New Challenges in a New Era — Leadership Matters

America’s top companies play a big role in every sector of the U.S. economy. And as the leaders of those companies, we see up close how the governance of public companies impacts the country’s economic health over the long run.

For decades, Business Roundtable has set the standard in governance practices with its flagship publication, Principles of Corporate Governance. And — faced with new challenges in a new era — that continues today.

Business Roundtable has updated the Principles for 2016, giving companies leading guidance for upholding the highest standards of governance.

The Principles, in particular, stake out ground on the key issues that are shaping the 21st century business environment, including changes in shareholder engagement and responsibility and the rising tide of shareholder activism, as well as other topics such as board diversity and cybersecurity.

No one approach to corporate governance can possibly serve all companies. That’s why the Principles are a guide to help each company develop the structures, practices and processes that are appropriate in light of its needs and circumstances.

Central to a corporation’s success is a healthy and appropriate relationship between the CEO and senior corporate management, the board of directors and the shareholders. There are many examples of how strong and effective CEO leadership makes the difference between a good company and an exceptional one. While great leadership can never be guaranteed, companies can take steps to ensure that it is identified and nurtured — as the Principles illustrate.

We would like to share with you a few areas emphasized in the Principles where leadership matters now more than ever.

The Board & Senior Management

In public companies, the board of directors represents the long-term economic interests of the corporation and the shareholders as a whole. One of the board’s primary duties is to identify, evaluate and select a well-qualified CEO to lead the company. Once a CEO is in place, the board is responsible for ensuring that the CEO and senior management are accountable to shareholders for driving long-term value, preemptively addressing foreseeable risks and operating the company according to the highest standards of ethics and compliance.

Shareholder Engagement

One of the more recent trends in corporate governance is the growing desire of companies to more deeply engage their shareholders — coupled with record levels of shareholder activism to influence the board and management. This modern environment is creating new challenges for targeted companies and their boards, often soaking up time and resources and diverting their focus on what is good for the economy.

In a public company, shareholders elect directors to oversee management’s operation of the company in the best interests of the company and its shareholders as a whole. The board of directors occupies a critical link in the chain of accountability between management and shareholders. But, shareholders are neither homogeneous nor monolithic — they have many different interests shaped by their individual circumstances. Thus, the board neither represents particular shareholders nor groups of shareholder activists pursuing agendas — whether economic or non-economic, long-term or short-term — that are at odds with the long-term best interests of the company and its shareholders.

In this era of deeper shareholder engagement, the board’s role is to listen and appropriately respond to shareholder concerns regarding value creation over the long run. While social, political and environmental activism may play an important role in shaping society, in general, it should have no formal role in the boardroom — outside of the appropriate management of a firm’s enterprise risks.

The top priority for CEOs and boards should be to drive corporate performance over the long term. Allowing leadership to focus on growing the business and its value creation will ultimately deliver increased living standards, expand opportunities for Americans and create more room for social improvement.

Shareholder Accountability & Responsibility

Shareholders, too, should have more responsibility in this new environment. For America’s CEOs, transparency is a basic but essential element in this “age of information.” A shareholder that attempts to influence corporate behavior also should be encouraged to publicly disclose the nature of its identity and ownership — even in cases where the federal securities laws may not require disclosure.

This responsibility goes beyond disclosure. Shareholders should not seek additional empowerment without assuming increased accountability to promote a company’s long-term strategy. This means they should not use their investments for purposes that are out of sync with the goals of for-profit public enterprises and shareholders’ best interests. They should also not leverage their investment to pursue personal, social or short-term agendas unrelated to the company’s business strategy.

This concept of shareholder responsibility is becoming an integral part of modern thinking on corporate governance in the United States — an area in which we stand ready to lead.

We encourage you to take a look at the Principles of Corporate Governance and see what the future of exceptional U.S. corporate leadership looks like — and the dividends it will pay.