Gouvernance

Base documentaire Gouvernance loi et réglementation mission et composition du conseil d'administration Normes d'encadrement

Naviguer en pandémie : questions pour les réunions (virtuelles) du CA

Le cabinet d’avocat McCarthyTetrault propos un bel article de Mes Mayr, Charest, Wouters, McAusland et Paiement « Naviguer en pandémie, le regard tourné vers l’avenir : questions pour les réunions (virtuelles) du conseil d’administration » (17mars 2021). Un document bien utile avec une série de questions impressionnates.

Pour télécharger ce document bien intéressant : ici.

Résumé :

À mesure que les activités reprennent et que les entreprises planifient l’après-pandémie, les équipes de haute direction et les conseils d’administration doivent aussi élargir leurs horizons. Au-delà des défis et des risques immédiats et à court terme liés à la reprise des activités, les conseils d’administration et les équipes de haute direction doivent également garder à l’esprit l’ensemble de la situation : pendant que les entreprises reprennent leurs activités, bon nombre d’entre elles devront aussi se restructurer.

Le présent article décrit les principaux sujets et enjeux liés à la gestion des risques afin d’aider les administrateurs et les dirigeants d’entreprises à déterminer ce qu’ils devraient envisager dans les jours, les semaines et les mois à venir, à mesure que la réouverture de l’économie évolue et que la pandémie touche à sa fin.

À la prochaine…

Gouvernance Normes d'encadrement

COVID-19 : la réécriture de la gouvernance d’entreprise

Très beau papier dans le Harvard Business Review : « Covid-19 Is Rewriting the Rules of Corporate Governance » (de Mme Lynn S. Paine). Ce billet montre tout l’impact de la pandémie sur la gouvernance d’entreprise…

Extrait (long) :

Since the onset of Covid-19, corporate boards have faced a string of difficult decisions. Take the question of dividend payments: Ordinarily, the decision would be a relatively straightforward matter of applying a stated dividend policy, following past practice, or choosing an amount based on shareholder expectations and the company’s earnings for the period. But this year, with Covid-19 decimating the economy and looming uncertainty about the depth and duration of the crisis, the decision became a complex matter of weighing and balancing multiple factors — at least for companies flush enough to consider it at all.

Boardroom dividend discussions ranged over a series of considerations: the equity and symbolism of returning cash to shareholders at a time when employees were being laid off or furloughed; the potential future opportunities gained (or lost) by following (or going against) government calls for dividend cuts; the reputational and signaling effects of maintaining versus suspending or reducing the dividend; the expectations of shareholders and the proportion reliant on dividend income; the company’s cash position and strategic plans; and what would be prudent in the face of extreme uncertainty. A decision that would typically require only a few minutes of board discussion — if that — became an hour-long (or more) deliberation.  And then there was the discussion about how to explain the decision in the company’s public communications.

In the end, some boards decided to maintain the dividend. Others decided to suspend or reduce it. In the U.K. and Europe, where policy makers and central banks urged cuts, the major banks and many companies followed their guidance. In the U.S., most of the large banks committed to maintaining their dividends, though authorities and experts disagreed about the wisdom of that choice.  Whatever the final decision, however, the process of reaching it was far from straightforward.

This is just one example of the reality that boards are facing as a result of Covid-19.  The new environment is characterized by an increasingly complex set of pressures and demands from various stakeholder groups, heightened expectations for societal engagement and corporate citizenship, and radical uncertainty about the future.  These factors are complicating board decision-making and challenging the shareholder-centric model of governance that has guided boards and business leaders for the past several decades.

The shareholder-centric model, which is based on what academics call “agency theory,” appears to be giving way to a richer model of governance that puts the health and resilience of the company at its center. The pandemic has made all too clear that society depends on well-functioning companies to meet its most basic needs — for food, shelter, communication, you name it — and that companies do not exist solely to maximize returns to shareholders. It follows that boards, which by law are a company’s governing body, should be concerned not just with returns to shareholders, but with the full range of factors that enable the company to create value over time. Paradoxically, this enlarged purview does not diminish boards’ accountability to shareholders, but it does imply changes in the nature and scope of that accountability.

Whether Covid-19 is truly an inflection point for corporate governance is yet to be seen, but there is no doubt that the pandemic has challenged core premises of the agency-based model of governance in ways that have important implications for boards. In this article, I discuss several of these challenges and suggest five ways the board’s job is likely to change in the post-Covid era.  As boards go through their annual self-assessment process, they will want to review their capabilities and readiness in each of these areas.

