Wednesday marks the first anniversary of the Business Roundtable’s vocal renunciation of “shareholder primacy” in a statement that claimed to “redefine the purpose of a corporation.” Like most efforts at “corporate social responsibility,” the initiative has proved long on public relations, short on action, and lacking in effect. Among the 181 CEOs who signed, Harvard Law School’s Lucian Bebchuk and Roberto Tallarita have found only one whose board of directors gave approval. On the organization’s own website, the most recent “Principles of Corporate Governance” still dates from 2016.
The Business Roundtable’s CEO members sought to ensure the public that they could be trusted as benevolent leaders of the economy, but instead they have demonstrated precisely the opposite — that multinational corporations are incapable of fulfilling obligations voluntarily to anyone besides shareholders, and external constraints are needed.
In fairness, the market’s competitive pressures discourage any one firm from hampering short-term profitability for the sake of corporate actual responsibility. But that is precisely where an institution like the Business Roundtable could play a valuable role, were it genuinely committed to addressing interests beyond those of the shareholders who control the firms themselves.
As the signatories would likely attest from their own management experience, a serious strategic commitment is not something merely announced. It requires a timeline, milestones, resources, and, most importantly, tangible targets and ongoing measurement. No such visible or tactical steps have been taken. In the second year since its pledge, here are three things that the Business Roundtable and its leaders could do to truly advance their purported goals.
First, establish clear priorities focused on the corporation’s role. Declaring everyone a stakeholder and everything a priority is a surefire recipe for avoiding meaningful action or accountability. Firms have directed their efforts toward diversity, sustainability, and charitable initiatives. While laudable, such activities are themselves insufficient to (as the statement presented its goal) “promote an economy that serves all Americans.”
The needed social functions for which firms are the indispensable contributors, by contrast, are creating good jobs for workers, maintaining a workplace compatible with family life, providing the economic foundation and supporting the public institutions vital for strong communities, and advancing the long-term prosperity of the nation. The Business Roundtable should acknowledge this and establish clear priorities for these particular objectives.
Second, measure and disclose. The extraordinary collection of business talent represented by the Business Roundtable’s members has the scale and expertise to establish and report standardized metrics that would allow the public to evaluate the performance of their firms. The Business Roundtable could become a clearinghouse for defining, recording, and publicizing the data for its members’ firms and, ultimately, other firms likewise committed to responsible conduct.
Employees, customers, and investors should all have a clear picture of how firms are treating their workers — for instance how many employees earn below a family wage of at least 200% the federal poverty line, how much wage growth the typical worker sees in the first five years of employment, and the ratio of actually employed non-supervisory workers to outsourced independent contractors. Likewise, firms should disclose metrics that illuminate whether their employees are able to fulfill family commitments and whether the firms themselves contribute to the health of local communities. Are payrolls growing outside of the highest-income coastal hubs? Are new hires being drawn from local academic institutions and training programs?
In February 2020, the House Financial Services Committee approved the Workforce Investment Disclosure Act, which amends the Securities Exchange Act of 1934 to require companies to disclose information about their “human capital” in annual reports. The Business Roundtable should either champion this effort or offer its own version.
Additionally, Americans should know whether the multinational corporations based here are still investing here. “I’m not a U.S. company, and I don’t make decisions based on what’s good for the U.S.,” said ExxonMobil CEO Lee Raymond in 2006. Duly noted; but most CEOs are more circumspect, if no more patriotic. Let’s find out who is making decisions good for the United States. Firms should publish annually their ratio of capital expenditures to shareholder distributions, their ratio of domestic to foreign operating expenditures, and their ratio of political and lobbying expenditures to tax payments.
Third, support legislative reforms. While corporate executives are correct to lament the collective-action problem that discourages corporate actual responsibility, they have an obvious remedy available: to speak together in support of rules that would require all of them to become good corporate actors. Of course, this is not where corporations tend to exert their lobbying energies, nor where the Business Roundtable has focused its own attention.
If the Business Roundtable were serious about “promot[ing] an economy that serves all Americans,” it could lead a push for nationwide action to restrict anti-competitive practices such as non-compete and no-poach agreements, afford workers representation on corporate boards, and prevent abuse of the H-1B visa system.
Frankly, we shouldn’t hold our breath. Instead, we should use it to advocate for the public policy changes needed to channel the pursuit of profit toward the purported goals the Business Roundtable professes: prosperity for workers, families, communities, and the nation. This, in the end, is the purpose of our economy and its competitive free market.
Adapted from an open letter sent to Business Roundtable President and CEO Joshua Bolten on August 12, 2020, from Oren Cass, Sarah Miller, and Terry Schilling, who are the executive directors of American Compass, the American Economic Liberties Project, and the American Principles Project, respectively.
