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Chris Hewitt Comments on Business Roundtable Principles of Corporate Governance

August 2019 -
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On August 16, the Business Roundtable released a new "Statement on the Purpose of a Corporation," which identified a fundamental commitment to all stakeholders of the corporation—customers, employees, suppliers, the communities in which they operate, as well as shareholders. The Statement concludes, "Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country." This new Statement represents a shift in perspective from shareholder primacy, which has been a bedrock of the Business Roundtable’s Statements since 1997.

On August 27, posted commentary by Chris Hewitt concerning the Business Roundtable’s revised Statement and new stakeholder perspective. Chris provided insights on whether the Statement has fiduciary implications for businesses that do not prioritize shareholders. In response to a question on how the Securities and Exchange Commission regulates director conduct, Chris noted:

"The SEC’s rules and regulations are disclosure oriented, not action oriented," Chris explained. "That is, they are supposed to be designed to provide disclosure to shareholders. They do not proscribe how directors are supposed to act. That said, the SEC frequently drafts disclosure rules that have the effect, purposeful or not, to influence behavior. For example, way back in the day, Y2K disclosure rules about preparedness for Y2K were designed to get companies to be prepared. Similarly, conflict mineral disclosure was designed to get companies not to buy conflict minerals and to make sure their suppliers didn’t either. In effect, the entire disclosure regime from the SEC influences directors to act in the best interests of shareholders so they don’t have to disclose their failures."

Read the article and more of Chris's commentary here.

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