More Structured Attention to Stakeholders  

Shareholder primacy is the cornerstone of the agency-based model of governance, but if the pandemic has shown anything, it is the importance of each and every stakeholder group to a company’s ability to function, let alone thrive and succeed over time. In the face of Covid-19, some companies struggled because their customers disappeared. Others saw their workforce reduced to a skeleton crew of essential employees. Still others grappled with supply chain disruptions, unsustainable debt, or insufficient capital to fund their operations. Since the onset of the crisis, it has become common practice for management to update the board on the situation regarding each stakeholder group, and many boards and senior leaders have declared the health and safety of employees and customers to be their top priority. Some investor groups as well have weighed in on behalf of putting employees first during this perilous time.

The crisis has validated the logic of interdependence behind the Business Roundtable’s 2019 statement on corporate purpose, in which 181 CEOs pledged a commitment to each of five stakeholder groups — customers, employees, suppliers, communities, and shareholders — and reversed its endorsement of shareholder primacy. Coming out of the crisis, boards and senior leaders will find it even harder to say that shareholders — or, for that matter, any stakeholder group — has standing “primacy” over all the others. The crisis has demonstrated that the “primacy” of one group or the other cannot be fixed once-and-for-all.  In the life of a company, there are times when employee interests must come first, times when customer interests should take priority, times when public need is paramount, and times when the interests of shareholders should be the prime concern. As reactions to Covid-19 showed, much depends on the nature of the interests at issue and the circumstances of the company.

These lessons from Covid-19 imply a more active role for boards in monitoring companies’ relationships with their core stakeholders. That may mean asking management to continue the Covid-born practice of periodic reporting to the board on the status of each group or, more formally, to establish goals and a reporting process that will allow the board to track the company’s performance for its stakeholders more systematically over time.  Boards will also want to take a more active role in ensuring that tradeoffs among the interests of its various stakeholders are handled in a way that is consistent with its obligations to these groups and with the long-term health of the company. For that, it will be important for directors to have a shared understanding of the company’s purpose and strategy, as well as a framework defining the company’s stakeholders and responsibilities to each.

Many companies say they have commitments to all of their stakeholders, and that may well be true. But few boards have a structured process for overseeing those commitments or for tracking the company’s performance for its non-shareholder stakeholders. If they do, it is not something that is regularly reviewed and discussed in the boardroom in the way that performance for shareholders is regularly reviewed and discussed. To the extent that stakeholder concerns come into strategy or M&A decisions, it tends to be somewhat ad hoc or by exception rather than a routine part of the analyses that boards receive.

In the wake of Covid-19, boards will likely face increased pressure to incorporate stakeholder perspectives and voices, especially those of employees, into their oversight and decision processes. They will also be challenged to show that the company is performing well for all its stakeholders. External pressure aside, boards that have learned from Covid-19 will want to do this for their own purposes.

More Attention to How Business and Society Intersect

The pandemic has brought home the tight connection between business and society, and underscored the threat posed by risks stemming from large-scale societal problems that proponents of the shareholder model have traditionally regarded as outside the purview of business.  The pandemic has shown that, theory aside, companies cannot so easily disconnect themselves from society-at-large.

Covid-19 started as a public health crisis and quickly evolved into a financial and economic crisis of epic proportions. As the virus made its way across the globe, few, if any, companies were spared. Some saw demand for their offerings collapse overnight, while others faced a deluge of orders. Many had to invent new ways of working in a matter of days, if not hours. Stock prices plunged and then fell into a pattern of unprecedented volatility. In the face of uneven and, in some cases, ineffective responses by governments and with economic recovery dependent on stemming the public health crisis, many companies stepped up to fill the gap even as they struggled with their own problems. In the many meetings and updates during this period, directors found themselves reviewing management’s plans not only for steering the company through the crisis but also for helping combat the virus or aid in the relief effort.

Many companies rose to the occasion, retooling their production lines to make needed equipment, providing open access to otherwise proprietary information, offering their facilities or services to health authorities, or bringing their capabilities to bear on the crisis in other ways. Others acquitted themselves less well, and got caught in the public’s crosshairs for seeking to take advantage of government programs intended for those less fortunate. Many boards and senior leaders were forced to grapple with vexing questions of public responsibility at the same time that they were struggling with a crisis for which they were ill prepared.

For at least a decade, calls have been mounting for business to help address systemic concerns such as increasing income and wealth inequality, environmental degradation, climate change, racial and ethnic discrimination, declining public health and education, rising corruption, deteriorating public institutions, and, yes, increasing risk of pandemics. While some business leaders have heeded the call and found innovative ways to help address these problems, many others have looked the other way or defined the problems away as “social issues” or what economists calls “public goods” problems and therefore, by definition, outside the scope of their legitimate concern as business executives and fiduciaries for their shareholders.

