Building trust as boards make long-term strategic investment decisions

May 2017

On April 27, 2017, a group of thinkers and actors in the capital markets met in Boston to launch an investigation into how large companies make fundamental strategy choices, using investments that enhance a firm’s environmental, social, and governance (ESG) performance as a window into the decision-making process. The meeting was sponsored by High Meadows Institute, which is focused on the role of business responsibility and leadership in building a 21st century social contract that can ensure sustainable economic and social progress in a global economy and society. See Appendix A for a list of participants.  

The meeting focused on large public companies with distributed equity shareholding, thus excluding family firms and companies like Alphabet, in which a few people control most of the votes. In undertaking investments in ESG improvement, infrastructure, or other areas with uncertain, long-term payoffs, these larger public firms face real governance challenges. The directors can be forced to choose between strengthening the company’s long-run future or satisfying shareholders who may be looking for rapid returns. Shareholders in these firms also face choices.  Some equity investors, dissatisfied with a board’s choice to invest in ESG, for example, can vote with their feet, selling their shares to others. But a growing percentage of investors own shares in index funds and other instruments with fixed portfolios. Unable to divest, these investors have more of an incentive to agitate for change within individual companies or to align with themselves with agitators. 

This document synthesizes the perspectives and ideas raised in the meeting and in conversations leading up to it. It centers on three themes:

  • Corporate leaders insist on a business case for ESG investments

  • Companies face challenges when making any long-term investment

  • Building trust between the board, management, and investors