A recently published paper by Harvard Business School's Robert Eccles and Tim Youmans proposes that all publicly traded corporations be required to publish an annual “Statement of Significant Audiences.” The purpose of such a publication is partly to debunk the notion that the fiduciary duty of the Corporation extends only to its shareholders and its profitability.
Needless to say, that subject is a heavily contested territory. This author and many of his legal clients and colleagues believe that the correct analysis is that the Corporation and its Board of Directors owe a fiduciary duty to society, to many stakeholders, not just to the shareholders.
The concept of publishing an annual statement of significant audiences is in line with similar requirements under the Global Reporting Initiative to annually report on the company's stakeholders. The annual statement of significant audiences proposed by the authors is part of their overall effort with others to establish integrated reporting by corporations, in which environmental and social issues appear alongside typical SEC financial reporting requirements in a single integrated report. They assert in the article that identifying the "significant audiences" of the company is just as relevant to an SEC form 10-K or 10-Q as it is to an integrated report.
This proposal represents a useful
rebuttal to often overstated and damaging endorsements of shareholder primacy
in defining the scope of board and management fiduciary duties. For instance,
when it comes to the problem of climate change and the catastrophic long-term
damage posed to society, an overweening emphasis on shareholder primacy and the lack of
accountability to future generations of shareholders and non-shareholders
arguably is at the heart of decisions by certain major oil companies to
blindly focus on fossil fuel development with appallingly little concern for the long-term implications to other audiences who should have substantial concern, and to whom the company owes accountability.
While the Statement of Significant Audience idea is meritorious and should be of interest to the growing number of NGOs and investors who agree with this take on the Corporation and accountability to its stakeholders, unfortunately the paper extensively refers to the corporation as a "legal person." For instance, the article states:
The objective of the corporation, as a separate and potentially immortal legal person, is simply to survive and, if possible, to thrive.
Attaching the statement of significant audiences to the notion of
corporate personhood represents unnecessary baggage. As stated in the dissent
by Justice Stevens in Citizens United v. Federal Election Commission http://www.supremecourt.gov/opinions/09pdf/08-205.pdf
It might also be added that corporations have no consciences, no beliefs, no feelings, no thoughts, no desires. Corporations help structure and facilitate the activities of human beings, to be sure, and their “personhood” often serves as a useful legal fiction. But they are not themselves members of “We the People” by whom and for whom our Constitution was established.
Many shareholders,
individuals and organizations that could
be natural supporters of the concept of a statement of significant audiences may
find the references to corporate personhood to be a nonstarter. There is a substantial effort within those “significant audiences” to
revise or eliminate the confusing
concept of corporate personhood, including through constitutional amendment.
For instance, S.J.Res.18 sponsored by Sen. Tester (D-MT) proposes an amendment to the Constitution,
known as the People’s Rights amendment, would specify:
“Section 2. The words people, person, or citizen as used in this Constitution do not include corporations, limited liability companies or other corporate entities established by the laws of any State, the United States, or any foreign state, and such corporate entities are subject to such regulation as the people, through their elected State and Federal representatives, deem reasonable and are otherwise consistent with the powers of Congress and the States under this Constitution.”
A state-by-state effort is underway to support
such a constitutional amendment. For instance, in Washington State, the organization WAmend is pursuing a
Constitutional amendment to clarify that it should be citizens, the living
breathing "We the People" meant by the founders — not corporate
entities—that are entitled to the rights enshrined in the Constitution.
I would encourage advocates of the "statement of significant audiences" to extricate unnecessary references to corporate personhood. In doing so, they might find greater
buy-in by natural advocates and allies for the concept.
* * *
Sanford Lewis is an
attorney whose clients include
institutional investors, social
investment firms and nonprofit organizations. His practice is focused on
shareholder proposals, shareholder rights and improving corporate environmental
and social disclosure requirements of the Securities and Exchange Commission.
Mr. Lewis was co-author and lead researcher on The Rose Foundation paper,
“Fooling Investors and Fooling Themselves: How Aggressive Corporate Accounting
and Asset Management Tactics Can Lead to Environmental Accounting Fraud.” He is
also a documentary filmmaker. Mr. Lewis
has a BS in Environmental Studies and Urban Communications from Cook College,
Rutgers University, and a JD from the University of Michigan Law School.
