEO to “lay out for shareholders each year a strategic framework for long-term value creation” as a way to attract investors and fend off the activist investors Clinton thinks pressure companies into making decisions that ultimately hurt shareholders and the broader economy.”

[129] Deep Patel, 11 Powerful Traits of Successful Leaders, Forbes, March 22, 2017.

[130] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[131] Ben Marlow and Tim Wallace, ‘Larry’s Letter’ drives charge for reimagining of global capitalism, The Telegraph.co.uk, January 28, 2018.

[132] The Business Case for Purpose, Harvard Business Review, 2015.

[133] Simon Caulkin, Companies with a purpose beyond profit tend to make money, Financial Times, January 24, 2016.

[134] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser Shalini Unnikrsihnan, Wendy Woods, David Young, Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group, October 2017.

[135] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser Shalini Unnikrsihnan, Wendy Woods, David Young, Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group, October 2017.

[136] Chris MacDonald and Alexei Marcoux, editors, CSR (Corporate Social Responsibility), Concise Encyclopedia of Business Ethics (conciseencyclopedia.org).

[137] Also see, for example: Charles Riley, Unilever to Facebook and Google: Clean up ‘swamp’ or we’ll pull ads, CNN.com, February 12, 2018; Suzanne Vranica, Unilever Threatens to Reduce Ad Spending on Tech Platforms That Don’t Combat Divisive Content: CMO Keith Weed says the company will only invest in platforms ‘committed to creating a positive impact in society’, Wall Street Journal, February 11, 2018.

[138] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser Shalini Unnikrsihnan, Wendy Woods, David Young, Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group, October 2017.

[139] See, Alexadra Richards, Prime Minister to stop private sector ‘pension abuse’ in the wake of Carillion collapse, Evening Standard, January 21, 2018; Theresa May, Boardroom excesses can no longer be tolerated. The economy has to work for all, The Guardian, January 20, 2018;  Global Pension Ponzi – Carillion Collapse One of Many to Come, Zero Hedge.com, January 22, 2018; Attracta Mooney, US and Europe have world’s worst-funded corporate pension schemes, Financial Times, September 9, 2017; F. Kopun, Will 16,000 Sears Canada retirees see their pensions?: Sears Canada paid millions in dividends while its pension went underfunded. Now the former employees may end up paying the price, Toronto Star, Jan. 20, 2018:

“In 2005, U.S. hedge fund manager Edward Lampert gained control of Sears Roebuck in the U.S., becoming the controlling shareholder of Sears Canada. He would retain a controlling interest in Sears Canada, through Sears Holdings and later through his hedge fund, ESL & Associates, that has fluctuated, but which continues to this day.

Between Dec. 9, 2005 and Dec. 9, 2013, Sears Canada paid $3.4 billion in dividends to shareholders, including $2 billion in 2005, $377 million in 2010, $102 million in 2012 and $509 million in 2013.

The dividends were being funded by the sale of some of the company’s most important assets, including the Sears Credit and Financial Services operations, which was profitable and contributed a large portion of Sears Canada’s total earnings. It was sold for $2.4 billion in 2005. Sears sold leases to flagship stores in Toronto, Calgary and Vancouver.

Same-store sales dropped every year after 2005. Operating income dropped every year after 2007, swinging to losses in 2011 that deepened annually.

Between 2005 and 2011, the average dividend yield for Sears shareholders was 17.8 per cent, compared to the average dividend yield of approximately 3 per cent for companies on the TSX.

In a letter dated Jan 20, 2014, the lawyer representing pensioners put the issue to Sears Canada this way:

“The substance of Sears Canada’s management conduct is asset stripping, and has resulted in a company with negative operating earnings and cash flow and deteriorating key performance measures.

“Sears is on a path where it will not have sufficient cash to meet its funding obligations under the Sears Canada Plan and retiree benefit plans.”

The fact that Sears was selling off assets to pay handsome dividends to shareholders has raised the question of governance. The dividend payments were approved by a board of directors.”

[140] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018.

