Will Corporations Deliver Value to All Stakeholders?
Forthcoming, Vanderbilt Law Review, Volume 75 (May 2022)
63 Pages Posted: 5 Aug 2021 Last revised: 31 Aug 2021
Date Written: August 4, 2021
Amid growing concerns for the effects that corporations have on stakeholders, supporters of stakeholder governance encourage society to rely on corporate leaders to use their discretion to protect stakeholders, and they seem to take corporate pledges to do so at face value. By contrast, critics of stakeholder governance question whether corporate leaders have incentives to protect stakeholders and doubt the reliability of pledges by corporate leaders to do so. We provide empirical evidence that can contribute to resolving the debate between these rival views.
The most celebrated pledge by corporate leaders to protect stakeholders was the Business Roundtable’s Statement on the Purpose of a Corporation (the “BRT Statement”). Signed by CEOs of most of the country’s major companies, the BRT Statement expressed a commitment to deliver value to all stakeholders and not just shareholders and was widely viewed as a major milestone that would usher in a new stakeholder capitalism and significantly improve the treatment of stakeholders. If any companies could be expected to follow through on stakeholder rhetoric, the companies whose CEOs signed the highly visible BRT Statement would be natural candidates to do so, and they thus provide an instructive test case for an empirical investigation.
To investigate whether the BRT Statement represented a meaningful commitment or was mostly for show, we review a wide array of hand-collected corporate documents of the over 130 U.S. public companies that joined the BRT Statement (the “BRT Companies”). We present the following six findings:
First, examining the almost one-hundred BRT Companies that updated their corporate governance guidelines in the sixteen-month period between the release of the BRT Statement and the end of 2020, we find that they generally did not add any language that improves the status of stakeholders and, indeed, most of them chose to retain in their guidelines a commitment to shareholder primacy;
Second, reviewing all the corporate governance guidelines of BRT Companies that were in place as of the end of 2020, we find that most of them reflected a shareholder primacy approach, and an even larger majority did not include any mention of stakeholders in their discussion of corporate purpose;
Third, examining the over forty shareholder proposals regarding the implementation of the BRT Statement that were submitted to BRT Companies during the 2020 or 2021 proxy season, and the subsequent reactions of these companies, we find that none of these companies accepted that the BRT Statement required any changes to how they treat stakeholders, and most of them explicitly stated that their joining the BRT Statement did not require any such changes.
Fourth, reviewing all the corporate bylaws of the BRT Companies, we find that they generally reflect a shareholder-centered view;
Fifth, reviewing the 2020 proxy statements of the BRT Companies, we find that the great majority of these companies did not even mention their signing of the BRT Statement, and among the minority of companies that did mention it, none indicated that their endorsement required or was expected to result in any changes in the treatment of stakeholders;
Sixth, we find that the BRT Companies continued to pay directors compensation that strongly aligns their interests with shareholder value. Furthermore, we document that the corporate governance guidelines of BRT Companies as of the end of 2020 commonly required such alignment of director compensation with stockholder value and generally avoided any support for linking such compensation to stakeholder interests.
Overall, our findings support the view that the BRT Statement was mostly for show and that BRT Companies joining it did not intend or expect it to bring about any material changes in how they treat stakeholders. These findings support the view that pledges by corporate leaders to serve stakeholders would not materially benefit stakeholders, and that their main effect could be to insulate corporate leaders from shareholder oversight and deflect pressures for stakeholder-protecting regulation. Stakeholder governance that relies on the discretion of corporate leaders would not represent an effective way to address growing concerns about the effects corporations have on stakeholders.
This paper is part of a larger research project on stakeholder capitalism of the Harvard Law School Corporate Governance. Other parts of this research project are The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita, and For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita.
Keywords: Corporate purpose, corporate social responsibility, stakeholders, stakeholder governance, stakeholder capitalism, corporate constituencies, corporate governance, Business Roundtable, corporate governance guidelines, proxy statements, shareholder proposals, corporate bylaws
JEL Classification: D21, G32, G34, G38, K22
Suggested Citation: Suggested Citation