What is the Case Study Method?
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Overview dropdown down, celebrating 100 years of the case method at hbs.
The 2021-2022 academic year marks the 100-year anniversary of the introduction of the case method at Harvard Business School. Today, the HBS case method is employed in the HBS MBA program, in Executive Education programs, and in dozens of other business schools around the world. As Dean Srikant Datar's says, the case method has withstood the test of time.
Case Discussion Preparation Details Expand All Collapse All
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How Cases Unfold In the Classroom
How cases unfold in the classroom dropdown up, how cases unfold in the classroom dropdown down, preparation guidelines expand all collapse all, read the professor's assignment or discussion questions read the professor's assignment or discussion questions dropdown down, read the first few paragraphs and then skim the case read the first few paragraphs and then skim the case dropdown down, reread the case, underline text, and make margin notes reread the case, underline text, and make margin notes dropdown down, note the key problems on a pad of paper and go through the case again note the key problems on a pad of paper and go through the case again dropdown down, how to prepare for case discussions dropdown up, how to prepare for case discussions dropdown down, read the professor's assignment or discussion questions, read the first few paragraphs and then skim the case, reread the case, underline text, and make margin notes, note the key problems on a pad of paper and go through the case again, case study best practices expand all collapse all, prepare prepare dropdown down, discuss discuss dropdown down, participate participate dropdown down, relate relate dropdown down, apply apply dropdown down, note note dropdown down, understand understand dropdown down, case study best practices dropdown up, case study best practices dropdown down, participate, what can i expect on the first day dropdown down.
Most programs begin with registration, followed by an opening session and a dinner. If your travel plans necessitate late arrival, please be sure to notify us so that alternate registration arrangements can be made for you. Please note the following about registration:
HBS campus programs – Registration takes place in the Chao Center.
India programs – Registration takes place outside the classroom.
Other off-campus programs – Registration takes place in the designated facility.
What happens in class if nobody talks? Dropdown down
Professors are here to push everyone to learn, but not to embarrass anyone. If the class is quiet, they'll often ask a participant with experience in the industry in which the case is set to speak first. This is done well in advance so that person can come to class prepared to share. Trust the process. The more open you are, the more willing you’ll be to engage, and the more alive the classroom will become.
Does everyone take part in "role-playing"? Dropdown down
Professors often encourage participants to take opposing sides and then debate the issues, often taking the perspective of the case protagonists or key decision makers in the case.
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Case Studies
Case studies are written by professors at HBS and at renowned business programs worldwide and offer slices of business life, focusing on actual problems and decisions companies face.
Google's Project Oxygen: Do Managers Matter?
Google's Project Oxygen started with a fundamental question raised by executives in the early 2000s: do managers matter? The topic generated a multi-year research project that ultimately led to a comprehensive program, built around eight key management...
Big Hit Entertainment and Blockbuster Band BTS: K-Pop Goes Global
Bang Si-Hyuk ('Hitman Bang') is the founder and co-chief executive officer of Big Hit Entertainment, the company behind BTS, a 'K-pop' band that has found unparalleled success around the globe-a remarkable feat given that most of their songs are in...
Cirque du Soleil
Retaining talent is an issue for any company whose success relies on the creativity and excellence of its employees. This is especially true for Cirque du Soleil, the spectacularly successful "circus without animals," whose 2,100 employees include 500...
GE's Two-Decade Transformation: Jack Welch's Leadership
GE is faced with Jack Welch's impending retirement and whether anyone can sustain the blistering pace of change and growth characteristic of the Welch era. After briefly describing GE's heritage and Welch's transformation of the company's business...
Pinckney Street
Although inexperienced in real estate, Edward Alexander hopes in June 2013 that youthful enthusiasm and an $240,000 in savings and inheritance will help him enter the real estate business. His experience chronicles the process of finding, evaluating, and...
Army Crew Team
The coach of the varsity Army crew team at West Point assembled his top eight rowers into the first crew team and the second tier of rowers into the second team using objective data on individual performance. As the second boat continually beat the first...
Chase Sapphire: Creating a Millennial Cult Brand
The Inside the Case video that accompanies this case includes teaching tips and insight from the author (available to registered educators only). The launch of the Chase Sapphire Reserve credit card was enthusiastically received by Millennial consumers,...
Trader Joe's
The Inside the Case video that accompanies this case includes teaching tips and insight from the author (available to registered educators only). Based on a variety of metrics, Trader Joe's ranked as one of the most successful grocers in the United...
