Ravenscroft Group | Sam Dovey
24 Apr 20

Investment update - The changing face of business practice

In November 2019, I attended an Environment, Social, and Governance (ESG) conference to learn more about what this focus means for us as professional investors, the pressure this emphasis may place on our industry and the impact it might (or should) have on businesses we invest into.

During this conference, I learned about an organisation called the Business Roundtable (BRT) and the work it does. The BRT is a not-for-profit association based in Washington DC whose members are chief executive officers of major US companies such as Jamie Dimon of JP Morgan and Alex Gorsky of Johnson & Johnson. The companies and people involved sparked my interest and the reason it was highlighted at the conference was that the BRT had amended its “Statement of Purpose of a Corporation” by ditching its “shareholder first” mantra.

Since 1978, the BRT has periodically issued Principals of Corporate Governance that include the purpose of a corporation. Each version issued since 1997 has stated that:

“Corporations exist principally to serve their shareholders”

However, the BRT thought this was no longer appropriate in today’s society where social and environmental issues take equal place alongside the economy of the communities in which these companies operate in and benefit from. It was time to update the mantra to show that today’s CEOs wanted to create enduring “value for all stakeholders”.

Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. This has formed the basis of the new “purpose” of a corporation which has been signed by nearly 200 companies – including 3M, Visa, Oracle, Medtronic, Johnson and Johnson, Honeywell, and Apple, all of which are held in our Huntress Blue Chip Fund.

These companies have signed up to the five fundamental commitments listed below;

  1. Delivering value to customers – by meeting or exceeding customer expectations
  2. Investing in employees – by compensating them fairly and providing important benefits, it also includes supporting them through training and education that help develop new skills for a rapidly changing world – fostering diversity and inclusion, dignity and respect.
  3. Dealing fairly and ethically with suppliers – they are dedicated to serving as good partners to the other companies, large and small, and help them meet their missions.
  4. Supporting the communities in which they work – by respecting the community, people and the environment by embracing sustainable practices across their businesses.
  5. Generating long-term value for shareholders – they provide the capital that allows companies to invest, grow and innovate. This is a commitment to transparency and effective engagement with shareholders.

Being investors, and ultimately shareholders, in a number of these businesses, you may ask why this matters – surely management should run the company first and foremost for the shareholders? We would argue that each and every one of the stakeholders mentioned above are essential to the sustainability and profitability of the company going forward and the BRT seems to agree.

If you think about commitments number two “investing in employees” and five “generating long term value”; by offering a good job with good benefits, a company not only provides security to employees and their families, but also attract the best talent to the workplace – attracting talented and diverse employees is critical – to achieve the end goal of profitability for all. Businesses know they must play a role in preparing the coming generations with critical skills and knowledge. Today’s students are tomorrow’s employees, thinkers, leaders, doers, and innovators – what is more important when planning a company’s future than considering its sustainability and the relationships with its related parties, from supply chains to end users.

The long-term success of companies depends on businesses investing in the economic security of their employees and the communities in which they operate. Companies that realise this have built strong bonds with all their stakeholders, maybe the BRT’s mantra should be ‘stronger together!’

It will be interesting to see how many of BRT’s members live up to their new mantra during this pandemic and who revert to type. In Monday's Ravenscroft weekly update, I will be looking at how BRT is responding to COVID-19 - if you don't receive that then it will be posted on the website and on our new client portal.

Yesterday, we held our first online investment update and want to thank all those who joined us, we’re truly humbled you took the time to listen  and we hope you were able to take something from it. Please let us know your thoughts or whether you have any questions as we’re here to help.

If you missed our webinar then you can access the recording by clicking on this link.

 

FINANCIAL PROMOTION: The value of investments and the income derived from them may go down as well as up and you may not receive back all the money which you invested. Any information relating to past performance of an investment service is not a guide to future performance.

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