Long-Term Value Versus Short-Term Gains: Best Practices in Shareholder Activism

According to The Collegiality Conundrum: Finding Balance in the Boardroom, PwC’s 2019 Annual Corporate Directors Survey, “More than half of directors (56%) say investors devote too much attention to environmental/sustainability issues, even though only 50% think their board has a strong understanding of the ESG issues impacting their company.”

At the same time, for the first half of 2019, ESG-related contested shareholder votes affected numerous companies. And while the Business Roundtable Statement on the Purpose of a Corporation released in August of 2019 endorsed a broader set of stakeholders, some of which are focused on issues under the ESG umbrella, activist Paul Singer, principal of Elliott Management, told The Economist that the current debate over corporate purpose “risks obscuring the fact that earning a rate of return for pension plans, retirement accounts, universities, hospitals, and charitable endowments and so on is itself a social good. . . .”

Against this backdrop, NACD, Heidrick & Struggles, PwC, and Sidley Austin convened NACD’s Nominating and Governance Committee Chair and Risk Oversight Advisory Councils in New York to discuss both ESG and shareholder activism.

As board agendas continue to evolve to meet the demands of stakeholders, the development of an ESG dashboard may be a viable vehicle for catalyzing change and creating long-term value for stakeholders, including shareholders. At the same time, boards must be ready for the likely scenario of an activist among the company’s stockholders that may be looking for short-term shareholder returns. Balancing the long- and short-term views can no doubt be a challenge, even for the highest-performing boards.