A new statement from the Business Roundtable commits to stakeholder interests instead of making the primary purpose of the company shareholder value.
We have some concerns. And a strong sense of deja vu. The last time the BRT was excited about stakeholders it was during the era of hostile takeovers, and a feint to the interests of anyone other than shareholders was the best way to entrench management. It may also be an indicator that CEOs do not think stock-based metrics will support current levels of compensation in a likely recession and they want something less quantifiable. And they can only do buybacks so many times so short-term manipulation options are narrowing,
As the law and basic economics already make clear, stakeholder interests are already included within the obligation to shareholders; sustainable shareholder value requires commitment to employees, customers, suppliers, and the community. Long-term shareholders are increasingly committed to ESG investing. But we are skeptical about what the CEO signatories to this statement have in mind. Everything will depend on how specifically and quantifiably they describe their stakeholder goals and especially how their compensation is tied to those goals. If pay is exclusively or primarily based on stock price, this statement is just an attempt at distraction. Investors should insist on more specifics and more clarity.
[T]he Council of Institutional Investors (CII) expressed concern about the Business Roundtable’s (BRT) statement, saying that in its opinion the statement “undercuts notions of managerial accountability to shareholders.”
“CII has a productive relationship with BRT that has included discussion on corporate ‘stakeholder’ obligations, but we respectfully disagree with the statement issued by the BRT earlier today,” the CII said in a news release. “The BRT statement suggests corporate obligations to a variety of stakeholders, placing shareholders last, and referencing shareholders simply as providers of capital rather than as owners.”
The CII continued that it “believes boards and managers need to sustain a focus on long-term shareholder value. To achieve long-term shareholder value, it is critical to respect stakeholders, but also to have clear accountability to company owners.”
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