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Source: Marshall E Blume and Donald B Keim,

Institutional investors and stock market liquidity:

trends and relationships, Wharton School working paper;

Thomson Reuters; McKinsey analysis

The need for business to communicate short-term

financial performance - and therefore focus on shortterm

decision-making - is often used as a reason why

its relationship with society is so fragile. Surveys by

McKinsey show that in a given situation only half of

businesses would make decisions with the long term in

mind, yet a recent McKinsey study of US stocks reveals

that 75 per cent are owned by long-term investors.

It may therefore be easier to put societal contribution at

the heart of strategy than many business leaders think.

There was widespread public anger that individuals were

not held to account for the credit crisis and the scandals

that followed. Fast-forward a decade and regulations are

being tightened to make it more difficult for corporate

leaders to escape punishment if misconduct is found.

In the UK, the government will bring in reforms this

year that shift the dial as far as white-collar offences

are concerned. Borrowing from bribery and tax evasion

laws, the changes mean that instead of proving a senior

executive actively aided fraud or money laundering,

the authorities will simply have to show that they failed

to prevent it. This is part of a global trend - similar

reforms are in the pipeline in France and New Zealand

while new US attorney general Jeff Sessions is a strong

believer in the deterrent value of jail time for executives.

The accountability drive is extending to supply chains,

too. In the EU, companies now have to file sustainability

reports on their operations in each country in which

they employ more than 500 people. Like the UK's

Modern Slavery Act - which mandates that companies

publish statements online detailing what they have

done to investigate the potential use of forced labour

- the EU's sustainability reporting lacks punitive

provisions. But, says Marilyn Croser of corporate

responsibility lobbying group Core, the advantage

of these reforms is that they push potential concerns

'up to the boardroom, rather than the CSR department'.

Once again transparency is being used to drive

change, with society's relationship with business

the force on the lever.

Then there is executive pay. What President Trump,

himself a well-rewarded CEO, thinks about the

Securities and Exchange Commission's plan to force

companies to publish pay ratios remains to be seen. But

politicians across the world increasingly seek to remind

executives that they live in the same world as their staff.

Theresa May's recent focus on corporate governance

has zeroed in on similar comparisons, while Sigmar

Gabriel - him again - has proposed setting legal limits

on boardroom pay in Germany. In one of the most eyecatching

moves to date, the city of Portland will foist an

additional 10 per cent tax on businesses if their CEO's

salary exceeds that of the median worker more than

one hundredfold.  Such interventionism responds to the

sense that boards are out of control, out of touch and

unaccountable to their shareholders and wider society.

25% are




75% of US stocks

are owned by longterm








investors 33%


US stock



But a better relationship

with society could also

chime with investors.


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