To govern in the interest of the corporation

What is the board’s responsibility to stakeholders other than shareholders?

The measure of a business corporation’s success is undoubtedly its economic performance. However, to achieve an excellent performance in the long run, the corporation must make the best use of the talent and experience of all its personnel. It must protect its good reputation as an employer, supplier of goods and services, buyer and citizen of the regions and countries where it operates.

At some point in time, this statement would have been considered a truism.

Indeed, this concept of the corporation was dominant among large enterprises all through the  1950s to the 1980s. At that time, corporate executives and boards of directors were imbued with a responsibility for a broad spectrum of stakeholders. They sought to maintain a healthy balance between the interests of the employees, shareholders, clients, and the broader societyeneral. Financial markets, and the shareholders in particular, had  relatively little influence on the decisions of a large corporation when share ownership was fragmented and its financing came largely from internally generated funds.

Under the best circumstances, this kind of industrial arrangement produced excellent companies during that period: IBM, Dupont, GM and many others in the United States; Bell Canada, Alcan, the Canadian chartered banks, Canadian Pacific and others in Canada.

Whatever the legal stipulations about boards’ fiduciary responsibility may have been during the 1950s to 1980s, management and boards of directors (made up at the time of a majority of insiders drawn from management) were driven by a concept of the corporation that took the interests of the stakeholders into account just as much as those of the shareholders.