Playing the Long Game: Why Corporate Directors Must Keep Their Company’s Long-Term Mission in Focus

Corporate boards are no stranger to near-term pressures, but these days the pressures are piling as high as they ever have. Geopolitical tensions and supply-chain disruptions; climate change and technological revolutions; tariff uncertainty, cyberthreats, regulatory upheaval, and more. Each creates risks for companies across industries and market capitalizations. And in keeping with directors’ fiduciary duties, they all demand board time, energy, and focus.

Amid these pressures and others, thinking long term — that is, defining a sound strategic vision and executing on it — has become increasingly difficult and, at times, may seem at odds with near-term business demands. Complicating matters further, this dynamic is playing out at a time when thinking long term is increasingly critical for a company’s success, yet may seem out of favor with the current corporate zeitgeist.

Yes, boards need to stay mindful of near-term trends in business, technology, politics, and the like — and consider them in their oversight of the company on behalf of its shareholders. But boards who center corporate agendas entirely on issues facing the company in the here and now risk setting their company up to underperform in the coming years.

Direction of Travel

Why is long-term thinking so vital for boards right now? The answer is simple: The sociopolitical developments recently, particularly around sustainability-related issues and how public companies navigate them, are unlikely to create a lasting paradigm shift. Instead, it is likely that those developments turn out to be temporary detours from society’s longer direction of travel.

Recent executive orders and court rulings have compelled many public companies to retreat from stakeholder capitalism, recalibrate their long-term strategies, and scale back their most ambitious sustainability-related goals — lest they draw unwelcome regulatory scrutiny or invite litigation from an emboldened plaintiff’s bar.

Similarly, warnings from legislators and state attorneys general have prompted some of the most vocal proponents of corporate sustainability, including powerful institutional investors like Blackrock and Vanguard to largely muzzle themselves — lest they become targets of government investigations or enforcement actions.

Yet those developments are likely to be short-lived due to broad demographic and global trends. The youngest adult generations care deeply about pressing socioeconomic issues (more so than their older counterparts), and generally believe that companies have a role to play in addressing these issues. Geopolitical realities (and regulations) could also keep pressure on companies to recognize their impacts on the world — not to mention the world’s impacts on the company.

Demographic Trends and Investment Pressures

In survey after survey, most Millennials and Gen Zers report that they prefer products that are less harmful to the environment over conventional alternatives — and to buy those products from brands whose mission aligns with their values.

They report that they believe companies should be held accountable for their environmental impacts, and that they consider a prospective employer’s environmental and social commitments when deciding where they want to work. The same surveys show that Gen Xers and Baby Boomers are less likely to hold those views.

In the years ahead, Millennials and Gen Zers will make up a growing share of workforces and customer bases. They will occupy more and more positions of power at the highest levels of government and business.

It can be expected that the pendulum may eventually swing back toward the demands of younger generations, and companies will need to respond. Meanwhile, the heavy pressure on institutional investors, which hold massive shares in major companies and wield formidable voting power over them, may subside. If it does, their voice — and influence — will rise again.

None of this is to say that the near-term challenges facing companies will soon abate, or that things will suddenly look like the late twenty-teens once again. So, how best for boards to strike the right balance here? How can directors ensure they are agile enough to navigate near-term challenges, while continuing to prepare their company to fulfill its long-term mission? Three best practices stand out.

Understanding Stakeholders — Now and Over Time

The first practice involves thorough planning and truly understanding what — and who — is most important to the business. Directors must develop a deep understanding of their company’s stakeholders — shareholders, customers, employees, business partners, suppliers, communities, everyone. Not just right now, but also how they and their expectations might evolve over time, alongside the business. This means mapping stakeholders and their expectations and modeling outlooks for them over the near, medium, and long terms.

In this process, boards work with management to identify all of the company’s stakeholders and classify them by their power to affect the company’s decisions and by the degree to which the company’s decisions affect them. Boards then must engage directly with their stakeholders and listen closely to their views, wants, and needs, anticipating emerging issues and making adjustments over time to reflect shifts in markets, policy, regulation, and society.

Remember, pleasing all stakeholders all the time is impossible, so directors must help companies prioritize the right things in the right way, staying compliant with law while striving to meet the evolving needs of stakeholders — all while working with imperfect information.

Communicating Clearly

The second practice involves clear communication. When pursuing a long-term strategy in any capacity, impatience and skepticism from interested parties come with the territory. The corporate world is no different, and directors should expect that their company will take heat at times when external pressures are quickly piling up.

With that in mind, boards can lower the temperature by communicating their plans clearly and frequently. They must explain to stakeholders, in as much detail as practicable, how the company is executing on pressing business imperatives, how the company is prepared to adapt as conditions change, and how the company’s plans position it for long-term success.

Thinking Beyond Tenure

The third practice involves thinking beyond a director’s time on the board. Directors’ fiduciary duties to their company’s shareholders have always entailed looking out for the company’s financial interests, with some leeway under the Business Judgment Rule to not be second guessed when considering other facets of the business in furtherance of shareholder return. Yet an important question remains unresolved: Over what timeframe do directors’ fiduciary duties apply?

As stakeholder demands become harder to quantify and stretched over longer time horizons, directors would do well to apply qualitative, longer-term thinking in the boardroom — in addition to, not instead of, the traditional financial metrics that the Street monitors and in myriad ways.

The idea is that directors should be thinking about their fiduciary duties as applying not just to developments that may occur over the next fiscal quarter or next couple years — or even during their tenure, however long that may be — but after their tenure as well.

Indeed, when directors think about how today’s decisions could affect the company long after they’ve relinquished their seat, they put the company on a sounder long-term footing. They are helping meet the expectations of their shareholders, including the index funds that are essentially “permanent capital” and think of return over decades, rather than earnings cycles.

Finding the perfect balance of near-term and long-term is not possible, but ignoring the future is not really an option. It has been said that “a society grows great when old men plant trees in whose shade they shall never sit.” It could similarly be said that a company becomes great when its board acts on behalf of stakeholders whose interests it may never tend to directly. Shareholders still expect this. And for as long as they serve on a corporate board, directors would be wise to keep that in mind.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.