OPINION |
COMMENTARY
‘Stakeholder’ Talk Proves Empty Again
Two years after signing the Business Roundtable statement,
companies still prioritize shareholders.
By Lucian Bebchuk and
Roberto Tallarita
Aug. 18, 2021 6:20 pm
ET
PHOTO: GETTY IMAGES/ISTOCKPHOTO |
Corporate leaders have been busy presenting themselves as guardians
of the interests of “stakeholders,” such as customers, employees,
suppliers and communities as well as shareholders. Our recent research,
however, casts serious doubt on whether corporations are matching
the talk with action.
Aug. 19 marks the second anniversary of the Business Roundtable’s
Statement on the Purpose of a Corporation. Signed by the CEOs of
many major U.S. companies, the statement committed them to deliver
value to all stakeholders, not only shareholders.
Last summer we reported in
these pages our findings that CEOs who signed the Business
Roundtable statement didn’t obtain the approval of their boards.
Because board approval is commonly sought for any major decision,
we inferred that the CEOs didn’t view the statement as a
meaningful commitment to change how they do business. But some
critics argued that the lack of board approval didn’t prove much.
So we dug deeper, investigating an array of corporate documents
for the 136 public U.S. companies whose CEOs signed the statement.
Fidelity National Information Services CEO Gary Norcross called
the statement on corporate purpose a “transformative statement”
and Delta Air Lines CEO Ed Bastian said it “broadened the
responsibility of corporate America to all stakeholders.” But we
found evidence that the signatory CEOs didn’t intend to make any
significant changes to how they do business.
We’ve identified almost 100 signatory companies that updated their
corporate governance guidelines by the end of 2020. We found that
the companies that made updates generally didn’t add any language
that elevates the status of stakeholders, and most of them
reaffirmed governance principles supporting shareholder primacy.
Shareholders submitted more than 40 proposals to signatory
companies on how to implement the statement’s vision. The
companies all opposed these proposals, and most of the companies
explicitly stated—in their proxy statement or in letters sent to
the Securities and Exchange Commission—that the statement didn’t
require any changes to their treatment of stakeholders.
We also found that about 85% of the signatory companies didn’t
even mention joining the “historic” statement in their proxy
statements sent to shareholders the following year. Among the 19
companies that did mention it, none indicated that joining the
statement would cause any changes to how they treat stakeholders.
Last but not least, we examined the structure of director
compensation. We found that signatory companies universally
continue to pay directors in company stock as a substantial
portion of their total compensation. Further, most of the
companies still have guidelines that explicitly align the
interests of directors and stockholders. In contrast, no company’s
compensation practices or guidelines link director compensation
with stakeholder interests. The strong alignment of director pay
with stock price sends a clear signal that shareholder value is
the objective directors are expected to pursue.
If CEOs weren’t intending to deliver value to all stakeholders,
what were they trying to do with their statement? One potential
motivation is to make corporate leaders less accountable to
shareholders. Corporate leaders and advisers often use stakeholder
arguments to urge institutional investors to be more deferential
to incumbent leaders, less open to activists’ challenges in the
event of underperformance, and more accepting of arrangements that
insulate management from shareholder intervention. Another
potential motivation is to release pressure for
stakeholder-protecting regulation.
Whatever corporate leaders are trying to gain with stakeholder
rhetoric, it isn’t stakeholder protection. The fog created by the
Business Roundtable’s statement shouldn’t obscure this reality.
Messrs. Bebchuk and Tallarita are director and associate director,
respectively, of the Harvard Law School Program on Corporate
Governance, which recently released their study “Will Corporations
Deliver Value to All Stakeholders?”
Appeared in the August 19, 2021, print edition.