Amazon.com, 2021
In February 2021, Amazon announced 2020 operating profits of $22,899 million, up from $2,233 million in 2015, on sales of $386 billion, up from $107 billion five years earlier (see Exhibit 1). The shareholders expressed their satisfaction (see Exhibit...
Leadership in Crisis: Ernest Shackleton and the Epic Voyage of the Endurance
Provides an opportunity to examine leadership and entrepreneurship in the context of Ernest Shackleton's 1914 Antarctic expedition, a compelling story of crisis, survival, and triumph. Summarizes Shackleton's career as an officer in the British Merchant...
The Tulsa Massacre and the Call for Reparations
The Inside the Case video that accompanies this case includes teaching tips and insight from the author (available to registered educators only). How should historic social injustices be addressed? Survivors of the 1921 Tulsa Massacre and their...
Accelerating the Accelerator: Raja Al Mazrouei at DIFC Fintech Hive
In January 2023, Raja Al Mazrouei became the Managing Director and Acting CEO of Etihad Credit Insurance (ECI) in Dubai, UAE. In her previous role as the Executive Vice President of the DIFC Fintech Hive, she successfully built and led an accelerator...
Astyanax Kanakakis at norbloc: A Founder's Experience with the DIFC Fintech Hive
norbloc was founded in 2016 in Stockholm, Sweden, by Astyanax Kanakakis and his co-founders, Vitalii Demianets and Sam Saatchi. Kanakakis and Demianets got to work to address a key gap in the industry: Know Your Customer (KYC) data sharing. As the first...
Altibbi: Revolutionizing Telehealth Using AI
Real Estate iBuying
This note provides an overview of real estate iBuying, or instant buying, a business model that involves buying homes and then reselling them at a profit. Introduced in the mid-2010s, iBuying streamlined the process of selling a home by offering instant,...
Pakistan Rising: Bazaar's Growth Story (B)
The case opens in January 2022 as Hamza Jawaid and Saad Jangda, co-founders of Bazaar technologies (Bazaar), the Pakistani high growth B2B e-commerce marketplace, are looking over the performance of the newly launched "buy now, play later" feature. The...
Katerra (B)
In May 2020, SoftBank executives, having invested nearly $2 billion in Katerra, decided the vision of an end-to-end, vertically-integrated construction process was worth saving-with some major changes to company structure. The SoftBank Vision Fund...
Katerra (A)
In April 2020, Katerra executives struggled with a series of decisions that would determine the fate of one of the best-funded construction startups in history. Katerra was founded in 2015 by technology-industry executive Michael Marks and commercial...
Bangladesh: Into the Maelstrom
In the fall of 2018, Rohima Begum considered her options as the small island, or "char," on which her family's house rested slowly but inescapably eroded into the mighty Brahmaputra River in northern Bangladesh. The country, once unceremoniously dubbed a...
The Industry Dilemma: Allow Ethical Moonlighting Or Lose To Gig Working?
NHRD, a leading HR industry forum in India, had organized an HR Conclave to discuss the future of the workplace and the unfolding methods of work. However, the discussion quickly segued to the problem of moonlighting. For many HR leaders, the dilemma was...
Labor Unions in the United States
Daniel Defense: Responding to the Shooting at the Robb Elementary School in Uvalde, TX
At 11:33am on May 24, 2022, an 18-year-old man from Uvalde, Texas walked into the Robb Elementary School carrying a semi-automatic "AR-15-style" rifle manufactured by Daniel Defense and killed 19 children and two adults. Three days later, Representative...
China's Management of Covid-19 (B): Victory?
KKR at CHI Overhead Doors (C)
KKR at CHI Overhead Doors (B)
Graphic Packaging: Project Cowboy (C)
In July 2019, Graphic Packaging CEO Michael Doss was proposing a $600 million investment in a new machine to produce coated recycled board (CRB), a type of paper packaging used for consumer products (cups, cereal boxes, beverage boxes, etc.) that...
Graphic Packaging: Project Cowboy (A)
Graphic Packaging: Project Cowboy (B)
National Security and Transnational Capitalism
China's Management of Covid-19 (A): People's War or Chernobyl Moment?
Amazon Vs Walmart: Clash of Business Models
Set in 2021, this case describes how Amazon and Walmart have been two of the most successful retailers in history and are responsible for changing the rules of the game in the retail industry in the US. Over the years, the two firms had perfected...
