One by one, America’s business leaders and major institutional investors spoke out in support of racial equality and justice this week in the wake of a series of deaths of Black Americans at the hands of police and others. Fortune’s Alan Murray pointed out, “
this sort of CEO public reaction to controversial social issues just didn’t happen a decade or more ago.”
As black squares and supportive statements hit Instagram and Twitter, Americans took to the streets to make clear they want more action and not just words. Many companies went beyond words of support and announced initiatives to address criminal justice reform, police brutality against Black people, racial inequality, lack of opportunity for people of color and lack of action from civic leaders.
The protests have kept ESG on the front burner even as companies grapple with the corporate governance implications of COVID-19. Employee issues, compensation, and capital allocation amid a pandemic continue to prompt debate among leading practitioners. Corporate law titans
Skadden, Arps, Slate, Meagher & Flom LLP and Wachtell, Lipton, Rosen & Katz, which have sparred against each other for decades on the M&A battlefield and other corporate fora, faced off this week on another topic: a company’s purpose.
Wachtell has called for the end of shareholder primacy and the beginning of the new paradigm, whereby a company’s commitment is to long-term sustainable investment and not its current stock price. Through many memos, including one on corporate purpose last week, Wachtell has articulated its stance that doing good by employees and other stakeholders should be companies’ driving force.
But Skadden argued this week that a company’s embrace of ESG must come with caution. The memo makes the case that companies can embrace simultaneously shareholder primacy and consider ESG issues. After all, looking after employees and customers makes good business sense and can drive long-term shareholder value. But Skadden goes a step further and says directors of Delaware-incorporated companies who emphasize ESG when it comes to stakeholder issues run the risk of overlooking their fiduciary duties and losing the protection of Delaware’s business judgement rule.
The dueling memos are sure to be the subject of many ESG legal panels henceforth.
Stay safe and have a great weekend,
Steve, Michael and Gabriella
