Advisory Partners
The FT Moral Money Forum is supported by its advisory partners, High Meadows Institute, Planet First Partners and White & Case. They help to fund the reports.
The partners share their business perspective on the forum advisory board. They discuss topics that the forum should cover but the final decision rests with the editorial director. The reports are written by a Financial Times journalist and are editorially independent.
Our partners feature in the following pages. Each profiles their business and offers a view on corporate structures.
Partners’ views stand alone: they are separate from each other, the FT and the FT Moral Money Forum.
Corporate structure is neither the problem nor the solution to increasing sustainability
Chris Pinney, president and CEO, High Meadows Institute
Some people say the solution to the ESG challenge is to embed social-purpose statements into corporate charters, and that this will oblige companies to consider all stakeholders and to measure and report on their social effect.
This sounds good — but as we engage business in trying to meet the sustainability challenge, is corporate structure the right place to focus?
The leading model for reform is the benefit corporation. In companies that amend their governance, directors have to consider their group’s effect on all stakeholders. They must publicly state their social and environmental performance measured against a third-party standard. B Lab, a non-profit that certifies benefit corporations, says 3,500 such companies exist worldwide. This is encouraging but the truth is that most of these companies are small, and only 10 are publicly traded. Set against the global economy, in which the US alone has 1.7 million C corporations, the effect of the benefit corporation is at best negligible.
The late Lynn Stout, a corporate law scholar, noted in The Shareholder Value Myth: “There is no solid legal support for the claim that directors and executives of US public corporations have an enforceable legal duty to maximise shareholder wealth.”
Stout recognised that the challenge is not corporate structure but moving purpose and opinion away from the Friedman doctrine, which says that the only rationale of a company is to maximise shareholder value. To move forward we have to change this view at scale. This is where our focus should be.
Fortunately with public expectations for corporate responsibility and leadership increasing, we are starting to see significant progress on this with business organisations such as Business Roundtable and the World Economic Forum making public declarations on sustainability and stakeholder capitalism — unthinkable a decade ago.
Most importantly, large institutional investors have pushed investee companies to commit to sustainability. As was shown at the Exxon annual meeting in May, investors will support the removal of directors who block progress.
Keeping up the pressure on companies to operate sustainably is our best opportunity to advance the ESG agenda. Regardless of corporate form, all companies must be held accountable.
* High Meadows Institute’ views are separate from other advisory partners, the FT and the FT Moral Money Forum
Frédéric de Mévius, co-founder, Planet First Partners
The beginning of the evolution of corporate structures and the end of old-school governance dates back to the 1980s and the deregulation of capital markets.
We can trace the way in which changes have occurred at different speeds in different markets to give us the complex plurality of structures that we have today, from traditional limited companies, to partnerships, to special-purpose acquisition companies and B Corps.
The same is true for impact measurement. A decade ago, the effect that a company had on its environment was seen only in terms of how much it involved trading off financial return against a set purpose. Today, impact measurement is increasingly important to a company’s reputation as well as part of the formula that determines its financial value.
Planet First Partners has been reminded of this by the experience of Oatly, a company that provides a healthy alternative to milk, which we know well. Together with Alexander de Wit, my co-managing partner, we helped to bring this brand to market when we ran Verlinvest, a private investment platform.
Since we left Verlinvest to set up Planet First Partners, Oatly has gone from strength to strength and in May its IPO raised $1.4bn. Now, as the Financial Times reported last month, a short-seller has suggested that the company, which has always focused on reducing its impact on the environment, is not as sustainable as it has claimed.
I am sure that Oatly remains true to its original mission but the episode shows clearly how the question of impact has a direct contribution to share price. Here, though, is a lesson for everyone operating or investing in businesses where a positive environmental impact is important to the overall mission. As the FT said, there are many examples beyond Oatly.
Investors and consumers are demanding more transparency and scrutiny in what impact means. Moreover, they want performance indicators. Planet First Partners focuses exclusively on companies that can provide and prove that they make a substantial contribution to a defined UN sustainable development goal (SDG) without — and this is crucial — causing harm to any other SDGs.
When environmental impact is so important to investors, a business has to be certain that its structure and governance guarantees its commitment to sustainability.
Activism based on exposing the negative side of such compliance is unusual. More common is a scenario such as that of Emmanuel Faber, the Danone CEO, who was ousted in March after two activist investors, with combined shares of only 6 per cent, accused him of favouring stakeholder capitalism and environmental sustainability over the sustainability of the price of their shares.
In this investment landscape, companies struggle to find the right framework to follow the dual goals of sustainability and profitability. Impact on the environment and impact on the share price both have to be positive.
We know consumers will pay more for the right products in health and nutrition, and by “right” we mean products that are good for people and good for the planet. People will want to work for companies that pursue dual goals, which will make those organisations more nimble and more resilient.
Saleability and sustainability must be twin forces, because in today’s markets they are critical to each other. Companies that harness both will be the success stories of the 21st century.
* Planet First Partners’ views are separate from other advisory partners, the FT and the FT Moral Money Forum
White & Case ESG Group
Shareholders, investors and governments are expecting more of companies: that is an undeniable reality. The advent of third-party certification programmes such as B Corps, or classification of companies in accordance with shareholder participation, illustrates the increasing expectation that corporations will work for and together with stakeholders.
Companies sit on a spectrum of corporate purpose, from Friedman’s “shareholder primacy” model to the “stakeholder capital” model, in which a group’s mission is to serve not only shareholders but customers, suppliers, workers and communities too.
That range could be seen clearly during the pandemic, when some companies focused on dividend payments to shareholders while others cut dividends to support staff.
The question now for governments and civil society is the extent that shareholder primacy will play in legislative development.
Legal requirements are pushing companies along the spectrum from shareholder primacy, and at present these are focused on large companies with the greatest stakeholder impact. For example, companies in the UK with a premium listing have to explain their fundamental purpose and values under the UK Corporate Governance Code. Under section 172 of the Companies Act, large companies are required to prepare a statement that lists their stakeholders and says how they are taken into account in company decision-making.
The Better Business Act Campaign advocates the greater promotion of stakeholder interests. It proposes a change to the Companies Act that would legally oblige directors of UK companies to operate in a manner that benefits all stakeholders. This leads to questions such as which group should be prioritised where there is a conflict, and what liability directors have to a group that has not been prioritised.
Certified B Corporations are legally required to consider the effect of decisions on all stakeholders. The B Corp framework helps companies to protect their mission through funding rounds and leadership changes. It also gives entrepreneurs and directors more flexibility when evaluating potential sale and liquidity options.
Those establishing a company in the UK can already set up a business where shareholder primacy is not the core purpose. A community interest company (CIC) trades with a social purpose or carries on other activities that benefit the community. CICs have an “asset lock” which means they can only transfer assets to an asset-locked body that is named in the articles. Similar legal corporate forms exist in Belgium (social purpose company), Spain (social initiative cooperative) and Greece (Koi SPEs).
If new structures push companies away from the purpose of maximising shareholder value, shareholders may have to accept lower returns. They should also recognise that the rights of competing stakeholders may not be aligned with theirs but could be prioritised.
All of this will change companies’ legal liabilities as they decide what is acceptable to the wider stakeholder base. It may also increase the number of groups and individuals they are answerable to and who can bring a claim against them.
* White & Case’s views are separate from other advisory partners, the FT and the FT Moral Money Forum