Covid-19 has shown that these issues are not only legitimate areas of concern for business but also, and more importantly, sources of both risk and opportunity.  Like market forces, societal forces can profoundly affect the business and competitive environment. Coming out of the crisis, boards will want to work with their company’s leaders to ensure that the company’s risk management and oversight systems encompass the risks arising from these large-scale societal problems. They will also want to ensure that the company’s strategic planning and resource allocation processes take these problems into account, so that the resulting activities, at a minimum, do not exacerbate these problems and, ideally, help to ameliorate them.

In the wake of Covid-19 boards can expect institutional investors, governments, and the general public to renew their calls for companies to pay more attention to societal problems and to take a more active role in helping address them.  By the same token, boards themselves will increasingly be expected to oversee the business and society interface.  Instead of being the exception, robust oversight over sustainability, corporate responsibility, societal engagement, corporate citizenship, ESG — whatever you want to call it — will become the rule.

More Comprehensive Approach to Compensation

The pandemic has laid bare glaring disparities in pay across society and within companies. It also has brought to the surface several problems with the shareholder model’s traditional pay-for-performance paradigm, most notably its indifference to issues of equity (in the sense of fairness, including across gender and race) and to externalities such as impacts on third parties and the environment. The pandemic has also tested the paradigm’s suitability for conditions of extreme uncertainty when the motivational theories behind it are difficult to implement.

In its classic formulation, the paradigm defines “performance” solely in terms of returns to shareholders and treats pay as a tool to motivate executives to act in ways that will maximize those returns. In practice, this has evolved into a system in which boards set targets for actions or outcomes that they think will lead to shareholder returns and offer executives the prospect of large rewards in the form of cash or stock if — but only if — they achieve the targets.  According to the theory, the prospect of the reward motivates executives to work harder than they would otherwise to achieve the targets.

What should boards do, though, when a surprise downturn renders the targets irrelevant, which is what happened in the pandemic? When revenues collapsed in the wake of the lockdown, targets that boards had set just a few months earlier to determine eligibility for cash bonuses and stock awards became instantly unachievable. Given the large proportion of executive pay dependent either on meeting the pre-set performance targets, boards were confronted with the problem of retaining and motivating the executives whose talents were sorely needed to see the company through the crisis. At the same time, the obvious solution of adjusting targets downward seemed to make a mockery of the whole notion of pay for performance, especially considering that targets are never adjusted upwards when unexpectedly favorable conditions make them easy to achieve.  And few directors relished the idea of protecting the pay of those at the top while those same managers were simultaneously laying off or furloughing large swaths of the workforce during a time of general hardship.

The dilemma was all the more acute because of the gross disparities in pay between executive and management employees and those on the front lines in positions deemed essential to society’s functioning during the crisis.  These “essential” workers not only bore the brunt of potential exposure to Covid-19, but they also tended to be the least well paid and the most vulnerable to health and financial risk.

Boards and senior leaders navigated this thicket in various ways.  Some executives took temporary pay cuts in an effort to show solidarity with employees.  Some companies handed out special one-time bonuses to those on the front lines.  Some boards have, indeed, adjusted targets and thresholds downward, repriced options, or given executives new shares or stock options.  But it is clear that these measures, while responsive to the moment, do not solve the larger problems of compensation design revealed by the pandemic.

For years, textbook teaching has held that boards should design pay so as to align the interests of executives with those of shareholders and that high-powered incentives are necessary to motivate executives to do their jobs.  These ideas have created a system that is now deeply entrenched in practice even as research has revealed its flaws and even as enlightened shareholders have themselves called for tying pay to a broader set of factors linked to the company’s strategy, environmental impact, or social performance. Before the pandemic some boards were heeding the call, adding new measures of performance or otherwise seeking to align pay not just with short-term shareholder returns but with the longer-term health of the company and the needs of society. A few had linked executive pay with reductions in carbon emissions or with diversity and inclusion measures. With Covid-19 and the reckoning over racial inequity fueling new and more urgent calls for economic justice, it is only a matter of time before boards will be asked to justify the compensation paid not only to their top executives but also to rank-and-file employees, and to do so not just to shareholders but also to the broader public.

As the social and economic context continue to evolve, compensation committees will want to broaden their mandate beyond executive pay to include oversight over compensation policies across the organization.  They will also want to make sure that their compensation programs are aligned with the company’s strategy and societal commitments, perceived internally as fair and equitable, and well suited for what is likely to be continuing market uncertainty.

