Reward Value_video14

Open letter to ICGN Mr. Garvin Payne

In response to Consultation Paper on Revisions to ICGN Global Governance Principles

The Hague 31 January 2021

The field of corporate governance has been developing in recent years in relation to the growing understanding in society of the need to change our economy to a regenerative model. We need to move away from a linear economy to a circular economy. This also entails a shifting focus from shareholder primacy to a stakeholder value governance model. Secondly, in seeking better sustainable outcomes to wider society, long-term orientation of the business and investment communities has become pivotal. Changes to corporate governance are often made in response to corporate scandals or financial / economic crises. Such responses could lead to strict governmental interventions. It is in the interest of the business and investment communities to commit to and apply strong governance. ICGN has contributed to the development of key governance standards with the ICGN Global Stewardship Principles (GSP) and the Global Governance Principles (GGP). In light of the societal changes since the publication of the GGP in 2017, ICGN wants to amend its principles to remain fit for purpose and up to date to the latest developments. We highly welcome the amendments strengthening the importance of stakeholder interests and sustainability inclusion. Below, we will give our comments to the envisaged changes to the GGP.

The Reward Value Foundation’s mission is to promote the development of remuneration policies that contribute to long-term sustainable and inclusive value creation. The effective integration of sustainability performance in the financial performance and incorporating the integrated measure in the (executive) remuneration policies will stimulate organizations towards sustainable long-term value creation for society at large.Reward Value is a non-profit research initiative. Reward Value can be reached by email (

1. Principle 1

1.1 Responsibilities

In order to stress the overall stakeholder approach, we suggest rephrasing the introduction paragraph under 1.1. We also prefer that the board plays an active part in the setting of the company’s purpose. As such we are not only seeking alignment of long-term sustainable value goals with the company’s purpose, but we prefer that companies embed these goals in their purpose statements and strategies. It would be even further strengthening the importance if such purpose statements are submitted for shareholder voting as a “say-on-purpose” comparable to the existing “say-on-pay” regulations.

We, therefore, suggest the following wording for the first paragraph of 1.1:

The board is accountable to relevant stakeholders, including shareholders and creditors, is responsible for preserving and enhancing sustainable value over the long-term, and ensures that such goals are embedded in the company’s purpose and strategy.

1.2 Director’s duties

As subsidiary companies are part of the bigger parent organization, the fiduciary duty of directors serving on boards of subsidiary companies should take the interests of the parent company into account as a material stakeholder. The actions of the subsidiary company also impact the performance and reputation of the parent company. We suggest the last sentence of guidance 1.2 is amended to reflect this.

2. Principle 6

6.2 Structure

We also favor simplicity over perfection, but the effectiveness of restricted stock versus performance stock, however, has not yet been proven in academic research so far. The use of equity compensation could also lead to short-term oriented decision-making especially around vesting moments. The academic literature is quite clear on this[1]. Vesting and holding periods should therefore significantly (in majority) surpass the active period of the executive in support of the long-term orientation of leadership.

6.3 Performance

Performance related elements, such as long-term incentive plans, should be based on audited, integrated financial and non-financial impact measurements, illustrative of the company’s long-term societal impact[2].

Companies should apply dual materiality in the non-financial impact measures in recognition of not only the risk on the enterprise, but also of the risks of the enterprise on society. We suggest that the concept of impact measurement and dual materiality are included in the guideline 6.3.

6.6 Remuneration policy

In alignment to the EU Shareholder Rights Directive, we propose to adjust the binding vote to at least every four years and when significant change to the remuneration structure is proposed.

6.9 Non-executive director pay

Where directors (non-executives) are responsible for setting pay levels for the executives, they should not fix their own pay. As in many jurisdictions, this responsibility should be given to the shareholders in the AGM, in order to prevent any conflicts of interest. Independent judgement, a cornerstone value of good corporate governance, can on these topics only be secured in the AGM through a binding vote from shareholders. We would suggest changing the wording of guideline 6.9 accordingly.

3. Principle 7


Long-term oriented sustainable businesses structure their business decisions to the benefit of its key stakeholders and shareholders. In doing good for society, long-term societal interests are served and this, subsequently, can have a positive influence on the company’s long-term value creation[3]. As such, company disclosures should serve to inform all stakeholders on the company’s performance and risks, both financially and non-financially. The relevance of transparent and comparable disclosures of integrated reporting could be stressed more. The development of standards in non-financial reporting is growing and companies should be encouraged to disclose in accordance with these developing standards. Consistency with existing financial standards (like IFRS and US GAAP) should be maintained as well and not be open for company specific interpretations based on conservatism.

The financial and non-financial parts of reporting are equally important and allow all stakeholders to understand and assess a company’s impact on society at large. It, therefore, is relevant that the concept of materiality (and for non-financial data, dual materiality) is applied.

To conclude, principle 7 and its guidelines should be tailored to stress the relevance of integrated reporting of material information to the benefit of all stakeholders (including shareholders and creditors).

4. Principle 8


With the increased relevance of externalities, the impact of climate change and other societal and environmental risks, the fields of expertise in the Board of Directors in general and in the audit committee, especially, need to be enhanced to encompass thorough understanding of non-financial topics relevant for the needed transformation towards a regenerative economy. Guideline 8.7 should reflect that such widening of expertise is required.

We trust that our suggestions and recommendations are helpful and supportive. In case of any questions, please contact us.


Reward Value Foundation

Frederic A.J. Barge

[1] Edmans, A., V. Fang & K. Lewellen (2017). Equity Vesting and Investment. Review of Financial Studies 30(7), 2229-2271; Ladika, T. & Z. Sautner (2020). Managerial Short-Termism and Investment: Evidence from Accelerated Option Vesting. Review of Finance 24(2), 305-344.

[2] See Green Paper, Rewarding Stakeholder Long-Term Value Creation, 2020

[3] Flammer, C & P. Bansal (2017). Does a long-term orientation create value? Evidence from a regression discontinuity. Strategic Management Journal 38(9), 1827-1847.