Will Covid-19 Accelerate the Shift Towards Stakeholder Governance?

Luca Giacalone, a Senior ESG Analyst with SquareWell Partners, pens an opinion piece for Board Agenda as to whether Covid-19 will accelerate the shift towards stakeholder governance. Prior to the last financial crisis, the shareholder primacy model of corporate governance was unchallenged. Companies were run solely to the benefit of shareholders, with share price performance being the ultimate measure of a company’s success. Since then, sustainable investing has grown to become one of the most attractive investment strategies. As the integration of environmental, social and governance (ESG) factors into investment is progressively becoming mainstream, investors have placed greater focus on how companies “create value” for the longer term and what their “purpose” is.

The shift in mindset and in capital allocation have undoubtedly put management teams in a challenging situation whereby they need to balance the market’s demands for financial returns while ensuring that their actions are not detrimental to the interests of other stakeholders. As the coronavirus pandemic is providing an acid test to the sustainability claims of companies and investors, this crisis and its aftermath may make louder the calls for the adoption of a more stakeholder-oriented decision-making process at companies.

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