Almost two years ago, the Business Roundtable created quite a stir. This association, steeped in corporate culture if ever an organization was, came out against the long-established rule of putting shareholder value as a singular priority.
The assembled CEOs of some of the country’s largest corporations pledged to change their way of doing things and consider “stakeholders” as well—employees, customers, and the communities in which their firms do business. Social justice sorts were wary but otherwise delighted. This approach was, after all, what one of their great champions, Senator Elizabeth Warren, had advocated. All waited to see the outcome of an approach that no one had ever expected or even tried before, at least in the United States.
As it turned out, nothing changed. Corporations altered nothing in how they made decisions or apportioned efforts. For all the stir the Roundtable’s announcement caused, it was all just talk. The executives that had basked in the excitement of their bold pledge look considerably less than serious. Observers left and right should feel justified in their initial skepticism. Evidence supporting this conclusion comes from several sources, The Wall Street Journal, for one, as well as business groups that specialize in corporate governance. It seems all these bold executives never even tried to change things. It is a familiar story of posing by public figures, usually by politicians but, it seems, prominent corporate executives will also do in a pinch.
The first sign that no one was serious came from subsequent board actions or rather the lack of them. When a company changes fundamental priorities, as outlined in the Roundtable’s statement, it usually must get the board of directors to sign off on it. Whether the CEOs who had signed the famous document even approached their boards remains a matter of conjecture. Even though shareholders in almost half the companies involved submitted proposals for such changes, the boards rejected all of them. Where voting proxies on such proposals went out to shareholders, the record shows that most boards recommended a “no” vote.
No corporate websites mention an expanded commitment to stakeholders, and quite a few continue to emphasize a commitment to shareholder value and only that. Nor did any of these corporations altered the basis of board member compensation, something that many would have had to do to implement the commitments made in the Roundtable’s statement.
Since it is apparent that neither the corporations nor the executives who signed the Roundtable statement had any real commitment to doing anything different, a question naturally arises on why the CEOs at the Roundtable put out the document in the first place. Of course, there is no way to know without personal confidence with each signatory, but four possibilities nonetheless present themselves.
First, the executives sincerely wanted to change things when they signed but subsequently had second thoughts. If this is the case, it is embarrassing, to say the least. It is one thing for undergraduates to have sudden turns due to second thoughts, but those who run some of the country’s largest business enterprises should know their own minds better than to have to reverse an opinion so completely, especially since if this were the governing reason, it would have to have been the case for all of them.
Second, the executives could have been trying to get ahead of a political movement that they thought was gaining ascendency. This is possible, but if true, it would show an incredible naivete in a group that one would expect to be more hardheaded and realistic. If the Warren position were to gain the force of law, these executives should have known that no posing on their part would have protected their companies from the compulsions involved, especially since they did nothing about it anyway.
A third reason is a more likely motivator for a group composed of men and women who have risen far in a competitive environment. A broadening of responsibility from shareholders to stakeholders would muddle the basis on which CEOs and other senior executives are judged. It would have allowed these people to avoid accountability should shareholder value decline and given them all sorts of new ways to argue for compensation gains that do not exist in the present singular focus on shareholder value. It could be that they genuinely tried to push this change through their boards but that the independent board members saw through the ruse and rejected the plan out of hand.
And there is another, a fourth motivator that is also entirely plausible. It could be that the executives signed onto the statement to win praise from a certain social set and so win a kind of prestige not often available to corporate executives, not to mention get them invitations to certain parties.
Whichever of these four motivations prevailed or even if it was a combination, the signatories look either silly or ineffective or cynical or sad or some combination of these. Hypocrisy has long had a home among politicians. For them, it is almost unavoidable. After all, they must claim to care deeply and passionately about more than any human being can honestly care about. Now it seems as though corporate executives must pretend to do the same things. The operative word is pretend.
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