Goonj: Growing in the Face of a Pandemic
Founded by the husband and wife team of Anshu and Meenakshi Gupta in 1999, Goonj had quickly emerged as one of the leading disaster relief and rural development organizations in India. Their main mode of development was through providing a clothing kit...
Doist: Building the Future of Asynchronous Work
OrangeWerks: A Question of Ethics
OrangeWerks, an entrepreneurial company that creates software applications, is preparing to present to venture capital firms for its first major round of funding. However, during routine network maintenance, the network administrator becomes aware that...
The Swatch Group (B): Omega X Swatch
In March 2022, the Swatch Group launched the MoonSwatch, born out of a secret in-house collaboration among its street Swatch and its luxury Omega brand, in tribute to one of Omega's most legendary watches. The launch created a frenzy among watch fans...
Braintrust: The Blockchain-Powered Talent Network
A San Francisco startup seeks to disrupt the freelancing industry through its user-owned talent network powered by the cryptocurrency, BTRST.
Colette Phillips and GetKonnected!: Creating Inclusive Ecosystems
Colette Phillips' marketing firm had just won the City of Boston's 2nd largest contract in history to a Black-owned company. During the COVID-19 pandemic, Get Konnected!, the networking organization for people of color that she founded 15 years earlier...
SIMmersion: Simulating Crucial Conversations
Clay Ridge Capital
Nexus Market (A): Ukraine War Ripples into Silicon Valley
A Silicon Valley start-up executive must navigate tensions between its Ukrainian and Russian sub-contractors as war between the two countries rages. After war erupts between Ukraine and Russia, a team of subcontracted Ukrainian software developers...
The Trouble with TCE
Trichloroethylene, or TCE, was a chemical used by tens of thousands of businesses in the United States. It was an affordable tool for many. Yet, TCE had been associated with important health risks, including cancer and autoimmune disease. TCE potentially...
Nexus Market (B): After the Ultimatum
This case reveals how the situation with Nexus Market and its Ukrainian and Russian subcontractors was resolved. The conclusion to the story of a Silicon Valley start-up executive facing an ultimatum from a team of Ukrainian subcontractors to cut ties...
Velong: Rethinking "Made in China"
Velong is a supplier of kitchen equipment and backyard grills for major global brands and store brands of large western retailers. In light of the COVID-related disruptions to the global supply chains, and the evolving trade tensions between China and...
Disney+ and Machine Learning in the Streaming Age
Machine learning has been used to create value in various ways across a broad swath of industries. In this case, students will explore uses for machine learning in the context of the launch of the Disney+ streaming service in November 2019. At the time...
Moral Complexity in Leadership (Greed): How Much Land Does a Man Need? by Leo Tolstoy
The "Moral Complexity in Leadership" series of cases and teaching notes help business instructors harness the power of fiction to prepare students for the moral and ethical dilemmas they will face throughout their careers. Meaningful fiction challenges...
entomo - Enabling People Experience for the Digital World of Work
A people experience platform, entomo delivers a digital experience for all customers' employees to revamp talent development, performance, and engagement through hyper-personalized insights and nudges for each employee. The entomo talent experience suite...
KNOLSKAPE: Transforming Learning Dynamics
The case on KNOLSKAPE traces the firm's evolution from a service provider of simulation games for academia to becoming a full-stack provider of customized products and learning journeys for corporations around the world. Through its growth journey,...
Taiwan, Semiconductors, and a "New Cold War"?
King's Hawaiian: Spreading Aloha beyond the Deli Aisle
Founded in 1950, King's Hawaiian, a Los Angeles-based bakery, operated in the competitive bread industry with an expansive list of rolls and bread, as well as a selection of other baked goods, which varied by region. As the business grew over the years,...
Atlanta Ransomware Attack (A)
This case describes the March 2018 Ransomware attack on the information technology (IT) systems of the city of Atlanta and the response by Mayor Keisha Lance Bottoms and her administration. The case includes a brief background on Bottoms and her young...
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CORe is offered with multiple durations of study—ranging from 10-week cohorts to extended 17-week cohorts. However, the course content and program requirements are identical regardless of the program length. Our goal in offering different program lengths is to give learners different options to balance the program’s rigors with their particular lifestyle and responsibilities.
