Corporate purposes should go beyond just profits and shareholder value: panel

COMPANIES ought to do away with focusing just on enhancing profits and shareholder value and align themselves with the needs of society and a "higher purpose", said speakers at a panel during the Stewardship Asia Roundtable 2022 on Thursday (Mar 31).

Arnoud De Meyer, chairman of the Stewardship Asia Centre (SAC), for example, said that the "shareholder value" model was one that was originally developed to manage the relationship between a company's chief executive and its shareholders.

"(This model) is so attractive because you can measure it, and everything that we can measure becomes extremely attractive," he said.

In his opening address at the event, Dilhan Pillay, chief executive of Temasek Holdings, said boards have traditionally been seen as having the duty to act in the best interests of companies.

"In the last 50 years, this has been interpreted by many, and especially by the markets and the business community, as a duty to maximise returns for shareholders. This has oftentimes resulted in a focus by leaders of public companies and providers of capital to manage companies on a shorter-term basis," he said.

However, things are changing. Rising shareholder activism and regulatory demands are forcing companies to pay more attention to environmental, social and governance (ESG) factors such as climate change, sustainability and good corporate governance.

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"Boards need to consider what it means to be a steward," stressed Pillay. Some examples he cited included boards considering the "right thesis" beyond pure profit and value maximisation, as well as being accountable to other stakeholders such as their customers, employees, suppliers and the broader community.

He noted that research has shown that purpose-driven companies achieve higher market share gains, as well as better workforce and customer satisfaction.

"The board, together with the management team, needs to clearly articulate the company's purpose," he said.

"Purpose should not be a trade-off for profit. In fact, being a purpose-driven organisation is correlated with better performance."

Narayan Pant, a professor at Insead and another panellist, said that there is a need for accountability in the boards of companies. Just saying that something needs to get done, but not holding the relevant people accountable will not bring about material benefits for the company or its shareholders, he said.

"I need to be accountable, whether with an incentive or not … and as long as that accountability doesn't exist, I don't think you're going to get the behaviour that you seek," he said.

Patrick Daniel, another panellist who was the interim chief executive of SPH Media Trust, noted that demanding accountability for complex issues such as sustainability and climate change can be challenging.

At the end of the day, a chief executive's salary is tied to his company's profits, which could pose a problem, he said. The key here for companies is to ensure that its goals and targets are communicated across the board, and that everyone is on the same page.

As the regulator of the local financial sector, the Monetary Authority of Singapore (MAS) has a role to play in driving better behaviours and outcomes, said executive director and head of the markets policy and infrastructure department Abigail Ng.

While top-down efforts such as regulations, supervisory engagements and development incentives can help chart the path, there needs to be a collective bottom-up effort to truly catalyse change, she said.

For instance, she noted that ESG disclosures sometimes lack detail and do not provide enough useful information for investors to make decisions.

"There is also a lack of consistency and comparability, with companies selectively reporting against different standards and frameworks," she said.

To combat problems like these, MAS will set out a roadmap for mandatory climate-related disclosures for regulated financial institutions, under the regulator's multi-pronged approach to promote high-quality sustainability-related disclosures that can help asset owners and managers exercise investment stewardship more effectively, added Ng.