More Deliberative Decision-Making

As noted earlier, Covid-19 has complicated board decision-making and made it less amenable to general rules and simple formulas. The injunction to “maximize shareholder value” just does not have much purchase when it comes to deciding how much to invest in personal protection equipment to safeguard employees’ health or whether to convert an auto manufacturing line to the production of ventilators for a nation in need. Indeed, the pandemic has called into question many pre-crisis decisions that were taken in the name of maximizing shareholder value but that left those companies strapped for cash, saddled with debt, or otherwise ill-equipped to cope with the damage wrought by Covid-19.  In this new environment, boards are increasingly having to rely on qualitative judgments in forming opinions and reaching decisions.

To be sure, the decisions that boards are called on to make have always required some measure of qualitative judgment. Adages aside, the numbers frequently do not speak for themselves, and many issues that rise to the board are not amenable to resolution through financial analysis or other quantitative techniques. That’s why deliberation and debate have always been important in the boardroom and why the capacity to engage in such discussion is a critical skill for board members.

The pandemic, however, has amplified the importance of judgment and, correspondingly, increased the amount of time that boards are spending in deliberative discussions exploring different options and weighing competing considerations and perspectives. That’s, in part, because boards are having to deal with novel issues and matters for which they have no precedent or policy. Before the pandemic, for instance, few companies had policies and guidelines on virtual shareholder meetings, so when they emerged as a possibility, boards had to explore and assess the alternatives and implications quickly and carefully.

But the increased need for deliberative discussion is also a result of changes in the context that have upended pre-Covid business models. Fractured strategies, heightened uncertainty about the future, increased scrutiny from multiple audiences, and the need to perform well for all stakeholders — all of these factors are making it necessary for boards to consider a richer and more varied set of inputs and perspectives.

Consider the dividend decision discussed earlier: Instead of focusing just on the company’s cash position and shareholder expectations, boards had to consider the perspectives of employees, governments, and the public, and of differing groups of shareholders — and each group’s likely reactions to the various possible decisions. Boards also had to consider issues of fairness and the possible ramifications of taking action that might be perceived as unfair to the public or to employees, especially if the company was expecting to benefit from government assistance programs. Boards also had to think about alternative scenarios for how the pandemic might evolve and what those scenarios implied for the company’s strategy and future cash needs. Through a process of deliberation, these differing factors and perspectives had to be weighed and prioritized; alternative courses of action examined; and, ultimately, a decision made as to what would be best, all things considered, for the company given its particular situation.

In this and many other areas, Covid-19 has raised the bar on deliberation and judgment in the boardroom, but the underlying factors driving this development will most certainly outlive the pandemic. Companies will continue to face a complex and uncertain environment in which they are nevertheless expected to meet multiple objectives and answer to a diverse group of audiences. As boards work with management to chart the company’s post-Covid strategy and allocate resources as between current and future needs of the business, they will need to spend more time considering the claims of different stakeholders and reviewing the potential impacts of their decisions under various possible future scenarios. They will also need more and better information to support these discussions.

This analysis suggests that a board’s ability to deliberate in a thorough and thoughtful, but efficient, manner and come to a considered conclusion will be a critical aspect of its effectiveness in the post-Covid era.  As of today, directors and boards vary widely in their appetite and capacity for this sort of discussion. Board chairs, as well, differ in their ability to facilitate it. This is another area in which forward-thinking boards will want to assess themselves and, if needed, take steps to raise their game.

More Attention to Board Composition and Director Race and Ethnicity

The pandemic’s disparate effects and ensuing national outcry over racial inequity have put a spotlight on board composition, especially as it relates to directors’ race and ethnicity, a topic on which the agency-based model has been ambivalent at best. In his classic article on corporate social responsibility, economist Milton Friedman portrays the ideal “agent” (the theory’s term for a director or manager) as a generic male wholly devoted to maximizing the wealth of shareholders to the point of suppressing his own personal commitments — and even his responsibilities to family and community. In other words, the theory regards directors’ identities and personal characteristics as largely irrelevant for their roles.

This void in theory has been filled in practice by a custom of appointing directors with backgrounds as CEOs or CFOs, positions traditionally held by white men, and of drawing board candidates from existing directors’ own networks. The result has been a self-perpetuating system of boards populated mainly by white men of a certain seniority and background. Over the past decade, the gender disparity has been moderated somewhat by the push for more female directors. According to a study of Russell 3000 companies by Institutional Investor Services (ISS), the percentage of board seats filled by women went from 9% in 2009 to 19% in 2019. But racial and ethnic disparities persist and they are stark.  Another ISS study found that only about 12.5% of directors at the nation’s 3,000 largest companies are members of racial or ethnic minorities, even though these groups make up 40% of the U.S. population. According to a 2019 study by Black Enterprise, nearly 38% of S&P 500 companies have no black directors on their boards.

