This update presents our predictions, based on the current governance environment, and our recommendations on issues that should be important when preparing for the upcoming proxy season. This year's update takes into account comments made by representatives of institutional investors and governance organizations at a webinar we held recently, and provides guidance to help issuers navigate turbulent times.

Purpose: A meaningful umbrella?

When the Statement on the Purpose of a Corporation1 was released by the Business Roundtable a little over a year ago, its signatories could not have predicted that a once-in-a-century global pandemic was looming on the horizon. And yet, the timing of its statement could not have been more fitting, as in the context of the multi-faceted crisis, corporate directors will most likely have to demonstrate how, through executing a clearly stated purpose, they took into account the interests of various stakeholders. 

This year, many clients are considering adopting their own statements of purpose, often in response to shareholder proposals. In thinking about their approach, issuers point out it is not always simple to translate their corporate purpose into words.

Two main reasons underlie the "challenge" of drafting a statement of purpose. First, purpose  is wide-ranging and variable notion – an umbrella – that encompasses broad subject matters such as environmental, social and governance topics (ESG), stakeholder engagement, business strategy, policy, and much more. Purpose statements should be adequately tailored to a corporation's specific industry, business and unique characteristics. The second challenge is that one must be wary of unexpected consequences when drafting a statement of purpose. Such a statement could be a powerful means to create an impact, but it can also generate liability if a corporation is unable to live up to its commitments.

Some authors and institutional investors have raised doubts about the real impact of statements of purpose.3 Some of them question the motivations of issuers and how serious they are about implementing such statements. They point to vague and boilerplate language used by some issuers, as opposed to customized, well-thought-out statements.  

We understand that when considering how to vote on a shareholder proposal requesting an issuer to adopt a statement of purpose, most institutional investors and proxy advisors will look at existing policies and practices of the issuer. The fact an issuer has or has not adopted a statement of purpose will not in itself be determinative to the outcome of a voting recommendation. An issuer that can show there is substance behind its ESG policies and it is committed to implementing them will get shareholders' endorsement more easily than issuers with boilerplate statements.

Recommendation: Take the opportunity of the pandemic to re-assess your purpose or ESG policies, consider adopting meaningful objectives, and – most importantly – ensure they can and will be translated into concrete actions.