[141] David Horsager, Trust Edge, 2012; WEF Leadership (Trust and Performance Equation Project prepared in collaboration with PwC), The Evolution of Trust in Business: From Delivery to Values, World Economic Forum, January 2015:

“Research across the world and statements by business leaders show consistently that, while trust may not always be front of mind, it is the foundation of doing business. Some businesses can succeed in the short term without building trust. But over the longer term, a business without trust eventually loses its licence to operate – in some cases irrevocably.”

… “Trusted companies have taken a long-term perspective in their thinking, and have used their fund of trust to create a buffer of credibility and sound reputation against potentially damaging events. When a crisis has struck, stakeholders have given these businesses more time, leeway and benefit of the doubt to respond and put things right.”

Also see, Amina Shahid and Dr. M. Azhar Shahid, Integrity and Trust: The Defining Principles of Great Workplaces, Journal of Management Research, Vol. 5 No. 4, October 1, 2013; Building a Corporate Reputation of Integrity, Ethics Resource Center (www.ethics.org/fellows), 2011.

[142] Larry Fink (Chairman and CEO at Blackrock), LinkedIn, January 2018 [www.linkedin.com/feed/update/urn:li:activity:6359049732697972737].

[143] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018. Also see, Richard Feloni and Matt Turner, JPMorgan will invest $1.75 billion into American communities – and the CEO says it’s good for business, Business Insider, February 16, 2018:

“When asked what he thought about BlackRock CEO Larry Fink’s recent, popular letter about the need for companies to benefit society in some way, [JPMorgan CEO] Dimon said he’s always held that view. The way he sees it, creating value in the communities where JPMorgan Chase operates is not only philanthropic, it’s good for business. When these communities have small business owners and employees flourishing, his company also benefits.”

[144] Laurence Fink (Chairman and CEO, BlackRock), Larry Fink’s Annual Letter to CEOS: A Sense of Purpose, BlackRock.com, January 2018.

[145] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018.

[146] UN Sustainable Development Goals (17 goals to transform the world) – un.org/sustainabledevelopment/sustainable-development-goals/ , and sustainabledevelopment.un.org/post2015/transformingourworld.

[147] Eight (8) Surprising Trends in Sustainability Reporting, Sustainability Academy, August 24, 2017; UN Sustainable Development Goals Set High Standards for North America Sustainability Reporting, CSRwire.com, September 21, 2017; 2017 Sustainability Reporting Trends in North America, Centre for Sustainability and Excellence.

[148] Business this week, The Economist, September 9, 1999. Also see generally, Triple Bottom Line, Investopedia:

“Triple bottom line (TBL) is a concept which seeks to broaden the focus on the financial bottom line by businesses to include social and environmental responsibilities. A triple bottom line measures a company’s degree of social responsibility, its economic value, and its environmental impact.

The phrase was introduced in 1994 by John Elkington and later used in his 1997 book “Cannibals with Forks: The Triple Bottom Line of 21st Century Business.” A key challenge with the triple bottom line, according to Elkington, is the difficulty of measuring the social and environmental bottom lines….”

[149] Ian Davis, Business and Society: The biggest contract – building social issues into strategy, big business can recast the debate about its role, The Economist

[150] Karsten Strauss, The Companies with the Best CSR Reputations in 2017, Forbes, February 8, 2018; 2017 Most Reputable Companies (Global CSR RepTrak): Reputation and Corporate Social Responsibility, Reputation Institute, September 2017. Also see, Rebecca M. Henderson, More and More CEOs Are Taking Their Social Responsibility Seriously, Harvard Business Review, February 12, 2018.

[151] Bernard Coleman III, Forget the’ Business Case’ for Diversity and Inclusion, Forbes, January 23, 2018.

[152] M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017; Also see: Lawrence Summers, The jury is still out on corporate short-termism, Financial Times, February 9, 2017. Also see, Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[153] Dominic Barton, Capitalism for the Long Term, Harvard Business Review, March 2011.

[154] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[155] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[156] Ben Marlow and Tim Wallace, ‘Larry’s Letter’ drives charge for reimagining of global capitalism, The Telegraph.co.uk, January 28, 2018.