A board’s role is to provide strategic guidance and oversight, and directors must bring the appropriate skills to address a company’s specific business needs and circumstances. The pandemic and the national awakening to racial inequities in all walks of life have made it abundantly clear that a diversity of experience and perspective in the boardroom is also crucial for boards to do their job. Monitoring the company’s relationships with its stakeholders, assessing strategy, overseeing risk, reviewing societal engagement, assessing pay practices, overseeing management’s diversity and inclusion efforts — these are just a few of the standard board tasks for which the insights of directors from different racial and ethnic groups would appear to be essential inputs. Studies have shown that the addition of female directors has altered board discussions and made them more robust. The addition of more directors from underrepresented groups is likely to have a similar effect.

Quite apart from the benefits to companies and from the moral case for affording individuals of all races and ethnicities the opportunity to be considered for board positions, the inclusion of directors from minority communities is also important for combatting the racial inequities that cut across society. Experts say that the pandemic’s disproportionate effects on African Americans and other underrepresented minorities are driven in no small part by social and economic disadvantages borne by these groups. These disadvantages are unlikely to be rectified until more leaders who understand these problems occupy positions of power and influence in business and the boardroom.

Pressure to take action continues to mount. Institutional investors are already calling on boards to disclose their plans for adding Black and other underrepresented directors to their ranks, and at least one shareholder lawsuit has been filed against directors alleging breach of fiduciary duty based on the board’s lack of racial diversity. California lawmakers recently passed a bill that would require the boards of publicly traded companies with headquarters in that state to appoint at least one director from an underrepresented community by 2021. Some companies have pledged to add Black or other underrepresented directors of their own accord.

Boards that have not done so will want to review their director skill matrices and their board succession plans with an eye to enhancing racial and ethnic diversity in a way that is consistent with the company’s strategy and the board’s need for other types of diversity — industry, geographic, domain expertise, gender, and the like. For many boards, it will be necessary to develop new channels for identifying talent, new approaches to onboarding directors, and more deliberate processes for building board cohesion in order to achieve their goals and realize the benefits of having a board whose membership is truly diverse.

À la prochaine…

actualités internationales engagement et activisme actionnarial Gouvernance

Démocratie actionnariale : bilan de l’AMF France

Bonjour à toutes et à tous, article intéressant de Les Échos.fr « Les assemblées générales à huis clos ont porté atteinte aux droits des actionnaires » (24 novembre 2020).

Extrait :

Les assemblées générales (AG) 2021 se passeront-elles dans les mêmes conditions que les précédentes ? Les actionnaires qui n’ont cessé de déplorer depuis septembre d’avoir été privés de leurs droits fondamentaux (comme de révoquer ou de nommer un administrateur en séance) aux dernières AG attendent avec impatience l’ordonnance que doit publier le gouvernement . Ce qui ne devrait plus tarder car l’effet du précédent texte prend fin le 30 novembre. Or, une AG est prévue dès le 3 décembre – celle de Bonduelle.

Dans ce contexte, les actionnaires guettaient donc la publication du rapport de l’AMF (Autorité des Marchés Financiers) sur le gouvernement d’entreprise. Car ce rapport revient en détail sur la tenue des AG 2020. Le régulateur en tire « un bilan contrasté. »

À la prochaine…

engagement et activisme actionnarial Gouvernance normes de droit

Le législateur au secours de la démocratie actionnariale

Mme Boisseau de Les Échos publie une information bien intéressante pour la démocratie actionnariale : « Assemblées générales à huis clos : l’exécutif veut préserver les droits des actionnaires » (13 novembre 2020). À quand cette réaction au Québec et au Canada ?

Extrait :

Les actionnaires ne veulent surtout pas que les assemblées générales (AG) 2021 se tiennent dans les mêmes conditions que celles de 2020 . Pris de court en mars dernier par la pandémie du coronavirus, les pouvoirs publics ont autorisé leur tenue à huis clos, pour valider les comptes annuels, nommer des administrateurs et autoriser (parfois) le versement de dividendes. Une solution qui a privé les actionnaires de certains de leurs droits fondamentaux, comme de révoquer ou de nommer un administrateur en séance.

