My mentor, friend, and corporate governance scholar, Lynn Stout, left us too early. This is the most important lesson she imparted through her robust legacy: the corporation, legally, and for all practical purposes, owns itself. The shareholder has specific and important rights, but the fiduciary duty of the board is to the corporation itself.
In the work we launch this month, Planning for a New Reality: The Agenda for the Prepared Board, we focus on boards and directors, stewards of the corporation. What is the job of a director?
Today, directors are bound to commitments that will outlast the tenure of any CEO. Both vision and hard data are needed—to consider the future and zero in on communities of interest and access to resources that underpin long term value creation. The vision part includes understanding how the company fits within systems that we take for granted—to embrace planetary limits, while considering the vital inputs to the long-term health of the economy as well as the health of our democracy.
In other words, to answer the question, “What is the job of the Director?” today requires asking some new questions.
“Regular readers know our chief complaint about the investing world: too much emphasis on the individual financial performance of portfolio companies, and too little on how those companies affect the systems that underpin investors’ entire portfolios. When push comes to shove, this emphasis encourages individual companies to pursue profits that come at great cost to society and the planet, and consequently to investors.”
Directors have awesome responsibilities, but they are not alone in the quest for long term vision and action. Executives need directors to hold them accountable, but also to lead the way and help see the big picture. Employees expect more today, but they also are prepared to give more. The most important investors understand this is not a win-win world, but one that requires real tradeoffs to both steady the ship and steer into the future.
The assertions and perspectives illuminated in the Agenda for a Prepared Board are designed to provoke useful conversations in board rooms in light of a new reality, one in which directors are stewards, both of the company, and society.
We welcome your own questions, and stories from the boardroom.