[157] Dominic Barton, James Manyika, and Sarah Keohane Williamson, Finally, Evidence that Managing for the Long Term Pays Off, Harvard Business Review, February 7, 2017; Dominic Barton, James Manyika, Tim Koller, Robert Palter, Jonathan Godsall, and Josh Zoffer, Measuring the Economic Impact of Short-Termism: Discussion Paper, McKinsey Global Institute, February 2017.

[158] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017.

[159] Mindy Lubber, Ending Quarterly Capitalism, Forbes, February 21, 2012.

[160] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[161] Bonini, Sheila and Steven Swartz, Profits with purpose: How organizing for sustainability can benefit the bottom line, McKinsey on Sustainability & Resource Productivity, 2014

[162] Guide for General Counsel: How to influence the board of directors to drive sustainability, Global Compact Network Canada (Globalcompact.ca), 2018.

[163] Brian Tomlinson and Mark Tulay, 7 questions every CEO should be able to answer, WEForum.org, February 6, 2018. Also see, Strategic Investor Initiative, CECP.co. [CECP is a CEO led coalition that believes that a company’s social strategy — how it engages with key stakeholders including employees, communities, investors, and customers —determines company success. Founded in 1999 by actor and philanthropist Paul Newman and other business leaders to create a better world through business, CECP has grown to a movement of more than 200 of the world’s largest companies that represent $7 trillion in revenues, $18.6 billion in societal investment, 13 million employees, and $15 trillion in assets under management. CECP helps companies transform their social strategy by providing customized connections and networking, counsel and support, benchmarking and trends, and awareness building and recognition].

[164] Dominic Barton, Jonathan Bailey, and Joshua Zoffer, Rising to the challenge of short-termism, FCLT Global, 2016.

[165] S&P Dow Jones Indices (sponsored content), Long-Termism Versus Short-Termism: Time for the Pendulum to Shift?, Institutional Investor, June 13, 2016.

[166] Sacha Sadan, Carillion’s collapse exposes deep corporate governance failings, Financial Times, February 14, 2018.

[167] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017.

[168] Delotte Development, Tone at the top: The first ingredient in a world-class ethics and compliance program, Deloitte, 2015.

[169] Grant Clelland, How Business Needs to Respond to the Crisis of Trust, Edelamn.co.uk, January 18, 2017.

[170] Rob Peters, Standard of Trust Leadership: A Clear Business Case for Trust (Part 1), Medium.com, February 1, 2016.

[171] Grant Clelland, How Business Needs to Respond to the Crisis of Trust, Edelamn.co.uk, January 18, 2017.

[172] Theresa May, Boardroom excesses can no longer be tolerated. The economy has to work for all, The Guardian, January 20, 2018.

[173] Andrew Ross Sorkin, BlackRock’s Message: Contribute to Society, or Risk Losing our Support, New York Times, January 15, 2018.

[174] Douglas Beal, Robert Eccles, Gerry Hansell, Rich Lesser Shalini Unnikrsihnan, Wendy Woods, David Young, Total Societal Impact: A New Lens for Strategy, The Boston Consulting Group, October 2017.

[175] Kent Grayson, Broad-Scope Trust: The Trust Problem Many Business Leaders Ignore, LinkedIn, April 27, 2017.

[176] Lisa Kimmel, Canadians want CEOs to step up. Will they? (Op-ed), Globe and Mail, February 14, 2018.

[177] M. Lipton, Some Thoughts for Boards of Directors in 2018, Harvard Law School Forum on Corporate Governance and Financial Regulation, November 2017.

[178] Alexandria Richards, Prime Minister to stop private sector ‘pension abuse’ in the wake of Carillion collapse, Evening Standard, January 21, 2018.

[179] Theresa May (UK Prime Minister), Boardroom excesses can no longer be tolerated. The economy has to work for all, The Guardian, January 20, 2018.

[180] Joseph L. Bower and Lynn S. Paine, The Error at the Heart of Corporate Leadership: most CEOs and Boards believe their main duty is to maximize shareholder value. It’s not, Harvard Business Review, May-June 2017.