Keeping Shareholders at Arms Length

I participated virtually in the Green Monday conference this week and had pause for thought after hearing each of the panelists respond to a question about the impact of shareholders on sustainability.

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Andrew Shapiro of Green Order mentioned the mission driven nature of Facebook.  That mission will be maintained in public ownership partly through the class A shares on the market having lower voting power than the class B shares held by a much smaller block of existing shareholders.

Karen Hamilton of Unilever described CEO Paul Polman’s action to cease providing quarterly earnings forecasts because he didn’t see the short termism it engendered amongst investors was helpful to the company.

Charles Middleton of Triodos Bank described how their shares are held in trust by a foundation creating a degree of separation between short term demands of shareholders and the decisions of the bank.

Dr Thomas Becker of BMW described how the majority shareholding in the company is with the original Quandt family, giving them control over the actions of the company and enabling them to maintain a focus on mission.

I see a pattern that suggests a growing perspective that increasing the distance between the individual shareholder and the actions of the company is better for sustainability.

As I have written in the past, I think that stakeholders are fickle – switching our priorities quickly depending on which stakeholder hat we are wearing at that moment.  Most shareholders, I believe, tend to take a very narrow perspective of their role.  Investments are purely for financial returns.   As long as everything is legal, values are something to be applied elsewhere in our lives. Part of the reason being that most investors are so distant from the actions of the company they part own that they feel no responsibility or accountability for them

For a company with a societal or environmental mission I see two possible responses;

One is to narrow the distance and incent shareholders to have a more holistic and engaged interest in the actions of the company in which they share ownership.  Integrated reporting follows that view of the world.
The other approach is to increase the distance and keep the shareholder at arms length so they have less say in the decisions made by the management of the company allowing the company to get on with its sustainability mission.

I interpret the responses of the four panelists at Green Monday as supporting the latter view.  I wonder if there is room for both approaches to co-exist?

  1. Comments 1

  2. Jim Woods 11:46 pm on February 7, 2012

    Great post Kevin. Having moderated the session, I'd say you picked up on the most interesting point in the evening. It seems there are an increasing number of companies are confronting their social and environmental purpose, either as a strategic risk (banks / utilities) or an opportunity (GE / InterfaceFLOR). And a disconnect is emerging between them and mainstream investors. In the UK, M&S and Kingfisher have been outspoken about investor’s lack of understanding of these issues. I’d agree with your assessment that companies have two options on how to respond. And maybe the best response is as implied by our panellists - to seek to minimise investor interference, as opposed to trying to win them over through reporting. One might call it the Paul Polman response – telling short term investors that they are not wanted, and withdrawing quarterly earnings guidance. Facebook’s IPO letter and shareholder structure seems to be spelling out a similar message, but in an more structured way. I prefer the Paul Polman approach to the Facebook one. The former allows for the emergence of a breed of investor that understands social purpose, and could see them become a welcome stakeholder. The Facebook approach seems to imply that there will never be a social investor. When will a social investor emerge? It seems that the problem stems from investors seeing sustainability as a compliance / governance issue, whilst the leading companies see it as a strategic issue. For the latter it’s about selling access over ownership, identifying new markets, managing resource price risk and taking advantage of the transparency provided by social media (well articulated by Andrew Shapiro). Only when investors start to see sustainability in the same way will they start to become partners. As always, though, as long as you our outperforming the share price of your peers you can do what you want!

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