Depuis septembre, Better Finance, la fédération européenne des épargnants, la F2IC (Fédération des investisseurs individuels et des clubs), ou encore la SFAF (Société Française des Analystes Financiers) demandent au législateur et au régulateur des marchés financiers de réfléchir à une meilleure organisation des AG. L’Autorité des Marchés Financiers (AMF), qui doit rendre public très prochainement son rapport sur le gouvernement d’entreprise, va faire des propositions. Et surtout, Bercy a rédigé un projet d’ordonnance (la précédente ordonnance prise en mars prend fin le 30 novembre) qui tient compte de certaines de ces revendications.

À la prochaine…

Gouvernance Normes d'encadrement rémunération

Rémunération et COVID-19

L’Harvard Law School Forum on Corporate Governance publie une intéressante synthèse portant sur la rémunération des hauts dirigeants en période post-pandémie : « Evolving Compensation Responses to the Global Pandemic » (par Mike Kesner, Sandra Pace et John Sinkular, 7 novembre 2020).

Résumé :

  • For many of the companies severely harmed by the global pandemic, immediate cost-cutting measures were necessary to protect the business including furloughs, layoffs, suspended 401(k) matching contributions, and base salary reductions for most/all of the workforce.
  • Many of these companies approved their fiscal 2020 annual and long-term incentive (LTI) plans and prior LTI performance awards (i.e., 2018-2020 and 2019-2021 cycles) without any consideration for a global pandemic. These incentives often represent ≥50% of an executive’s annual compensation (≥70% in the case of the CEO), and it is highly likely the performance-contingent incentives are tracking to a zero payout and time-vested restricted stock units (RSUs) have greatly diminished in value.
  • The reduced value of realizable compensation directionally aligns with companies’ pay-for-performance (P4P) philosophies; however, the reductions are largely based on an unprecedented shutdown of the global economy due to health concerns and a reshaping of how many companies will “do business” now and into the future.
  • Severely harmed companies are assessing the near- and long-term implications of the downturn on all stakeholders and determining if changes to annual and long-term incentive programs are appropriate to balance the company’s talent goals with its P4P philosophy.

À la prochaine…

Gouvernance

Reimagining Capitalism in the Shadow of the Pandemic

Belle tribune de Rebecca Henderson dans le Harvard Business Review – Economics & Society : « Reimagining Capitalism in the Shadow of the Pandemic » (28 juillet 2020). a mise en perspective est intéressante et l’exemple de l’entreprise Kodak très parlant…

Extrait :

Instead, I want to reimagine capitalism, or at least our current version — the one that is obsessed with the short term and that doesn’t believe that business needs to care about the health of our society or our institutions. Doing so is the best way to ensure both businesses and our society prosper in the decades ahead.

The Pandemic’s Challenges — and Opportunities

Capitalism is one of the great inventions of the human race — an unparalleled source of prosperity, opportunity and innovation. We won’t solve the problems that we face without it. To solve inequality, we need good jobs — and lots of them. To solve climate change, we need (among other things) to transform the world’s energy, transportation, and agricultural systems. Only the relentless pressure of the free market can drive this kind of transformative innovation at scale.

In this context, the pandemic is both a massive challenge and an opportunity. A challenge because more than a half a million people have died, the global economy has been massively disrupted, and tens of millions of people have lost their jobs. A challenge because the combination of deep economic disadvantage — at the beginning of May nearly 61% percent of Hispanic and 44% of Black households had experienced a job or wage loss due to the corona virus, for example, compared with 38% percent of whites — and the killings of George FloydAhmaud ArberyBreona Taylor and countless others have brought anger and calls for justice to our streets. The world will almost certainly be poorer, more divided, and more fearful in 2021 than it was in 2019.

It’s an opportunity because it has also shown us so vividly what is wrong. Inequality is no longer simply an abstract idea. It’s a reality that many “essential” workers must show up even when they’re sick because they have no savings and no paid leave. That racism is not something that was solved by the civil rights movement. As the skies clear and early research suggests that the reduction in fossil fuel pollution is saving lives, the costs of continuing to rely on dirty energy have become much more tangible. Watching states bid against each other for vital medical equipment while the federal government fumbles its response to the virus has made the reality of our broken politics very clear.

The pandemic has reminded us that we stand and fall as a society and that the welfare of the poorest among us is integral to everyone’s welfare. It has shown us that planning for the future is essential and that, when the chips are down, a capable, responsive government is a necessity, not a dirty word. We’ve learned that when we must do something, we can: Fundamental change no longer seems impossibly out of the reach.

We can do better. We already have the resources and the knowledge we need to build a more equitable, sustainable capitalism. But to get there, business will have to change how it understands its role in the world (and in the U.S. in particular) — and how it thinks about government.

