There’s a quip attributed to LBJ that needs updating for 2020. “Whenever most senators look in a mirror, they see a president,” it goes. Elizabeth Warren’s mirror is a piece of legislation.
The Massachusetts Democrat has introduced measures in recent months to transfer corporate governance to Washington and mandate social responsibility, by whatever definition it takes. But the legislation leaves it to officials other than Warren and her elected colleagues in Congress to flesh out many of the pertinent details. These officials are appointed or overseen by the president of the United States.
The centerpiece of Warren’s platform, the Accountable Capitalism Act, creates a definition for large corporate entities (dubbed “United States corporations”) and requires them to seek charters from a new office inside the Commerce Department (dubbed the “Office of United States Corporations”). Such entities do have to meet certain, enumerated standards under the proposal: Forty percent of their directors must be elected by employees and 75 percent of shareholders and directors must approve corporate political expenditures, to name two of them. Failure to comply may result in financial penalties or an outright revocation of a charter.
The concept of that charter, however, is vague. United States corporations “shall have the purpose of creating a general public benefit,” the bill reads, meaning “a material positive impact on society resulting from the business and operations of a United States corporation, when taken as a whole.” What is the break-even point for such “material positive impact”? Doesn’t say. The components that go into achieving this net benefit are several: They include “the effects of any action or inaction” on shareholders, employees, communities, the local environment, and the global environment. How is each of these components weighed calculating the “whole”? Doesn’t say.
The legislation does not grant the government license to initiate legal action against corporations for falling short of their own standards. That ability rests solely with the corporation itself, or certain thresholds of individuals with a financial stake in either the business or a controlling company. But such limits could be meaningless in the long term.
“The [Accountable Capitalism] Act could also be expected to lead to additional distortions down the road,” writes Harvard Law professor Jessie Fried. Those distortions not only may be clumsy, but nefarious.
“Once corporate law is federalized, Congress will be tempted to use its foot-hold in corporate governance to add more mandates and restrictions, ostensibly to address other ‘problems’ in corporate America, but actually to benefit key voting constituencies and campaign financiers.” Surely Congress would outsource the specifics of those additional mandates and restrictions, too.
This bill, with aspects of the even wider-ranging Anti-Corruption and Public Integrity Act, are but the most noticeable examples of Warren’s ploy. A smaller-scale piece of legislation, the Climate Risk Disclosure Act, gets to the point quicker. The measure beefs up reporting requirements related to public companies’ exposure to global warming. The Securities and Exchange Commission forces issuers of securities to disclose risks, but in 2010 it clarified how its rules apply to climate-related matters. Earlier this year, the General Accounting Office issued a report explaining how the SEC continues to be “constrained” reviewing the relevant information.
“SEC senior staff explained that SEC’s Division of Corporation Finance staff assess companies’ filings for compliance with federal securities laws … but do not have the authority to subpoena additional information from companies,” which may be climate-related. “Additionally, companies may report similar climate-related disclosures in different sections of the filings, and climate-related disclosures in some filings contain disclosures using generic language, not tailored to the company, and do not include quantitative metrics.”
Warren’s proposal instructs the SEC to create some. As a matter of policy, perhaps it should, inasmuch as Earth’s climate contributes to corporate financial risk. But here again, the legislation doesn’t go much further than saying it’s a good idea and asking someone else to fill in the blanks.
The SEC “shall … establish, in consultation with the appropriate climate principals, climate-related risk disclosure metrics and guidance,” the Act reads. The metrics and guidance would be “specialized for industries within specific sectors of the economy,” including finance, insurance, transportation, electric power, non-renewable energy—and, of course, “any other sector determined appropriate by the Commission.” Who are the “appropriate climate principals” establishing the metrics and guidance? The EPA administrator, the NOAA administrator, the White House budget director, the Secretary of Energy—and, of course, “the head of any other Federal agency determined appropriate” by the SEC.
The commission is an independent agency. Its five commissioners are also appointed, one per year, by the president. Federal climate policy doesn’t appear from the ether—it comes from the president.
None of Warren’s corporate legislative proposals will become law during her current Senate term, of course, even if Democrats retake both chambers of Congress in November. Rather, she is telegraphing her vision for the presidency—in terms of ideology as well as scope. She is artful, using her office today to create powers she wants her would-be deputies to have in two years. It almost makes for a campaign slogan: Warren 2020: Finishing What I Started.