The median time required to complete the program is approximately 150 hours, though this learning time varies widely. Some participants spend more time on the platform to enhance their understanding of course concepts and share insights with peers. This time includes all coursework on the platform, including written reflections and quizzes, as well as engagement with peers. This does not include review work outside the platform or preparing for and taking the three-hour CORe final exam.
In the standard versions of CORe—10-week and 12-week cohorts—you should be prepared to spend more time per week on the program. Although we have smoothed out the workload as evenly as possible, you should expect that some weeks will require more work than others.
What is the difference between the undergraduate credit and noncredit versions of CORe?
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By enrolling in the undergraduate credit option of CORe, you will be enrolled at Harvard Extension School (January or September CORe cohorts) or Harvard Summer School (May CORe cohort) and eligible for student privileges like a Harvard University ID number (to access online library resources), free career and academic webinars, a Harvard Gmail account, and education tax credit and loan deferments.
Upon successful completion of CORe, undergraduate credit option participants will earn eight undergraduate credits from Harvard Extension School (January or September CORe cohorts) or Harvard Summer School (May CORe cohort). Harvard Extension School and Harvard Summer School are fully accredited by the New England Association of Schools and Colleges—the same accreditation as all other schools at Harvard. Harvard transfer credit is accepted by institutions around the world, but it is always up to the accepting university to determine transferability. Successful undergraduate credit option participants will also receive a Credential of Readiness certificate from Harvard Business School Online, and an official transcript will be made available to verify your mastery of the program’s content.
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How should I list my credential on my resume?
Once you've earned your Credential of Readiness, list it on your resume along with the date of completion like this:
Harvard Business School Online CORe: Credential of Readiness, [Grade] [Cohort Start Month and Year]
List your credential on your LinkedIn profile under "Education" with the language from the Credential Verification page:
School: Harvard Business School Online Dates Attended: [The year you participated in the program] Degree: Other; CORe Credential of Readiness Field of Study: Leave blank Grade: "Pass," "Pass with Honors" or "Pass with High Honors" as applicable Activities and Societies: Leave blank
For the program description on LinkedIn, please use the following:
Description: CORe (Credential of Readiness) is a 150-hour certificate program on the fundamentals of business from Harvard Business School. CORe is comprised of three courses—Business Analytics, Economics for Managers, and Financial Accounting—developed by leading Harvard Business School faculty and delivered in an active learning environment based on the HBS signature case-based learning model.
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The Stakeholder Model and ESG
Ira Kay is a Managing Partner, Chris Brindisi is a Partner, and Blaine Martin is a Consultant at Pay Governance LLC. This post is based on their Pay Governance memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here ); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here ); and Paying for Long-Term Performance by Lucian Bebchuk and Jesse Fried (discussed on the Forum here ).
Introduction
In August 2019, the Business Roundtable (BRT) released its new stakeholder model of the revised purpose of the corporation, stating explicitly that businesses exist to serve multiple stakeholders—including customers, employees, communities, the environment, and suppliers—in addition to shareholders. [1] This new model was publicly supported by 181 CEOs of major corporations. It could have a substantial impact on corporate incentive designs, metrics, and other governance areas as corporations continue or begin to operationalize this stakeholder model into their long-term strategies, as incentive plans are core to reinforcing and communicating business strategy. While there are many opinions on the BRT statement, the stakeholder model is evolving in both importance and sophistication. [2]
Further, the COVID-19 pandemic, the associated economic impacts, and increased focus on social justice illustrate the increasing expectations on—and willingness of—corporate leaders to address social issues that may extend beyond a traditionally narrower view of the business purpose of the corporation. Given these circumstances, some companies are taking a fresh look at their impact on numerous stakeholder groups and their reinforcing impact on company success. For example: Will increased focus on employee wellness initiatives enhance the resilience of corporations? Will sustainable supply chains and real estate differentiate a company in both the consumer and talent markets, or are these practices rapidly becoming baseline expectations of employees, investors, customers, and the broader community? The answers to these questions are beyond the scope of our expertise, but these and similar questions are at the center of the discussion on ESG metrics and their applicability to incentive compensation.
If the stakeholder model represents an emerging model for the strategic vision of a company, ESG (Environmental, Social, and Governance) metrics can be used to assess and measure company performance and its relative positioning on a range of topics relevant to the broader set of company stakeholders in the same way that financial metrics assess company performance for shareholders. This post will address, at a “conceptual” level, key questions and guidelines for assessing a company’s readiness for—and potential approach to—implementing ESG metrics and goals in executive incentive programs. We are applying our significant expertise in the design of executive incentive programs to the emerging paradigm of ESG-focused goals in the context of the evolving stakeholder model.