A New Path Forward

While free markets are an unparalleled source of prosperity and freedom, the free market can only take us where we need to go if externalities such as carbon pollution are properly priced, if there is genuine freedom of opportunity, and if the rules of the game are such that competition is free and fair. Markets do not police themselves; they must be balanced by transparent, capable, democratically accountable governments.

Today — in large part due to the rise of shareholder primacy, the increasing role of money in politics, and the systematic attack on government as a necessary or effective institution — that balance is largely absent. As a result, one of the fastest routes to profitability is often to persuade politicians to write the rules in your favor. Firms feel free to dump greenhouse gases into the atmosphere, for example, while spending hundreds of millions of dollars to lobby against carbon regulation. We’re even seeing this dynamic in the U.S. government’s response to the pandemic: It’s increasingly clear that an uncomfortably large share of the benefits from the recent stimulus has gone to very large firms and to very wealthy individuals.

I’m not suggesting that firms neglect their duty to their shareholders. Focusing on profitability is essential if a company is to thrive in today’s brutally competitive market. But profit maximization has always been a means to an end, justified by the idea that when markets are genuinely free and fair, there’s good reason to believe they lead to both prosperity and freedom.

But when markets are no longer held in check by governments that can police the rules of the game, appropriately control externalities, or provide the public goods necessary to support real opportunity, they become too powerful for their own good. The chaotic and uneven pandemic response we are experiencing today flows directly from 30 years of treating government as something that should be “drowned in the bathtub.”

Now more than ever, I believe firms have not just a moral duty to contribute to the health of the institutions that keep our society strong and our capitalism genuinely free and genuinely fair, but also an economic interest in doing so. We need to rebuild our democracy, strengthen our public conversation so that it’s firmly based on facts and mutual respect, commit with everything we have to building an inclusive society for everyone, and yes, find ways to rediscover the importance of democratically accountable, capable, responsive government.

Why? We cannot decarbonize the world’s energy supply without government regulating fossil fuel emissions and providing positive incentives to embrace low carbon solutions. Yes, individual firms can provide better jobs — paying employees a decent wage and providing ongoing training, among other necessary steps — but we’ll only successfully address inequality and racism at scale through structural reform, if we can do things like: provide quality education and health care to everyone, no matter their parents’ income; raise the minimum wage; and find ways to give employees more power as they negotiate with increasingly powerful firms. Most fundamentally, we’ll only rebuild trust in the political system, and with it a government that is genuinely responsive to ordinary people, if we can get money out of politics and stop tolerating business’s attacks on government. These attacks are often framed in terms of defending the free market, but too often are simply attempts to block the action we need to build a more equitable society.

Collective action — a sustained effort by coalitions of firms — could make a huge difference in helping to drive this kind of institutional change. Firms are already working together to solve some of the world’s toughest problems. A third of the world’s invested capital is already committed to insisting that the firms in their portfolios plan for the challenge of climate change. Businesses across the world are increasingly coming to realize that democratically accountable, freely elected, capable governments are critical to long term economic health — and are willing to say so in public. But they need to do more.

A “Kodak Moment” for the World

I can feel your skepticism as I write. Can business really change — and help government change along with it? Can it embrace a version of capitalism that focuses on the longer term and the common good? Can it help to rebuild the power of the very institutions that are needed to keep it in check?

I believe it can. We already know that it is possible to make money by addressing the world’s social and environmental problems. Walmart saved a billion dollars in fuel costs by increasing the efficiency of their trucking fleet. Elon Musk has revolutionized the automotive business and built a company worth more than GM and Ford combined in the process. The most successful $200M+ IPO of the last 20 years was a company that promised to replace beef with a burger made largely from soy. At Unilever, so called “purpose-driven” brands are growing 69% faster than the rest of the portfolio as consumers increasingly vote with their wallets.

Change on a broader scale will be much harder. But not impossible. Think of this as a “Kodak moment” for the world. I spent the first 20 years of my career at MIT as a professor of innovation and strategy. For much of it I was quite literally the Eastman Kodak professor of management. My title was a coincidence — but a deeply ironic one, since I spent most of my time trying to understand why large, successful firms like Kodak had so much trouble responding effectively when the world around them changed.

By now the company’s story is well-known: Kodak was once one of the world’s most successful firms. The firm invented classic film-based commercial photography and used it to build one of the world’s most iconic brands. As one senior vice president and director of Kodak research noted in a 1985 Wall Street Journal article, “We’re moving into an information-based company…[but] it’s very hard to find anything [with profit margins] like color photography that is legal.” But Kodak went bankrupt in 2012, having failed to master the transition to digital photography.

