Engagement and Shareholder Primacy

by | May 28, 2019

How is a company supposed to deal with the UN declaration of Indigenous groups’ entitlement to ‘free prior and informed consent’ and meet their obligation to shareholders? These competing values are putting mineral companies in a difficult position when they go to the communities for engagement talks.

What if we stopped looking at them as competing interests, and instead looked to see where they have overlapping interests? First Nations I have known speak of their role as stewards or caretakers of the land. At the same time, Canadian corporate law (Canada Business Corporations Act, Section 122) states that “Every director and officer of a corporation in exercising their powers and discharging their duties shall (a) act honestly and in good faith with a view to the best interests of the corporation and (b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances .…”  The indigenous practice and CEOs have in common is a desire to act in accordance with their values. Those values include care, diligence, skill, honesty and good faith.  There is a lot of compatibility there.

An issue of course arises when  ‘the best interests of the corporation’ is predominantly interpreted as shareholder primacy, aka stock price.  Yet, it is not necessarily an either/or choice between shareholder and indigenous peoples. Perhaps what is best for the shareholder has an area of overlap with the respectful treatment of the land and indigenous peoples.  At GEMM 2014, Gold Corp representatives stated that they see themselves as having obligations to their employees, the local communities and their shareholders. Taking into account all these interests is what serves the best interests of their company.

As a matter of fact, the Supreme Court of Canada’s 2008 ruling in the BCE Inc. case illustrated there is space for an expanded interpretation. Here the Court stated: “There are no absolute rules and no principle that one set of interests should prevail over another. In each case, the question is whether, in all the circumstances, the directors acted in the best interests of the corporation, having regard to all relevant considerations.”[i]

The accommodation of shareholder primacy and Indigenous engagement is finding a significant area of overlap as shareholders start to care about the environmental footprint and the conditions that the minerals were produced under. People want their money to make a good return and do good work. Even when consumers buy a product, they want to know that the conditions the metal was produced under were humane and environmentally friendly. Top consumer brands like Apple, Tesla and BMW now demand certification of practices such as fair wages, no workplace violence, and low carbon footprint during the mining process.

Yani Roditis, COO of Gabriel Resources, summed up this current paradigm this way:

It used to be the case that the value of a gold mine was based on three variables: the amount of gold in the ground, the cost of extraction, and the world price of gold. Today, I can show you two mines identical on these three variables that differ in their valuation by an order of magnitude. Why? Because one has local support and the other doesn’t.”[ii]

According to a study, Spinning Gold, by Witold, Henisz, Sinziana Dorobantu
and Lite Nartey2011of the Wharton School at the University of Pennsylvania, increasing cooperation and decreasing conflict with local communities and governments significantly enhances the financial valuation of a company. This finding is backed up with data from the analysis of 50,000 media reports between 1993 and 2008 from 19 companies that cover 26 mines. They found that the sustainability of shareholder value is largely dependent on social licence to operate. Today the best interest of the shareholder is served by caring about the relationship with the local community. And the local community cares about the environment and the well being of their citizens. Gaining community support is not just a corporate social responsibility – it has become an enlightened self-interest. 

At an International Council on Mining and Metals (ICMM) meeting, Bergeron said, “We are moving into a new way of doing business and we need a new type of leader. Maybe it will be a generational change. Or maybe companies will stop being headed by financial people and lawyers and engineers.” The audience became animated, with hands popping up. One person said, “My CEO would tell me that I need to focus more on a strong quarterly report. He would never understand this concept.”

 Bergeron responded by saying, “Then he is wrong.” By the end of the meeting Bergeron was the new chair of environmental and social responsibility for ICMM. Collectively, its members wanted him to keep sharing this message. 

Jamie Dimon, CEO of JPMorgan Chase for more than 12 years, and touted by the New York Times as ‘America’s least-hated banker’, says “JPMC doesn’t give quarterly reports because they give a false sense of security. Investments are made based on up to 10 years of decision-making – and perhaps the impact of the weather in one year. There is no magic to 12 months or three months. The best thing for the shareholder is to be able to take a longer-term view”.[iii]When enough people and corporations adopt this principle, it reaches a tipping point and becomes the norm. 

The environmental assessment project is often a place where mineral companies and local communities engage with each other. Imagine if indigenous government and local community input was received with gratitude. People with local expertise are willing to put their time and effort into making the project better. New benefit opportunities are revealed, and potential future problems are discovered and headed off at the pass when space is made for this kind of dialogue.

Companies are sometimes hesitant to talk to local groups because they risk not being able to advance their project. This is essentially saying that they want the ability to proceed even if the locals have a problem with it. This is an exercise of linear power. A shift to circular power would see local community input as a gift intended to make the project more robust. 

One of the foundations of the 2Ways of Knowing (2WK) Framework is the recognition that linear thinking has a default setting to think in terms of either/or. When an issue can’t find a resolution it is often beneficial to switch to circular thinking and say ‘yes we have different goals, and, let’s explore what they have in common.’ Furthermore, redefining the power that drives decision-making, considering both circular and linear options, opens up a whole new set of possibilities.

Linear power: To assert your will, even against resistance.

Circular power: To know yourself, be yourself, and support others in doing the same.