In May, we posted Jamie Dimon’s “Inclusiveness” Call to Action and Reorienting the Purpose of the Corporation to Serve All Stakeholders, an update on the status of the Business Roundtable’s letter “Statement on the Purpose of a Corporation,” published in August 2019. Mr. Dimon, one of the leaders of the BRT, discussed how his company is “laying the foundation for an inclusive recovery that unlocks economic opportunity for more people.” This call for stakeholder capitalism and inclusion was then overwhelmed by news of George Floyd’s death and the resulting push against systemic racism and for diversity (and rightly so).
Now, on the one-year anniversary, a difference of opinion is playing out in The Wall Street Journal on whether the BTR companies are walking the walk or just talking the talk. On one side is Joshua Bolten, CEO of the BRT, who declared that the signatory companies “have held to their commitments,” in a Commentary piece “A Good Year for Stakeholder Capitalism.”
It’s been a year since 181 CEOs of America’s largest companies overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximizing shareholder return. In its place, Business Roundtable adopted a new Statement on the Purpose of a Corporation declaring that companies should not only serve their shareholders but also deliver value to their customers, invest in employees, deal fairly with suppliers, and support the communities in which
Companies have held to their commitments. Even before Covid-19 hit, many Roundtable companies were making substantial investments in worker training, better wages and benefits, and support for struggling communities. They called for increases in the federal minimum wage and paid family medical leave.
Responding to the pandemic, companies delivered bonuses and raises to frontline workers. Several retooled operations to fill medical-supply shortages. Many are giving generously to support their communities. Others are at the forefront of efforts to develop a vaccine. CEOs have also pressed policy makers to assist individuals and small businesses hit by the crisis. In recent weeks, CEOs have made new commitments to promote racial equality and diversity in their own companies.
On the other side, Lucian Bebchuk and Roberto Tallarita, the director and associate director, respectively, of the Harvard Law School Program on Corporate Governance, published an op-article Stakeholder’ Capitalism Seems Mostly for Show, previewing their study, “The Illusory Promise of Stakeholder Governance,” which is scheduled for publication in the autumn:
This month marks the one-year anniversary of the Business Roundtable (BRT) statement on corporate purpose. The statement, in which over 180 major company CEO pledged “to deliver value to all of our stakeholders,” was widely viewed as signaling a coming shift in how companies will operate. Our op-ed article puts forward evidence that the statement was largely a public-relations move.
Based on inquiries sent to companies whose CEOs led the statement, we found that decisions to endorse the statement were generally made by CEOs without the approval of their board of directors. Because corporate decisions of significant importance generally receive such board approval, this reflects CEO perceptions that their pledges would not lead to meaningful changes in stakeholder treatment.
Similar conclusions arise from our review of all the board-approved corporate governance guidelines of companies endorsing the statement. We have found that these guidelines, including many updated after the issuance of the statement, mostly reflect a clear shareholder primacy.
. . . This analysis indicates that corporate leaders have strong incentives to benefit stakeholders only to the extent that doing so would not hurt share value. That conclusion will be greatly disappointing to some and welcome to others. But all should be clear-eyed about what corporate leaders are focused on and what they intend to deliver.
It remains to be seen whether the pandemic proves to be a catalyst toward a more inclusive economy or a reorientation of the purpose of a corporation. However, we clearly have a trend.
-Mike Melbinger, CompensationStandards.com August 20, 2020