A little over two years ago the Business Roundtable shocked the business community and others as well. The collected CEOs there announced that it was no longer right to consider shareholder value alone. Though up to that time shareholder value was seen as the only appropriate focus of corporate thinking and decision making the assembled at that meeting insisted that firms should consider the interests of “stakeholders” as well – employees, customers, and the communities in which their firms do business.
Social justice advocates were wary but otherwise delighted. This approach was, after all, what one of their great champions, Senator Elizabeth Warren, had advocated. As it turns out, these advocates were right to curb their enthusiasm. In the years since these executives so dramatically expressed themselves, nothing has changed. Corporations continue to focus exclusively on shareholder value. For all the stir the Roundtable’s announcement caused, it was all just talk. Clearly no one involved was serious.
A crucial sign of a lack of seriousness lies in subsequent board actions or rather the lack of them. When a company changes fundamental priorities, as outlined in the Roundtable’s statement, it almost always 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 some shareholders, not the executives, 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 boards recommended a “no” vote. No corporate web sites 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 they would have had to do to implement the commitments made in the Roundtable’s statement.
Since nothing happened, all that remains is to question why the CEOs at the Roundtable put out the document in the first place. While none of these men or women are inclined to confide in your correspondent, four possible motivations nonetheless present themselves.
First is that 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 that. This explanation is unlikely anyway. For it to be 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 Senator Warren’s 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 presents itself as a more likely motivator for a group composed of men and women who have risen far in a highly 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 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 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 the same things. The operative word is pretend.