Will Corporations Deliver Value to All Stakeholders?

Forthcoming, Vanderbilt Law Review (2022)
European Corporate Governance Institute - Law Working Paper No. 645/2022
Harvard Law School John M. Olin Center Discussion Paper No. 1078
Harvard Law School Program on Corporate Governance Working Paper 2021-11

62 Pages Posted: 5 Aug 2021 Last revised: 24 Jun 2022

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Roberto Tallarita

Harvard Law School; Harvard University - Harvard Law School

Date Written: August 4, 2021

Abstract

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 2019 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, not just shareholders, and was widely viewed as a major milestone that would usher in “stakeholder capitalism” and significantly improve the treatment of stakeholders. If any companies could be expected to follow through on stakeholder rhetoric, those whose CEOs signed the highly visible BRT Statement would be natural candidates to do so, so these companies 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 128 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 two years between the release of the BRT Statement and the end of August 2021, we find that they generally did not add any language that improves the status of stakeholders and, indeed, most of them chose to retain a commitment to shareholder primacy in their guidelines.

Second, reviewing all the corporate governance guidelines of BRT Companies that were in place as of August 31, 2021, we find that most 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 accepted that the BRT Statement required any changes to how they treat stakeholders, and most 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 August 2021 commonly required such alignment of director compensation with shareholder 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 of the Harvard Law School Corporate Governance on stakeholder capitalism and stakeholderism. Other parts of this research project include The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita, For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita, Stakeholder Capitalism in the Time of COVID by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita, The Perils and Questionable Promise of ESG-Based Compensation by Lucian A. Bebchuk and Roberto Tallarita, and Does Enlightened Shareholder Value Add Value? 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

Bebchuk, Lucian A. and Tallarita, Roberto, Will Corporations Deliver Value to All Stakeholders? (August 4, 2021). Forthcoming, Vanderbilt Law Review (2022)
European Corporate Governance Institute - Law Working Paper No. 645/2022
Harvard Law School John M. Olin Center Discussion Paper No. 1078
Harvard Law School Program on Corporate Governance Working Paper 2021-11, Available at SSRN: https://ssrn.com/abstract=3899421 or http://dx.doi.org/10.2139/ssrn.3899421

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/bebchuk/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Roberto Tallarita

Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
3,319
Abstract Views
16,723
rank
4,996
PlumX Metrics