In 2019, more than 100 CEOs of US public companies signed a Business Roundtable statement in which they pledged to deliver value to all stakeholders, not just shareholders. Have their companies lived up to this commitment? A forthcoming study based on a wide array of hand-collected corporate documents shows that, two years later, Business Roundtable companies generally have retained corporate governance principles and practices that reflect traditional shareholder primacy.
In August 2019, in the Business Roundtable’s Statement on the Purpose of a Corporation (the “BRT Statement”), numerous major company CEOs announced their commitment to deliver value to all stakeholders and not just shareholders. Some observers viewed this event as a paradigm shift that signaled a meaningful commitment to improve the treatment of stakeholders (the “Commitment Hypothesis”). Others, by contrast, including us in previous work, viewed the Statement as a PR move with little practical impact on stakeholders (the “PR Hypothesis”).
Which hypothesis best explains the BRT Statement? Was the BRT Statement a real commitment or was it mostly for show? In our forthcoming article “Will Corporations Deliver Value to All Stakeholders?“, we seek to provide empirical evidence on the subject.
Celebrating the first and second anniversaries of the BRT Statement, BRT leaders expressed confidence that CEOs and companies have been living up to the commitments expressed in the Statement. For example, on the statement’s first anniversary, BRT President Joshua Bolten said that companies had held to the commitments included in the BRT Statement; and on the second anniversary, the BRT declared that CEOs “have powerfully demonstrated their commitment to work for the benefit of all stakeholders.”
Our empirical investigation focusses on examining whether the companies whose CEOs joined the BRT Statement have indeed lived up to it. If the BRT Statement was a meaningful commitment, we would expect subsequent communications, governance principles, and internal arrangements to be consistent with the Statement’s approach. We find, however, that this was not the case. The patterns we document are consistent with the PR Hypothesis and inconsistent with the Commitment Hypothesis.
For our study, we analyzed over 600 hand-collected corporate documents. The documents concern all the 128 US public companies that signed the BRT Statement in August 2019 (the “BRT Companies”) and cover the period through the end of August 2021, two full years after the publication of the BRT Statement. We established an online archive, the BRT Corporate Purpose Archive, that provides interested readers access to all the collected and reviewed documents. All in all, we reviewed and analyzed several significant types of evidence:
Corporate governance guidelines: We begin our analysis by examining the corporate governance guidelines of the BRT Companies. Governance guidelines, which are frequently updated, are official corporate documents that provide a detailed account of the main principles and procedures guiding the company’s corporate governance.
Almost 100 BRT Companies updated their governance guidelines after the BRT Statement. However, almost none of them made any changes to the language describing their corporate purpose. More strikingly, a majority of the updated guidelines reaffirmed an explicit commitment to shareholder primacy. In general, when we examined all the guidelines of BRT companies that were in place at the end of August 2021, regardless of whether they had been updated since the BRT Statement, we found that a majority explicitly supported shareholder primacy.
Corporate reactions to shareholder proposals: We next analyze the response of 27 BRT companies to shareholder proposals regarding the companies’ implementation of the BRT Statement. All companies invariably opposed these proposals, and a substantial majority explicitly stated that their joining the BRT Statement did not require and was not expected to bring about any changes in their treatment of stakeholders.
Corporate bylaws: We then examine the bylaws of all the 128 BRT companies in force as of August 2021. Bylaws are legally binding documents setting forth principles and procedures for the company’s governance. However, while bylaws commonly refer to shareholders a very large number of times, we generally found no relevant mention of stakeholders in general, or of particular stakeholder groups, with the exception of the bylaws of one BRT company.
Proxy statements: We proceed to review the 2020 proxy statements of the BRT companies in order to identify any mention of the BRT statement (other than in response to shareholder proposals). Consistent with the PR Hypothesis, we found that the majority of BRT companies chose not to mention the BRT statement at all in their proxy statements. Of the minority of companies that mentioned the BRT statement, none described it as a commitment that could require or bring about material changes, and several explicitly indicated that no such changes were required or expected.
Director compensation: Finally, we examine the principles and actual practices of the BRT companies with respect to director compensation. The structure of director compensation is important for assessing the objectives that companies want directors to pursue, both because compensation shapes the incentives of directors, and because it sends them a strong signal as to what goals the company considers important.
A majority of the guidelines of BRT Companies included an explicit requirement that directors own stock of the company or be paid with stock of the company, in order to align their interests with the interests of shareholders. By contrast, none of the guidelines included any requirement to tie director compensation to stakeholder interests. Turning to the actual practice of director compensation, we found that during the year following the issuance of the BRT statement, all BRT companies paid a substantial fraction of director compensation in stock, and none of them tied director compensation to stakeholder objectives.
Our findings overall are inconsistent with the Commitment Hypothesis and supportive of the PR Hypothesis. They show that pledges by corporate leaders to use their discretion to serve stakeholders may well not produce their purported benefits for stakeholders and therefore should not be relied upon for such purposes. These findings also reinforce the concern that stakeholderist pledges might be aimed at serving the private interests of corporate leaders rather than truly addressing the rising concerns regarding corporations’ treatment of stakeholders.
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