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opinion

David Ryan is executive vice-president and national practice leader, corporate and financial communications, for Edelman Canada.

In late August, Business Roundtable, a group of the largest and most influential U.S. corporate CEOs, threw gasoline on a debate that has been smouldering for some time. Is the primary objective of a company to maximize value for its shareholders, or should it consider a broader set of stakeholders? The Roundtable, led by JPMorgan Chase CEO Jamie Dimon, announced it was redefining the purpose of a corporation. It suggested companies widen their priorities beyond investors to consider employees, customers, suppliers and the communities they reside in.

What’s not to like about Wall Street’s new social responsibility? The global investment community is placing far more emphasis on environmental, social and governance (ESG) factors in assessing both value and risk. An increasing amount of capital is flowing into businesses that take a more progressive and pragmatic approach to ESG, both in terms of corporate behaviour as well as how companies talk about and report their advancements in this area. In this context, a more holistic view of a corporation’s relationships with its stakeholders seems prudent.

Why then did the Business Roundtable’s big moment land with such a thud? It was greeted with a mix of skepticism and downright indignation. In a recent Washington Post editorial titled “Don’t Trust CEOs Who Say They Don’t Care About Shareholder Value Any More,” University of Chicago professor Luigi Zingales calls the Business Roundtable announcement “at best misleading marketing, at worst a dangerous power grab.” His comments echoed those of many others, that this was more of a public-relations exercise and, without a real change in corporate behaviour, will amount to nothing.

In Canada, the reaction to the Business Roundtable was muted. Part of the reason for that, as author and Rotman School of Management professor Sarah Kaplan points out in her September editorial in this newspaper, is that Canadian businesses are still guided by a 1994 Toronto Stock Exchange report. The TSX report makes it clear that the only thing that should matter to Canadian corporations and the directors that steward them are the shareholders of those corporations.

As Ms. Kaplan highlights, Canadian companies are using this as an excuse to slow walk the advancement of their sustainability initiatives compared to their U.S. counterparts. What Canadian businesses will soon realize is that Canadians – both the general public and institutional investors – expect more from them. The 2019 Edelman Trust Barometer found that Canadians increasingly expect business to play a more meaningful role in solving significant social and environmental issues such as climate change, gender inequality and the threat to local economies posed by automation and globalization.

Far more telling is data released in early December that confirms this shift to multistakeholder commitment has become the new business imperative. The supplement to the Edelman Trust Barometer, which surveys 607 institutional investors in the U.S., Britain, Germany, Japan and Canada, found that 91 per cent of the Canadian investors agree that companies need to balance the needs of shareholders with customers, employees, suppliers and local communities, compared to a global average of 84 per cent. This same survey found that Canadian investors are more likely to invest in companies that score highest on ESG factors, and they are inclined to vote in support of board of director candidates they believe will increase the company’s attention to ESG issues.

Canadian institutional investors want Canadian businesses to consider other stakeholders when making business decisions. They understand that businesses that are attentive to their employees, customers, communities and the environment are more likely to be both successful (read: profitable) and sustainable.

This is far from a novel idea. Ten years ago, former GE CEO Jack Welch told us that “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is the result, not a strategy … your main constituencies are your employees, your customers and your products.”

If Canadian and U.S. businesses truly embrace a multistakeholder commitment, they will bring about an end to shareholder primacy that spurs real change in corporate priorities and behaviour. They will also go a long way to silencing the skeptical and the outraged who believe this movement is nothing more than a public-relations stunt.

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