What does it take to be a responsible investor in a listed company? For example, many large global institutional investors have defined principles for their investment strategies, such as sustainable financial performance, value creation over the long-term, preserving or growing company assets over time, social responsibility and sustainable development, good corporate governance and more. Increasingly the principles related to considerations on environmental and social matters as well as governance, in other words ESG, are visible in these responsible investor strategies too.
These principles are usually very much in line with the fundamental purpose of the corporation to create value to its shareholders but with a modern twist that long-term shareholder value cannot be created without considering also the interests of other stakeholders, such as the society, environment, customers and employees, to name a few. These principles are also very valuable to boards and management teams of companies when strategies are defined and executed.
A board that has a clear view and strategy on long-term shareholder value creation will be able to get through politics and sensation.
But it gets more complicated when politics or narrow interests or sometimes even personal interests are mixed with investment strategies and corporate ownership. For example, is it responsible ownership to demand in a shareholders’ meeting that the articles of association should be amended so that all services of the company are stopped immediately to any consumer or corporate customer who does not have a fully Paris agreement aligned climate strategy? Or to vote against a board proposal to allow digital shareholders’ meetings (when the proposal is based on the company’s desire to reduce CO2 emissions and increase the ability of shareholder participation in the shareholders’ meetings)?
Boards need to follow the voice and interests of the shareholders in accordance with good corporate governance. However, as the world gets more politicised and sensational and shareholder activism sometimes looses sight of what truly creates value for the shareholders in the long-term, it will be on the shoulders of the boards to protect the long-term shareholder interest on behalf of all shareholders. A board that has a clear view and strategy on long-term shareholder value creation will be able to get through politics and sensation, tackle not so sensible shareholder demands and proposals, and overall guide shareholders better towards responsible ownership.
Finally, I would like to express heartfelt thanks to Raija-Leena Hankonen-Nybom who will step down from the DIF Board in May and at the same time welcome warmly Nora Hortling as a new member.
DIF. Develop. Network. Influence.
This ”Letter from the chair” was originally published in the Boardview magazine 1/2024.
