1. For those who believe in shareholder primacy, does purpose-led reporting still matter?
Yes. The two are not mutually exclusive. Supporters of shareholder primacy focus on shareholder return; however, even in this context, factors such as employee satisfaction matter because satisfied employees generate shareholder value.
There are a variety of risk factors that affect shareholder value. They include poor management of resources, lack of employee engagement, inadequate cybersecurity controls, and threats to brand loyalty, as well as other environmental, social, and governance considerations. These types of risks, and the company’s performance against them, are not captured by traditional financial reporting. Purpose-led metrics aid investors focused on return with better visibility into all components of a company’s value proposition.
2. How can the board provide oversight over purpose-led reporting?
A company’s board of directors plays a critical role in defining its purpose. Key tenets of board oversight have a natural overlap with management’s responsibilities regarding the execution of a defined purpose: establishing the tone at the top; ensuring that internal controls are in place and operating effectively; and promoting accurate, high quality, and timely disclosure of material information to the public. In this paradigm, the board is well-positioned to provide oversight over management’s purpose-led reporting.
3. A framework will take time - what should I do now?
Purpose-led reporting can begin in the near term without further action from standard setters or regulators. A company could start by developing its own structured policy for reporting, focused on the factors and measurements important to its stakeholders. Measurements could range from same store sales to reliance on natural resources, employee turnover to information about the supply chain. While purpose-led reporting will typically include some amount of judgment, a robust policy would enhance the quality and consistency of judgments and enable independent assurance.