Research paper: Sustainable Success: The Critical Role of Long-Term Ownership and stewardship in Corporate Governance for sustainability practices
Sustainable Success: The Critical Role of Long-Term Ownership and stewardship in Corporate Governance for sustainability practices
Today the need to balance profitability with social and environmental sustainability is more important than ever. A study from CCG Professor Steen Thomsen and Professor Nikolaos Kavadis delves into this critical issue, exploring how different types of ownership influence corporate sustainability practices. The study highlights the positive impact of long-term ownership on sustainability, while also underscoring the importance of owner stewardship and the need for standardized sustainability metrics to enhance transparency and comparability. The study offers actionable recommendations to attract long-term investors and promote stewardship.
Long-Term Ownership for Sustainability
The study analyzes 161 articles published between 2017 and 2021, focusing on the impact of different ownership types—such as institutional, state, and family ownership—on corporate sustainability and corporate social responsibility (CSR). “Key findings indicate that long-term institutional and state ownership generally have a positive effect on sustainability, while family ownership shows mixed results.” Steen Thomsen explains, “this suggests that businesses should seek to attract and retain institutional investors and state-owned enterprises.” With their extended investment horizons, they have shown a positive impact on corporate sustainability.
The Role of Owner Stewardship
While long-term ownership is crucial, it is not sufficient on its own. The review also highlights the importance of owner stewardship as a critical factor in achieving corporate sustainability. “The concept of owner stewardship—where owners actively engage in and take responsibility for corporate governance—plays a critical role.” Steen Thomsen says, “Companies should encourage stewardship behaviors among their owners, ensuring that they are not only focused on financial returns but also on the broader impacts of their business activities on society and the environment.”
Standardizing Sustainability Metrics
One of the challenges identified in the review is the lack of standardization in defining and measuring sustainability to enhance knowledge accumulation. This will not only enhance transparency but also facilitate better comparison and benchmarking across industries and regions.
Furthermore, policymakers have a significant role to play in promoting sustainability. Policies that incentivize long-term ownership, such as tax benefits for long-term investors or regulations that encourage stewardship, can drive more sustainable business practices. Additionally, integrating sustainability into directors' duties and corporate governance codes can ensure that sustainability is embedded in the core strategy of businesses.
Actionable Steps for Business Leaders
Based on the findings of the study Steen Thomsen and his colleague recommends business leaders to: Focus on building relationships with institutional investors and state-owned enterprises that have a long-term investment horizon, develop programs and initiatives that encourage owners to take an active role in corporate governance and sustainability efforts, implement standardized sustainability reporting frameworks to improve transparency and comparability and advocate for policies that support long-term ownership and stewardship to create a more sustainable business environment.
Method and Data
The study is a comprehensive literature review analyzing 161 articles published between 2017 and 2021. These articles explore the relationship between corporate ownership and sustainability, focusing on long-term ownership and its impact on corporate social responsibility (CSR). The review synthesizes findings from various studies to identify patterns, trends, and gaps in the existing literature. The articles reviewed were sourced from reputable academic journals and databases. The review covers a wide range of industries and geographical regions, providing a broad perspective on the topic.
Read more about Professor Steen Thomsen