Yesterday, the Business Roundtable got a ton of press by issuing a statement with its view that the “purpose” of a corporation should be changed so that “shareholder primacy” is a thing of the past. Nearly 200 CEOs signed onto the BRT’s statement. Bye-bye Milton Friedman’s decades-old theory to “maximize value for shareholders.” How many of you will need to cover your tattoo of that phrase?
Shifting from shareholder primacy would be quite a change in focus for management & boards – from one devoted primarily to shareholders to one that would be a mix of stakeholders, including employees, customers, suppliers, the environment, communities and shareholders. Under the BRT’s new formulation, companies say they’ll consider the competing interests of the stakeholders (presuming they’re not conflicted). While most state corporate law already allows for this in some form, things like promoting employee welfare at the short-term expense of shareholders are typically justified by boards & management as something that will also improve long-term shareholder value (some shareholders are more amenable to that than others).
Elizabeth Warren loves the idea – she proposed legislation along these lines last year. But understandably, large shareholders aren’t happy about the BRT’s move.
We’re posting memos in our “Director Duties” Practice Area. And there’s a WSJ article – and Cydney Posner has some nice analysis in her Cooley blog.
-Broc Romanek, TheCorporateCounsel.net August 20, 2019
