It is two years on from the Business Roundtable’s supposedly historic ‘restatement’ of the role of the corporation in the US. In a further excoriating article, my friend Harvard law professor Lucian Bebchuk and his colleague Roberto Tallarita have again shown the lie of this restatement, demonstrating that it is no more than a cover for business as usual.
A year ago, Bebchuk and Tallarita had already suggested this might be the case (see also What’s the Purpose of Purpose? (II)). Now they bring forward further evidence.
The BRT’s Statement on the Purpose of a Corporation was signed by 181 corporate CEOs. Bebchuk and Tallarita study the 136 US public companies that were involved, assessing their public documents and statements to see if anything had changed because of the Statement, in particular if there had been any switch from a shareholder-centric approach to one that more fairly accommodated the interests of stakeholders. They studied the companies’ governance guidelines (whether or not updated since the Statement was published), their bylaws, their proxy statements, and also the assertions of companies in opposition to the more than 40 shareholder proposals asking for implementation of the Statement. Bebchuk and Tallarita’s findings contrast strongly with the BRT’s own recent assertion that “Two years later, CEOs have powerfully demonstrated their commitment to work for the benefit of all stakeholders.”
In short, the evidence shows that these companies see the Statement as meaningless and as not making any difference to their ongoing shareholder focus:
- Of the 99 companies (73%) that have amended their corporate governance guidelines since the Statement was published, 92 have left their corporate purpose unaltered, and 57 left shareholder primacy intact as the core driver for director decision-making; this does not include a large group of companies still employing a traditional US formulation of directors’ duties as acting “in the best interests of the company”, which (in the US at least) is not generally understood to encompass stakeholder interests.
- Companies whose CEOs were directly involved in drafting the Statement are if anything less likely to have adopted stakeholder-friendly language in their governance guidelines.
- Of the 136 companies, their bylaws emphasise the primacy of shareholders; only five mention social or environmental issues at all, though even then not to an extent that implies a stakeholder approach. Mentions of employees are restricted to discussions of senior executives and governance practicalities. The sole exception identified is consumer goods company Procter & Gamble which states that the interests of company and employees are “inseparable”, giving rise to an expectation of some form of profit sharing and voice for employees in the conduct of the business. This more stakeholder viewpoint (at least with regard to a single stakeholder group) is apparently unique among this group of US corporations.
- Fully 117 of the 136 companies included no reference to the Statement in their proxy statements (the formal US annual disclosures to shareholders on governance matters) – though note that the academics excluded from consideration mentions forced on companies by the presence of shareholder proposals on these issues. Of the 19 that did reference the Statement, fully 10 asserted that it made no difference as it simply reflected their longstanding approach to business.
- Perhaps most striking is the corporate reaction to the 43 shareholder proposals that were submitted to 27 signatory companies of the Statement in either 2020 or 2021, calling for an implementation of the Statement’s aims. 15 companies sought SEC permission not to put these proposals before their shareholders, 11 of them saying that the Statement made no difference to them as that was how they already ran their businesses (among them, pharma business Johnson & Johnson, pointing to its Credo). In total, 28 proposals went forward onto the AGM agendas of 21 companies over the two-year period. All companies opposed the proposals, 12 of them explicitly saying that they already applied the Statement’s expectations prior to signing it.
The academics accompanied their formal article with a Wall Street Journal op-ed published on the second anniversary of the publication of the BRT’s Statement. This op-ed easily lives up to the bluntness of its headline, Stakeholder Talk Proves Empty Again. As Bebchuk and Tallarita say: “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…Another potential motivation is to release pressure for stakeholder-protecting regulation.” Neither represents an edifying conclusion, nor one that moves companies towards fairness.
See also: The living dead: rise of the zombie company
What’s the purpose of purpose? Will the focus on corporate purpose deliver real change in the way companies behave?
What’s the purpose of purpose? (II)
Will Corporations Deliver Value to all Stakeholders? Bebchuk, Tallarita, forthcoming, Vanderbilt Law Review Vol 75 (May 2022)
The Illusory Promise of Stakeholder Governance, Bebchuk, Tallarita, 106 Cornell Law Review 91 (2020)
Statement on the Purpose of a Corporation, Business Roundtable, August 2019
‘Stakeholder’ Talk Proves Empty Again, Bebchuk, Tallarita, Wall Street Journal, August 19 2021
The Sense of Fairness blog 