The business community now faces a similar transition. As the Business Roundtable’s historic decision last year to “lead their companies for the benefits of all stakeholders” suggested, the vast majority of the world’s leading firms know that we must tackle the challenge of climate change, that we must find a way to ensure that everyone has a chance to share in the world’s wealth, and that it’s vital that we not let democracy lose out to either oligarchy or tyranny. We know that we need to change. But too often it’s tempting to emulate Kodak, claiming that change will come — but not now. Insisting that it’s more profitable to stick with the old ways, that if it’s really important we’ll get around to doing something new — later. Change is hard. It’s not surprising that we’re struggling to adopt new ways of thinking about the world and business’s role in it.

But I am hopeful. Not optimistic, in the sense that I’m sure everything will work out just fine — I’m not sure of that at all. But hopeful. As a species, we have a gift for problem solving. Kodak failed to manage the digital transition, but Nikon, Canon and Fujifilm continue to be billion-dollar companies. Thousands of firms and millions of people are even now exploring ways to solve our common problems — for example, firms are partnering with each other and with governments to search for vaccines and to bring people back to work safely. This kind of cooperation must continue beyond the pandemic. As recent data shows, trust in business has fallen during the pandemic, but trust in government has risen dramatically. There is no better time for business to see government as a partner, not an adversary, in helping to make society work everyone — not just the lucky few.

We can learn from the horrors of the pandemic. We must. We don’t need to go back to “normal” — we need to reimagine capitalism instead. We need to find a way to balance the energy of the free market with the power of competent, responsive government. Together, they can help us build a more just and sustainable world.

À la prochaine…

actualités canadiennes Gouvernance normes de droit

Droit de parole en assemblée : le MÉDAC mécontent

Sous le titre suivant « Droit de parole verbal des actionnaires aux assemblées annuelles des sociétés par actions », le MÉDAC a partagé son expérience des dernières assemblées annuelles et son désarroi…

Je reproduis la lettre ci-dessous :

Montréal, vendredi le 30 octobre 2020

Éric Girard, ministre des Finances
390, boulevard Charest Est, 8e étage
Québec (Québec)  G1K 3H4

Chrystia Freeland, ministre des Finances
90, rue Elgin
Ottawa (Ontario)  K1A 0G5

Madame Freeland, Monsieur Girard, ministres des Finances,

La pandémie frappe le monde entier et il n’est pas possible de savoir quand le régime d’exception actuel prendra fin. Aussi, dans les circonstances, les assemblées annuelles des sociétés par actions, dont toutes les plus grandes, ont lieu virtuellement.

La tenue de pareilles assemblées virtuelles constitue une solution logique aux problèmes engendrés par la rigueur des consignes sanitaires de l’État. Cependant, les principes qui devraient encadrer ces assemblées ne sont pas respectés. Nous en témoignons. Calquer la pratique étasunienne ne suffit certes pas.

L’assemblée annuelle d’une société constitue le socle de sa légitimité quant à la délégation du contrôle de ses affaires aux administrateurs, par les actionnaires. Il en est ainsi depuis plusieurs centaines d’années. L’assemblée annuelle réunit les actionnaires. C’est leur assemblée à eux. Ceux-ci devraient pouvoir y prendre la parole verbalement, sur chaque point à l’ordre du jour. C’était du moins la pratique auparavant.

Les assemblées virtuelles devraient avoir pour objectif de reproduire, le plus fidèlement possible, l’ensemble des caractéristiques essentielles des véritables assemblées en personne, notamment le droit de parole verbal des actionnaires, en priorité.

Or, lors des assemblées virtuelles de cette année, de manière très générale, le droit de parole verbal a été refusé aux actionnaires. Nous le déplorons vivement.

Les Lois et les règlements devraient rendre ce droit de parole verbal explicite, comme il l’est dans la coutume, tel que confirmé dans la jurisprudence et repris par la doctrine. Le déni actuel de ce droit dans la pratique constitue un précédent inacceptable. Il faut agir.

Il s’agit là d’un seul problème parmi tous les autres qui doivent être réglés au sujet des assemblées virtuelles. C’est cependant le problème le plus important, à la source de plusieurs autres. Nous ne sommes pas seuls à penser cela. Par conséquent, nous vous invitons tous les deux à intervenir formellement pour régler la situation.

Nous demeurons bien évidemment disponibles pour discuter du détail de nos positions sur cette question (comme sur plusieurs autres), déjà communiquées à l’Autorité des marchés financiers (AMF), par ailleurs.

Prière d’agréer, Madame la ministre, Monsieur le ministre, notre considération cordiale.