I attended a workshop on the risk management responsibilities of being a Director of a corporation. I asked who was the corporation ultimately responsible to: the shareholder or to the customer/stakeholder. He said neither since the corporation is responsible to itself. When I pressed further, he said that the corporation’s assets are to be used to further its goals into the future, not necessarily the goals of the immediate shareholders/stakeholders, though these two usually do align.
I was fascinated. This means that as a Director of any corporation (non-profit/for-profit) my fiduciary responsibility means being loyal first to the corporation and its goals. I and the other Directors are to operate the corporation as if it was going to be around another 100 years and then govern accordingly. Our goal is to have the corporation be a service to present and future generations of shareholders and stakeholders. Even though it might be beneficial to sell all of the corporation’s assets now, thereby dissolving the corporation, and distribute them to the shareholders (meeting the shareholder’s need for a good return), this is not good for the future shareholders/stakeholders of the company who cannot be present at the table.
The same principle applies to non-profit corporations, where it would be wrong to utilize a corporation’s resources to satisfy only the needs of an existing group of consumers to the detriment of future members/customers. I have seen this in a couple of the non-profit housing corporations I sit as a Director. The stakeholders there just care about their stake and pay no attention to the corporation’s future duties and obligations. A well governed corporation is to never be short-term orientated.
Enron was an perfect example of Directors making decisions with no regard to the future and that is why they were found culpable and fully punished. This also reinforces my view that the Corporation itself is not the problem, but is only as good as the Directors that govern it. The duty of all Directors is to take the long term view, to balance the needs of the present and future generations, and to remain a going concern into the future.
Sounds like wisdom to me. Its a shame and tragedy that very few Directors and Shareholders/Stakeholders understand and practice this principle.