The BRT statement drew significant interest from the press and corporate governance community as it was viewed by many—some investors, the media, academics, and some legal commentators [3] —as a social and economic enhancement to, or replacement of, the concept of “shareholder primacy” as popularized by Milton Friedman and supported by many institutional investors and their advisors. [4] Others viewed it as a contradiction to, or a distraction from, the very successful shareholder model which has created prosperity over decades for shareholders and many other stakeholders. [5]
Pragmatically, the BRT’s statement may be a continued evolution of corporate culture and strategy that seeks to place more direct focus on the role that stakeholders have long played in the corporation from the corporate governance, management, and board perspectives. This sentiment is reflected in the member quotes included in the BRT’s release as well as a recent Fortune CEO survey in which a majority of CEOs surveyed (63%) “…agree with the [BRT’s] statement and believe most good companies always have operated that way.” [6] In this context, the BRT’s statement serves to enhance, clarify, and substantially debate the sometimes-counterproductive dichotomy of “stakeholders versus shareholders.” ESG metrics, applied to this clarified purpose of the corporation, provide the quantifiable and generally accepted means to measure this more nuanced view of company performance.
The “Stakeholder Value Creation Chain” below is a model developed by Pay Governance to illustrate the intersection of ESG strategy, the stakeholder model, and the creation of firm value. The model captures the reinforcing carryover effect of stakeholders’ contributions to the economic success of the company. An example of a “positive externality” is that many employees want to work for environmentally friendly companies, and the increased engagement of those employees may also increase productivity, customer satisfaction, etc. All companies need to balance their stakeholders’, including shareholders’, long-term interests. It may be a greater challenge for economically stressed companies to make long-term investments for other stakeholders than it is for top-performing companies to do so. However, our research and others’ find that, overall, companies manage both short- and long-term performance trade-offs efficiently. [7] [8] These findings support optimistic outcomes for this Stakeholder Value Creation Chain.
These developments, and interest in this model of value creation generally, have prompted an increase in questions about whether and how to include ESG metrics in incentive plans. Below, we provide some key questions and guidelines for assessing a company’s readiness and potential approach for implementing ESG metrics in executive compensation incentive programs.
Is your company ready to set or disclose ESG incentive goals?
ESG incentive metrics are like any other incentive metric: they should support and reinforce strategy rather than lead it. Companies considering ESG incentive metrics should align planning with the company’s social responsibility and environmental strategies, reporting, and goals. Another essential factor in determining readiness is the measurability/quantification of the specific ESG issue.
Companies will generally fall along a spectrum of readiness to consider adopting and disclosing ESG incentive metrics and goals:
- Companies Ready to Set Quantitative ESG Goals: Companies with robust environmental, sustainability, and/or social responsibility strategies including quantifiable metrics and goals (e.g., carbon reduction goals, net zero carbon emissions commitments, Diversity and Inclusion metrics, employee and environmental safety metrics, customer satisfaction, etc.).
- Companies Ready to Set Qualitative Goals: Companies with evolving formalized tracking and reporting but for which ESG matters have been identified as important factors to customers, employees, or other These companies likely already have plans or goals around ESG factors (e.g., LEED [Leadership in Energy and Environmental Design]-certified office space, Diversity and Inclusion initiatives, renewable power and emissions goals, etc.).
- Companies Developing an ESG Strategy: Some companies are at an early stage of developing overall ESG/stakeholder strategies. These companies may be best served to focus on developing a strategy for environmental and social impact before considering linking incentive pay to these priorities.
We note it is critically important that these ESG/stakeholder metrics and goals be chosen and set with rigor in the same manner as financial metrics to ensure that the attainment of the ESG goals will enhance stakeholder value and not serve simply as “window dressing” or “greenwashing.” [9] Implementing ESG metrics is a company-specific design process. For example, some companies may choose to implement qualitative ESG incentive goals even if they have rigorous ESG factor data and reporting.
Will ESG metrics and goals contribute to the company’s value-creation?
