Materiality in Corporate Governance: The Statement of Significant Audiences and Materiality

Posted: 12 Jul 2016

See all articles by Robert G. Eccles

Robert G. Eccles

University of Oxford - Said Business School

Timothy Youmans

CECP Strategic Investor Initiative; High Meadows Institute; MIT Sloan Family Office Program

Multiple version iconThere are 2 versions of this paper

Date Written: Spring 2016


Materiality is an elusive, but fundamentally important concept in corporate reporting of all kinds — not only in traditional financial reporting, but in sustainability and integrated reporting as well. In the end, materiality is entity‐specific and based on judgment. Moreover, it is a judgment that should ultimately be made by a company's board of directors, which makes materiality as much a governance as a reporting issue. Whether a given ESG issue is material is in large part a function of the corporate stakeholders, or “audiences,” that the company's board of directors deems to be “significant” — that is, important to the company's ability to create value over the short, medium, and long term. The identification of such audiences — together with the time frames the board uses to evaluate the impact of the company's decisions on these audiences — provides the basis for determining the sustainability issues that corporate management must focus on for performance and reporting purposes. To help ensure that decisions about materiality receive the attention they deserve, the authors propose that corporate boards articulate their views in an annual “Statement of Significant Audiences and Materiality.” Contrary to the prevailing belief that the fiduciary duty of the board is to place shareholders’ interests first, nothing precludes corporate boards from issuing such a statement. Recent research, including the compilation of legal memos on fiduciary duty and nonfinancial reporting for all G20 countries, makes it clear that the board's fiduciary duty is to “the corporation itself.” In exercising this duty, directors have full discretion, under the business judgment rule and other authorities, to decide which audiences, along with the company's shareholders, should be deemed significant.

Suggested Citation

Eccles, Robert G. and Youmans, Timothy, Materiality in Corporate Governance: The Statement of Significant Audiences and Materiality (Spring 2016). Journal of Applied Corporate Finance, Vol. 28, Issue 2, pp. 39-46, 2016. Available at SSRN: or

Robert G. Eccles (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Timothy Youmans

CECP Strategic Investor Initiative ( email )

5 Hanover Square, Suite 2102
New York, NY 10004
United States

High Meadows Institute ( email )

129 Newbury Street
Suite 400
Boston, MA 02116
United States

MIT Sloan Family Office Program ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

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