November 12, 2019

Modern Governance 8.0: New Report by Diligent Institute and Stanford Rock Center Reveals Vital Importance of Stakeholders to Corporate Directors

Survey shows directors value employee and community interests as they pursue business growth, but don’t believe the public recognizes their efforts

In a new report released today, the Diligent Institute and the Rock Center for Corporate Governance at Stanford University surveyed nearly 200 directors of public and private corporations globally to better grasp how they balance shareholder and stakeholder needs.

According to the survey, 89% of corporate directors believe it is important or very important for their company to consider the interests of non-shareholder stakeholders – such as employees, local communities, and the general public – as they work to achieve business objectives.

“Our research shows that corporate directors are not as shareholder centric as generally thought and do not put the needs of shareholders significantly above the needs of their employees or society,” said David Larcker, Stanford Graduate School of Business professor, Diligent Institute Advisory Board Member, and report co-author. “Directors do, however, pay considerable attention to important stakeholders—particularly their workforce—and take their interests into account as part of their long-term business planning.”

While directors recognize that tensions exist between shareholder and stakeholder interests, most believe their companies strike a successful balance. In general, directors reject the notion that their companies have a short-term investment horizon in running their businesses. The study also showed that directors are largely satisfied with their environmental, social, and governance-related efforts, however, they do not believe the outside world understands or appreciates the work they do.

“In terms of recognition of the value they place on employee and community interests, corporate directors feel the general public is missing the story,” said Brian Tayan, professor at the Stanford Graduate School of Business and co-author of this report. “Or, perhaps the story isn’t being told well enough by the companies themselves—or a combination.”

Recently, the Business Roundtable, comprised of nearly 200 CEOs of major U.S. corporations, issued a statement with a new definition for the “purpose of a corporation”. For the first time, these leaders embraced a commitment to address the interests of all stakeholders—not just shareholders. The goal is to no longer solely drive profits, but to build a better system for all.

“The CEOs that can balance their near-term needs with long-term strategy are becoming practitioners of modern governance—a category Diligent introduced to the market earlier this year,” said Brian Stafford, CEO of Diligent Corporation. “They are improving visibility across their organizations and across their industries, while prioritizing stakeholder interests.”

In terms of trends outside the U.S., survey results showed non-U.S. organizations face greater pressure from external constituents to do more for stakeholders than U.S. companies. Over half of directors of non-U.S. companies said they receive high or moderate pressure from advocacy groups, while only 30% of U.S. directors agree. The same contrast also holds true in terms of pressure from investors.

“Diligent understands the pressure boards are dealing with in today’s complex business environment,” said Brian Stafford. “With modern governance, board leaders are empowered by the right tools and can make smarter decisions for their shareholders, stakeholders, and the communities in which they do business.”

Other notable survey results include the environment as the directors’ largest long-term worry, with 41% percent indicating that environmental issues including climate change, pollution, waste, or recycling have the power to negatively impact their business over the long term. Other top concerns include increased taxes and regulations, macroeconomic factors that influence trade and the economy, and workforce-related issues including the availability of employees, unionization, and regulation.

About Stanford Graduate School of Business and the Rock Center for Corporate Governance CORPORATE GOVERNANCE RESEARCH INITIATIVE The Corporate Governance Research Initiative at Stanford Graduate School of Business focuses on research to advance the intellectual understanding of corporate governance, both domestically and abroad. By collaborating with academics and practitioners from the public and private sectors, we seek to generate insights into critical issues and bridge the gap between theory and practice. Our research covers a broad range of topics that include executive compensation, board governance, CEO succession, and proxy voting. gsb.stanford.edu/cgri THE ROCK CENTER FOR CORPORATE GOVERNANCE The Arthur and Toni Rembe Rock Center for Corporate Governance is a joint initiative of Stanford Law School and Stanford Graduate School of Business. The center was created to advance the understanding and practice of corporate governance in a cross-disciplinary environment where leading academics, business leaders, policymakers, practitioners, and regulators can meet and work together. rockcenter.stanford.edu