The business case for using ESG incentive metrics is to provide line-of-sight for the management team to drive the implementation of initiatives that create significant differentiated value for the company or align with current or emerging stakeholder expectations. Companies must first assess which metrics or initiatives will most benefit the company’s business and for which stakeholders. They must also develop challenging goals for these metrics to increase the likelihood of overall value creation. For example:
- Employees: Are employees and the competitive talent market driving the need for differentiated environmental or social initiatives? Will initiatives related to overall company sustainability (building sustainability, renewable energy use, net zero carbon emissions) contribute to the company being a “best in class” employer? Diversity and inclusion and pay equity initiatives have company and social benefits, such as ensuring fair and equitable opportunities to participate and thrive in the corporate system.
- Customers: Are customer preferences driving the need to differentiate on sustainable supply chains, social justice initiatives, and/or the product/company’s environmental footprint?
- Long-Term Sustainability: Are long-term macro environmental factors (carbon emissions, carbon intensity of product, etc.) critical to the Company’s ability to operate in the long term?
- Brand Image: Does a company want to be viewed by all constituencies, including those with no direct economic linkage, as a positive social and economic contributor to society?
There is no one-size-fits-all approach to ESG metrics, and companies fall across a spectrum of needs and drivers that affect the type of ESG factors that are relevant to short- and long-term business value depending on scale, industry, and stakeholder drivers. Most companies have addressed, or will need to address, how to implement ESG/stakeholder considerations in their operating strategy.
Conceptual Design Parameters for Structuring Incentive Goals
For those companies moving to implement stakeholder/ESG incentive goals for the first time, the design parameters range widely, which is not different than the design process for implementing any incentive metric. For these companies, considering the following questions can help move the prospect of an ESG incentive metric from an idea to a tangible goal with the potential to create value for the company:
- Quantitative goals versus qualitative milestones. The availability and quality of data from sustainability or social responsibility reports will generally determine whether a company can set a defined quantitative goal. For other companies, lack of available ESG data/goals or the company’s specific pay philosophy may mean ESG initiatives are best measured by setting annual milestones tailored to selected goals.
- Selecting metrics aligned with value creation. Unlike financial metrics, for which robust statistical analyses can help guide the metric selection process (e.g., financial correlation analysis), the link between ESG metrics and company value creation is more nuanced and significantly impacted by industry, operating model, customer and employee perceptions and preferences, etc. Given this, companies should generally apply a principles-based approach to assess the most appropriate metrics for the company as a whole (e.g., assessing significance to the organization, measurability, achievability, etc.) Appendix 1 provides a list of common ESG metrics with illustrative mapping to typical stakeholder impact.
- Determining employee participation. Generally, stakeholder/ESG-focused metrics would be implemented for officer/executive level roles, as this is the employee group that sets company-wide policy impacting the achievement of quantitative ESG goals or qualitative milestones. Alternatively, some companies may choose to implement firm-wide ESG incentive metrics to reinforce the positive employee engagement benefits of the company’s ESG strategy or to drive a whole-team approach to achieving goals.
- Determining the range of metric weightings for stakeholder/ESG goals. Historically, US companies with existing environmental, employee safety, and customer service goals as well as other stakeholder metrics have been concentrated in the extractive, industrial, and utility industries; metric weightings on these goals have ranged from 5% to 20% of annual incentive scorecards. We expect that this weighting range would continue to apply, with the remaining 80%+ of annual incentive weighting focused on financial metrics. Further, we expect that proxy advisors and shareholders may react adversely to non-financial metrics weighted more than 10% to 20% of annual incentive scorecards.
- Considering whether to implement stakeholder/ESG goals in annual versus long-term incentive plans. As noted above, most ESG incentive goals to date have been implemented as weighted metrics in balanced scorecard annual incentive plans for several reasons. However, we have observed increased discussion of whether some goals (particularly greenhouse gas emission goals) may be better suited to long-term incentives. [10] There is no right answer to this question—some milestone and quantitative goals are best set on an annual basis given emerging industry, technology, and company developments; other companies may have a robust long-term plan for which longer-term incentives are a better fit.
- Considering how to operationalize ESG metrics into long-term plans. For companies determining that sustainability or social responsibility goals fit best into the framework of a long-term incentive, those companies will need to consider which vehicles are best to incentivize achievement of strategically important ESG goals. While companies may choose to dedicate a portion of a 3-year performance share unit plan to an ESG metric (e.g., weighting a plan 40% relative total shareholder return [TSR], 40% revenue growth, and 20% greenhouse gas reduction), there may be concerns for shareholders and/or participants in diluting the financial and shareholder-value focus of these incentives. As an alternative, companies could grant performance restricted stock units, vesting at the end of a period of time (e.g., 3 or 4 years) contingent upon achievement of a long-term, rigorous ESG performance milestone. This approach would not “dilute” the percentage of relative TSR and financial-based long-term incentives, which will remain important to shareholders and proxy advisors.
