Whom does the board serve? It is all a matter of perspective--evolving perspective, that is.

• Author: Delves, Donald P.
• Position: BOARD TRANSFORMATION

TWO POWERFUL forces are reshaping the agendas of U.S. corporate boards. The first is an increase in "shareholder democracy" and the power of institutional and activist shareholders. The second is a subtle but more profound expansion in the perceived responsibility of the board to serve multiple constituents.

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Even as boards' accountability to shareholders is increasing, their sense of responsibility to other stakeholders is also increasing. This is evidenced by a growing focus on "corporate social responsibility" and topics like employee engagement, management development, succession planning, diversity and inclusion, community service, and environmental responsibility.

Is it possible that greater accountability to shareholders can go hand-in-hand with greater responsibility to all stakeholders? What are the implications for board members? Does the board serve all stakeholders, or just shareholders? Let us examine these questions from several perspectives:

* The Legal Perspective: The answer here is clear for U.S. corporations. The board's duty is to shareholders. All other stakeholders are deemed to have relationships with the corporation that are defined by contractual arrangements, and hence, do not require board representation. Shareholders are the "residual claimants" whose interests need to be safeguarded and overseen by a board whom they elect to represent their interests. While this is legally clear, it does not sufficiently account for the interests of communities and the environment, which one could argue are unrepresented residual claimants.

* The Compensation Perspective: For at least the past two decades, executive compensation has been focused primarily on aligning management with the interests of shareholders. "Maximizing shareholder value" has been the mantra of compensation committees. That said, other "softer" performance criteria have been creeping into management incentives, including measures of customer experience, employee engagement, leadership quality, innovation, community impact, and environmental stewardship. Boards are willing to pay for these non-financial results because they see the connection between value to shareholders and value to others.

* The Reporting Perspective: In a relatively new trend called "integrated reporting," a growing number of U.S. corporations are providing a broader array of information and data, which incorporate the company's performance with its employees...