As many American companies grow to the size countries, their social responsibility has increased in tandem, but they are conflicted by an ongoing pressure to put shareholder returns first.
“Reflecting their unprecedented scale, U.S. corporations have been blamed for accelerating environmental degradation and aggravating disparities in income and wealth,” Wachtell, Lipton, Rosen & Katz wrote in a client memo this week. “Calls for the exercise of corporate social responsibility have become increasingly urgent.”
The trouble is that social issues can be neglected when firms make short-term shareholder returns a top priority. To address this conflict, Wachtell Lipton Founding Partner Martin Lipton developed The New Paradigm, a progressive approach to corporate governance that gives consideration to all stakeholders. Mr. Lipton spoke to CorpGov about the tenets of the approach in a recent interview, available here.
One important feature of The New Paradigm is to rely more on large institutional investors such as Blackrock, Vanguard and State Street as partners – rather than adversaries – of boards. “Survey after survey of major investors confirms that they expect companies to articulate a socially and economically valuable purpose, to take public stands on ethical issues, and to formulate long-term corporate policy with the rising risks posed by income inequality and environmental deterioration in steady view,” the memo said.
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