A year from the Business Roundtable’s announcement that they were broadening their focus on stakeholders, what are the results?
Unsurprisingly, the BRT gives itself an A. Executive Director Joshua Bolten writes in the Wall Street Journal:
The CEOs who signed the new statement believe it better reflects their conviction that businesses can’t flourish over the long term or appropriately reward their shareholders without investing in the stakeholders who make success possible.
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.
We note that there are no specifics cited here.
VEA Vice Chair Nell Minow is quoted in Michael Hiltzick’s column, which has a more objective and a more critical assessment, including a reference to the research by Lucian Bebchuk and Roberto Tallarita we have already posted about. For us, the most telling detail in that study is that only one of the CEOs who signed the statement consulted, much less got approval from, the board of directors before fundamentally changing the priorities of the corporation.
So now it’s been a year. Have the CEOs done more than talk? The answer is no. If anything, the CEOs have done less than talk.
In the year since the Roundtable statement, there have been few signs that major corporations have taken real steps to serve nonshareholders that they wouldn’t have taken without outside pressure, whether from public opinion or government regulation.
Several companies have raised their minimum wages, but typically either in compliance with or anticipation of government mandates to do. Some consumer companies offered front-line workers “hero” bonuses for their work during the pandemic, but withdrew them even before the pandemic ebbed.
And business groups, including the Roundtable, have continued to lobby to roll back environmental laws and make it harder for ordinary people to have a voice in corporate decision-making.
The Roundtable statement produced plenty of skepticism among corporate critics from the outset. Scanning the list of signatories, investment manager Barry Ritholtz observed that it was “a Who’s Who of corporate behavior that has burdened and disadvantaged the very stakeholders they will now champion.”
Amazon and Apple, Ritholtz observed, had been experts at exploiting international tax loopholes to avoid billions in U.S. taxes, and Walmart and McDonald’s had fought increases in the minimum wage for years.
Shareholder activist Nell Minow observed that previous “stakeholder” initiatives tended to cloak efforts to entrench management by making them less beholden to shareholders, as happened when CEOs sought shelter from the hostile takeover craze of the 1980s.
“The CEOs who signed this statement know that accountability to everyone is accountability to no one,” Minow noted.
Had the companies that signed the Roundtable statement actually remade their management policies to raise the interests of customers, workers, and others above those of shareholders, argue Lucian Bebchuk and Roberto Tallarita of Harvard Law School in a forthcoming paper, “the impact on society would be considerable.”
Instead, they conclude, the statement “should be viewed largely as a PR move rather than as the harbinger of a major change.”
Hiltzik points out the inconsistency between the stakeholder rhetoric and the lobbying to quash shareholder oversight on ESG issues with rulemakings at the SEC and Department of Labor and opposition to legislation on climate change.
So, our grade is an F.
What’s next? It had better be action if stakeholder capitalism is to amount to anything. “The possibility of stakeholder capitalism is very real, but right now we’re in the stage of happy talk, and happy talk doesn’t make change happen,” says Peter Georgescu, author of Capitalists, Arise! End Economic Inequality, Grow the Middle Class, Heal the Nation and the former longtime CEO of the Young & Rubicam ad agency. The greatest near-term prospect for action depends on the outcome of the November election. If the Democrats win the White House and the Senate, while holding control of the House, it seems highly likely that large-scale legislation—raising taxes, giving employees more power, and increasing business regulation—will be enacted under the banner of stakeholder capitalism. Whether the CEOs of the Business Roundtable will like it is by no means certain.
A bi-partisan group has sent the BRT an open letter calling for more clarity and more action following a year of a stakeholder “empty promise.” Among their demands– measure and disclose:
The extraordinary collection of business talent represented by BRT’s members has the scale and expertise to establish and report standardized metrics that would allow the public to evaluate the performance of their firms. For example:
- Number of employees earning below a family wage of at least 200% the federal poverty line plus benefits
- Wage growth over first five years of employment
- Ratio of non-supervisory employees to engaged independent contractors
- Share of employee hours subject to variable scheduling
- Share of employees with access to paid family leave and paid sick leave
- Share of employees departing to fulfill care-giving responsibilities who are subsequently rehired
- Payroll growth outside of highest-income metro areas
- Share of new-graduate-hires from local institutions
- Ratio of capital expenditure to shareholder distribution
- Ratio of domestic to foreign operating expenditures
- Ratio of political and lobbying expenditures to tax payments
These particular metrics are illustrative. No doubt, BRT could improve upon them, taking into consideration both data availability and alignment with desirable practices and outcomes. BRT could then become a clearinghouse for defining, recording, and publicizing the data for its members’ firms and, ultimately, other firms likewise committed to responsible conduct.
They also call on members of the BRT to support legislative reforms.
From lobbying against stronger anti-monopoly rules and labor protections in the 1970s to working against more assertive rules on the misuse of over-the-counter derivatives after the financial crisis of 2008, BRT has historically supported policies that support the concentration of wealth and power.
Even today, BRT’s corporate governance priorities are limited to restricting the power of proxy advisory firms, reducing shareholder voting power, and eliminating “complex and burdensome U.S. financial laws and regulations.” Without speaking to the merits of any of these proposals, none of them represent a meaningful attempt to “redefine the purpose of a corporation.”
By contrast, if BRT were serious about corporate obligations to stakeholders other than shareholders, it could for example lead a push for nationwide action to restrict anticompetitive practices like non-compete and no-poach agreements, afford workers representation on corporate boards, and prevent abuse of the H-1B visa system. BRT members could likewise pledge to invest in rebuilding public institutions capable of combatting corruption.