Governance, purpose and value for our times?

Even before lockdown, advisers were helping companies navigate the Wates Corporate Governance Principles and many companies had received B Corp certification worldwide as governance, purpose and values rose to the top of the business agenda and debate.

Companies and business leaders have come to see good governance, an effective purpose and adopting values aligned with their staff and their customers as being “not about box-ticking” (James Wates, CBE), but as a business differentiator.

More recently, BlackRock have identified (Sustainable investing: Resilience amid uncertainty) these traits as being an ever increasing valuable business trait noting: “this period of market turbulence and economic uncertainty has further reinforced our conviction that environmental, social and governance (ESG) characteristics indicate resilience during market downturns”.

So our question is will we start to see a premium being offered for companies that can evidence strong characteristics in these areas? Will it become a key factor in the success of a breakthrough start-up and a strong growth story? Is it likely that more diligence and attention will be paid in transactions to these traits as opposed to the more standard traditional diligence? Almost certainly it will be something that more and more businesses and owners highlight in every aspect of their business life.

But having said that, in itself ESG will not be the sole driver of success or value creation. Other views (such as Alex Edmans) and research argue that the business world and the investment world and value creation is still far more involved than ESG factors, but in these times I believe it will become an additional overlay to consider in business, in investment and in transactional matters.

Stuart Hatcher is a Partner in our Corporate team.