Lessons from Pope Francis and Exxon Mobil
The CEO of BlackRock, Pope Francis, and two Harvard Business School professors walk into an Exxon Mobil shareholder’s meeting….sounds like the start of a decent joke, perhaps?
Instead, it’s an unlikely group of people who might agree on how Exxon finds itself at the center of this century’s industry meltdown over research reminiscent of the tobacco industry.
The New York attorney general is investigating two issues regarding Exxon Mobil’s honesty: that the company lied to the public about the risks of climate change or to investors about how those risks would impact future earnings. With both reputational and financial risk exposure, this is big news for the company and also has implications for corporate America.
This story breaks on the heels of public musings by influential leaders, statements that could ultimately encourage corporations to be specific and transparent about which stakeholders are being considered important as executives manage performance and board members govern. This should lead to meaningful changes in corporate reporting and board directors’ job descriptions.
In April, BlackRock CEO and Chairman, Larry Fink wrote a letter to 500 S&P CEOs and leaders of other large companies his firm invests in, and in it he cites a range of trends from activist shareholders to public policy failures as contributors to the short-term, purely financial corporate view of value creation. He writes that corporate leaders should be loyal first not to every investor or trader who owns shares at any moment in time but to the company and its long-term owners. He promises that corporate leaders who pursue strategies for sustainable, long-term growth will receive BlackRock’s support.
In June, Pope Francis’ encyclical on the environment invited readers to open a dialogue, and it was a successful strategy, as people and political parties now debate the full meaning of his message. Is capitalism evil and should technology be set aside in the name of embracing the science of climate change?
No, the Pope instead offers new language to shift us from extreme perspectives and give us something to care about in common-- our home, Earth. In Laudato Si, Pope Francis is reminding us, as St. Ignatius, the founder of his Jesuit order, did before him, that we are all leaders and leadership is not a job but a way of living. We each have not only a stake in the outcome but a responsibility to it.
In September, Robert Eccles and Tim Youmans of Harvard Business School released a working paper on research about “shareholder primacy,” the notion that corporate boards must hold shareholder return as the sole interest they protect. They contend that their global research finds this to be ideology only, not law. They state that a corporation’s objective is to exist and thrive; that shareholders have tradable rights but boards shoulder the burden of ownership; and say “the board must simply decide which audiences are the most significant for the ability of the corporation to create value over the short-, medium- and long-term.”
The paper ends with a call to add a new report to required corporate disclosures, one that identifies the stakeholders the company is holding itself responsible to in pursuing its goals. They would require companies to clearly state if they are managing only for short-term, shareholder return or identify all major stakeholders they consider. A “Statement of Significant Audiences and Materiality” such as the one Eccles and Youmans propose has not appeared on board agendas yet. But I predict it soon will, as well it should.
In his encyclical, Pope Francis reminds us that “caring for eco-systems demands far-sightedness, since no one looking for quick and easy profit is truly interested in their preservation.”
On the need for corporate leaders to embrace such farsightedness to protect the interests of important stakeholders in addition to shareholders, Larry Fink, Pope Francis, HBS scholars, and Exxon Mobil investors can agree. I can too.
Homeowners, after all, usually make better home improvements than renters. As citizens of the earth accept responsibility for our home, so CEOs and boards should act like the owners of the companies they lead.