CEOs embrace reality of ‘stakeholder capitalism’

Neglecting social, political issues could hurt companies’ reputation and returns

TORONTO After a weekend of protests in Canada and the United States against racism and police brutality, the workweek arrived and executives were ready with statements, tweets and LinkedIn posts.

“Together, we must work even harder and with a greater sense of urgency to eliminate the anti-Black racism at the root of what we are seeing and take the steps needed to create a safer and more inclusive tomorrow,” said Bharat Masrani, chief executive of Toronto-Dominion Bank.

Masrani’s comments were echoed by his CEO counterparts at the other banks. “This is a time to not be silent,” Bank of Montreal’s Darryl White said.

“We need to find solutions, together,” said Victor Dodig at Canadian Imperial Bank of Commerce.

It is not the first time a leader with a fiduciary responsibility waded into the public discourse.

In January, Michael McCain, chief executive of Maple Leaf Foods Inc., used Twitter to criticize the White House for creating geopolitical conditions that led to Iran’s military destroying a Ukrainian airliner carrying more than 170 people, including 55 Canadian citizens and 30 permanent residents.

Corporate stances on environmental, social and political issues are becoming more common. And in Canada, a change to corporate law last year freed executives of some companies to expand their mandates beyond simply maximizing shareholder returns without fear of legal reprisal.

In this new environment, as a pandemic continues to kill and as protests against inequality rage, a decision to stay out of the fray risks hurting a company’s reputation, revenue and returns.

“Companies and investors are beginning to recognize that what happens out there in the real world is arguably even more important than what happens on their spreadsheets and terminals,” said Kevin Thomas, chief executive of the Shareholder Association for Research and Education, a not-forprofit group focused on responsible investing.

The responses by the heads of some of Canada’s biggest companies to the protests in the United States, as well as their various attempts to assist customers during the coronavirus pandemic, come as companies are also embracing more “stakeholder” capitalism, for which the raison d’être for firms is more than just returning cash to shareholders.

“You don’t have the luxury anymore of not reacting as a corporation,” said Richard Leblanc, a professor of governance, law and ethics at Toronto’s York University. “And once the banks and financial services companies start doing it, they set the tone for other companies. There’s no going back. I think stakeholder capitalism is here to stay.”

Bharat Masrani

TD’s Masrani, who is of Indian descent, has spoken before of the need for more diversity and inclusiveness. He was born and raised in Uganda, where dictator Idi Amin expelled the country’s Asian population in 1972.

“In Canada, we see diversity as a strength — not a weakness,” Masrani said in a 2017 convocation speech at York University’s

Schulich School of Business.

Stakeholder capitalism was the theme of this year’s World Economic Forum’s gathering in Davos, Switzerland, where one of Masrani’s peers, Royal Bank of Canada chief executive Dave McKay, was in attendance.

“As trust in governments wanes, and the complexity of society’s problems grows, companies are charting their own course on environment, social and governance issues, to maintain public confidence in business and ensure the prosperity of communities that business serves,” McKay wrote in January.

On Tuesday, McKay published a post on LinkedIn stating he was “personally outraged at the senseless and tragic deaths in the U.S., which are clearly symptomatic of ongoing racial discrimination and injustice, and I know we are not immune to it in Canada.”

Bank of Nova Scotia chief executive Brian Porter put out a message on Tuesday as well, saying the lender, which has a big presence in Latin America, “is only as successful as the societies in which we operate — when there are individuals and communities that feel left out, we cannot be strong.”