As priorities of stakeholders continue to evolve, and addressing these becomes a strategic imperative, companies may look to include some stakeholder metrics in their compensation programs to emphasize these priorities. As companies and Compensation Committees discuss stakeholder and ESG-focused incentive metrics, each organization must consider its unique industry environment, business model, and cultural context. We interpret the BRT’s updated statement of business purpose as a more nuanced perspective on how to create value for all stakeholders, inclusive of shareholders. While optimizing profits will remain the business purpose of corporations, the BRT’s statement provides support for prioritizing the needs of all stakeholders in driving long-term, sustainable success for the business. For some companies, implementing incentive metrics aligned with this broader context can be an important tool to drive these efforts in both the short and long term. That said, appropriate timing, design, and communication will be critical to ensure effective implementation.
Appendix 1: Mapping the Intersection of ESG Metrics and Stakeholder Impact
According to a recent Bank of New York Mellon survey, some the most prevalent questions from investors fielded by corporate investor relations professionals surveyed concern board composition and structure, diversity and inclusion, climate change and carbon emissions, executive compensation, and energy efficiency. [11]
The illustrative table below provides Pay Governance’s generalized perspective on the alignment between ESG initiatives and the directly impacted stakeholders. The matrix below is illustrative and is not exhaustive of all ESG metrics and stakeholder impacts.
1 “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’. Business Roundtable.” August 19, 2019. https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans . (go back)
2 N. Gregory Mankiw. “C.E.O.s Are Qualified to Make Profits, Not Lead Society.” The New York Times. July 24, 2020. https://www.nytimes.com/2020/07/24/business/ceos-profits-shareholders.html. (go back)
3 Karen Firestone. “How Investors Have Reacted to the Business Roundtable Statement.” Harvard Business Review. November 20, 2019. https://hbr.org/2019/11/how-investors-have-reacted-to-the-business-roundtable-statement. (go back)
4 Ken Bertsch. “Council of Institutional Investors Responds to Business Roundtable Statement on Corporate Purpose.” Council of Institutional Investors. August 19, 2019. https://www.cii.org/aug19_brt_response. (go back)
5 Lucian A. Bebchuk and Roberto Tallarita. “The Illusory Promise of Stakeholder Governance.” Cornell Law Review. April 21, 2020. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3544978. (go back)
6 Alan Murray and David Meyer. “The Pandemic Widens Rifts; Businesses Need to Help Heal Them.” Fortune. May 11, 2020. https://fortune.com/2020/05/11/coronavirus-pandemic-stakeholder-capitalism/. (go back)
7 Ira T. Kay and Blaine Martin. “Are Share Buybacks a Symptom of Managerial Short-Termism? New Insights on Executive Pay, Share Buybacks, and Other Corporate Investments.” Pay Governance. May 14, 2019. https://www.paygovernance.com/viewpoints/are-share-buybacks-a-symptom-of-managerial-short-termism. (go back)
8 Lizanne Thomas. “Stop Panicking About Corporate Short-Termism.” Harvard Business Review. June 28, 2019. https://hbr.org/2019/06/stop-panicking-about-corporate-short-termism. (go back)
9 Julie Segal. “Activist Hedge Funds Can Smell Greenwashing, Study Finds.” Institutional Investor. June 25, 2020. https://www.institutionalinvestor.com/article/b1m72r85v3slnb/Activist-Hedge-Funds-Can-Smell-Greenwashing-Study-Finds. (go back)
10 Seymour Burchman and Blair Jones. “5 Steps for Tying Executive Compensation to Sustainability.” Semler Brossy. July 19, 2019. https://www.semlerbrossy.com/insights/5-steps-for-tying-executive-compensation-to-sustainability. (go back)
11 “Global Trends in Investor Relations: Twelfth Edition.” February 2020. BNY Mellon. https://www.bnymellon.com/_global-assets/pdf/our-thinking/global-trends-in-investor-relations-2019.pdf . (go back)
One Comment
Nice “ESG” table! Notice how naive it is. “ESG” is all about funneling money to executive politicians and lobbying, post Citizens United. They whisper “ESG”…think lobbying. Notice: it’s conveniently not on the table.
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