Recently, a group of prominent executives released an open letter and document known as Commonsense Principles 2.0. Signatories include Mark Machin of the Canada Pension Plan Investment Board and Warren Buffett of Berkshire Hathaway. The purpose of the letter and the principles is to encourage companies to embrace a long-term view and enhance trust between investors and companies to improve the health of public capital markets. By virtue of the parties to the letter and the thoughtful nature of the principles themselves, the principles are expected to have a meaningful influence on governance practice and debate. Although American in focus, the principles and issues they address are meaningful for Canadian companies and investors as well.
The Commonsense Principles 2.0 update a set of principles known as the Commonsense Principles of Corporate Governance, released slightly more than two years ago. The revised principles generally reflect incremental, yet important, changes. For example, the first principle, which concerns the directors’ duty of loyalty and care, previously stated that the directors’ loyalty “should be to the shareholders and the company”. The revised principle now states that “[d]irectors are accountable to shareholders and owe duties of loyalty and care to the company” and that director performance “should be evaluated through a company’s long-term performance, financial and otherwise”. Other changes largely reflect recent developments in governance best practices in areas such as director elections, shareholder engagement and proxy access and the explicit change that the principles should apply to asset managers and institutional asset owners.
Each of the letter’s signatories has committed to applying the principles in their businesses. A list of the companies and investors that have agreed to follow the principles will be maintained on the website for Columbia Law School’s Millstein Center for Global Markets and Corporate Ownership. However, the authors acknowledge that there is significant variation among public companies, and that not every principle will be applied in the same fashion (or at all) by every company, board or institutional investor.