Times They Are a-Changin': When Tech Employees Revolt!
38 Pages Posted: 13 Jun 2020 Last revised: 7 Jul 2020
Date Written: June 1, 2020
The COVID-19 pandemic sparked social distancing, economic crisis, mass layoffs, furloughs, inequality, and civil unrest. Corporate responses to the pandemic have profound effects on employee rights, their role in the corporations that they serve and overall economic activity in the United States. In the last few decades corporate governance scholarship neglected the role of employees - “human capital,” and mainly focused on the relationship between directors, managers and shareholders. There are calls from the public for a revolution in corporate law in the United States, mirroring the current social movements, to resist short-termism and achieve long-term value. Corporations are pressured by institutional investors to incorporate in their charters a deep obligation to act for the benefit of society at large, and to include employees formally, as stakeholders, in the governance of corporations. Tech employees joined these calls and are revolting by organizing, striking and publicly speaking out against their employers. Tech employees demand that their employers redefine corporate purpose and pursue long-term value while using a stakeholder lens. These developments contribute to a “paradigm shift” in thinking about talent management and corporate culture. In 2020, companies finally realized that “shareholder primacy” is not a good business strategy for attracting, engaging and retaining their workforce.
This Essay will address the old but ongoing debate in corporate governance theory, from the current dominant shareholder-centric corporate governance to collaborative (stakeholder-centric) corporate governance, and the new corporate personhood theory. It answers the question of whether our corporate law allows directors to take stakeholder interests into account. It offers a pragmatic solution to the age-old debate, and that is, our corporate governance theory can be extended to include the protection of directors (or officers) if they take employee interests into account in decision-making. However, the Essay also argues that if public companies decide to take stakeholder interests into account, then they should formally change their charters (certificate of incorporation) and moreover and more importantly, they should be required to disclose additional information and file periodically with the relevant state and federal authorities, akin to Public Benefit Corporations (PBCs). They must disclose to their shareholders and the public, information on their various efforts to promote their public-benefit mission and purpose, and the results of such efforts. Different states have different reporting requirements for PBCs, which these companies can easily follow. There is new legislation that was recently passed by the House in Delaware and if signed into law will make it easier for a traditional corporation to convert to a PBC. With regards to federal authorities, the SEC should move to a prescriptive approach (a specific line-item requirement) and require public companies to disclose information on talent management. The SEC must further develop agreed upon metrics in order to assess these efforts and the reports on performance results.
Keywords: Corporate Governance Theory, Human Capital
JEL Classification: K22
Suggested Citation: Suggested Citation