Corporate Governance

Shearman & Sterling LLP Governance Amid Crisis – How 2020 Changed the Boardroom | 3 Governance Amid Crisis – How 2020 Changed the Boardroom Richard B. Alsop, George A. Casey and Lona Nallengara The dramatic events of 2020 have impacted every aspect of American life, and the boardroom is no exception. Although 2020 began on a politically charged note with the presidential impeachment process in full swing in a bitterly divided Senate, the national dialogue on corporate governance was breaking exciting new, albeit uncharted, ground with an evolving consensus among business leaders and the largest institutional shareholders around the need to reexamine the purpose of the corporation against the backdrop of the traditional shareholder primacy model of corporate governance. These developments have been driven in substantial part by increasing interest in and emphasis on ESG considerations on the part of institutional investors and a growing number of U.S. public company CEOs. This in turn has accelerated the corporate acknowledgment that demonstrating an awareness and appreciation of ESG considerations is increasingly important to compete not only for capital and investment, but also for human talent, brand connection and customer engagement. Climate change and other environmental concerns have also driven a focus on long-term sustainability that has moved beyond tracking carbon emissions to a broader conversation around sustainable long- term growth, community impact and a growing recognition that shareholder value is aligned with, not at odds with, consideration of a broader set of stakeholder interests. In one sense, 2020 brought the perfect storm of tests of these principles for boards of public companies. The onset of the COVID-19 pandemic led to an unprecedented economic shock as business and school closures, stay at home orders and a virtual shut down of the global economy led to massive disruption, enormous job losses and unprecedented dislocations in the most basic aspects of human life. The boards of public companies faced wrenching decisions, including weighing actions to ensure business continuity and for some, their very survival, against fears of endangering lives, assessing demands to assist in essential worker safety, designing strategies to retool business models and resize workforces for a prolonged period of lower activity, and considering whether it was appropriate to accept government assistance. Corporations in a variety of industries responded to essential societal needs, such as supplying personal protective equipment for healthcare workers and ventilators to treat the sick, ensuring the continuity of the food supply chain, maintaining access to necessary transportation, and protecting access to the internet to make working from home possible, to name just a few. Then, in the midst of the COVID-19 pandemic, the shocking killing of George Floyd and the subsequent protests in support of the Black Lives Matter movement led to calls for a reexamination of systemic racism and social justice issues throughout society, against the backdrop of ominous reports of how the COVID-19 pandemic had a disproportionate effect on the lives of people of color. These two crises have demanded the complete focus and attention of corporate boards in ways that no one could have imagined as the year began. But the foundations that have been built through the focus on ESG and the efforts to redefine the role of the corporation seem to be bearing fruit as boards are tested and forced to reckon with the numerous economic and social issues and consequences in the crucible of this defining moment in U.S. history. In this article, we examine some of the recent developments in the debate about the role of the corporation in society and offer some practical guidance for boards to consider as their companies navigate these difficult times and try to prepare for what lies ahead. Insights

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