A friend sent along this email in response to the Business Roundtable Statement on Corporate Purpose:
Several possibilities occur to me, but only two seem truly persuasive:
1. The BRT leaders are responding to perceived consumer and labor demand. In particular, millennials apparently prefer to work for and purchase from companies that are perceived as socially and environmentally responsible. “To attract promising young employees in many parts of America and to woo today’s customers, the argument goes, companies must project a corporate ethos that goes beyond profit.” Even Walmart is embracing socially progressive stances, despite the risk of “alienating its core customers, who often live in more conservative-leaning rural and suburban communities.” Social media clearly has been in a factor in this development, as it has given tech-savvy activists unprecedented ability to mobilize pressure on recalcitrant corporations.
But this raises new questions. First, why have so many millennials embraced corporate social activism? Second, why are corporations catering to their preferences as opposed to those of the Yeomanry?
Finally, thought leadership on this issue has been provided by the Clerisy, which has embraced using corporate social activism to drive progressive causes. Progressive corporate law professors, to cite an obvious example, have long advocated corporate social responsibility. More generally, progressive lawyers and activists have joined forces to advance social goals through corporate law reform and internal corporate governance battles. Again, however, the question of why the Clerisy has done so remains unanswered.
2.Some may be responding to pressure from investors, especially the big three institutional investors. Institutional investors long have offered funds that focus on corporations perceived as socially responsible, which generally has been understood to mean companies pursuing progressive goals. A growing number of major institutional investors, however, have embraced social activism in support of progressive goals with respect to all of the funds they manage. BlackRock, for example, encourages companies to pursue excellence in environmental and social, as well as governance, areas. BlackRock CEO Laurence Fink sent a letter in 2018 to CEOs of the firm’s portfolio companies, in which he posited that companies need to be responsive to stakeholders, including consumers and communities, as well as investors, and pursue environmental, social, and governance goals to achieve “sustainable growth.” But this simply pushes the question further up the corporate finance food chain, since it fails to explain why investment fund managers like Fink are pursuing that agenda.
3. Some may crave a return to the days of imperial CEOS. This is sort of the flip side of #2. Aside from a brief period in the 1980s, when the hostile takeover was viable, CEOs were virtual emperors for most of the last 100+ years. Over the last decade or two, however, shareholder activists have grown in number and power. Unlike the gadflies of old, the new activists--mainly hedge funds--have been all about shareholder return. We have seen repeated cases where hedge fund activism has forced out CEOs (and entire boards), resulted in massive changes in corporate strategy, and even led to companies being broken up.
By embracing stakeholderism, the BRT leaders may hope to restore a measure of freedom. Recall the Bainbridge Hypothetical:
Suppose Acme's board of directors is considering closing an obsolete plant. The board is advised that closing the plant will cost many long-time workers their job and be devastating for the local community. On the other hand, the board's advisors confirm that closing the existing plant will benefit Acme's shareholders, new employees hired to work at a more modern plant to which the work previously performed at the old plant will be transferred, and the local communities around the modern plant. Assume that the latter groups cannot gain except at the former groups' expense. By what standard should the board make the decision?
Shareholder wealth maximization provides a clear answer -- close the plant. Once the directors are allowed to deviate from shareholder wealth maximization, however, they must inevitably turn to indeterminate balancing standards. Such standards deprive directors of the critical ability to determine ex ante whether their behavior comports with the law's demands, raising the transaction costs of corporate governance.
Worse yet, absent the clear standard provided by the shareholder wealth maximization norm, the board of directors will be tempted to allow their personal self-interest to dominate their decision making. Put another way, directors who are allowed to consider everybody's interests end up being accountable to no one.
In the plant closing example, if the board's interests favor keeping the plant open, we can expect the board to at least lean in that direction. The plant likely will stay open, with the decision being justified by reference to the impact of a closing on the plant's workers and the local community. In contrast, if the board of directors' interests are served by closing the plant, the plant will likely close, with the decision being justified by concern for the firm's shareholders, creditors, and other benefited constituencies.
Some BRT leaders probably would be quite content to see that kind of freedom restored to the C-suite.
4. Some of the signatories are themselves social justice warriors. Oligarchs like Salesforce.com CEO Marc Benioff, for example, promote “social activism among American chief executives.” As the Wall Street Journal reported:
Mr. Benioff is among CEOs of companies, including Apple Inc., Bank of America Corp., Walt Disney Co. , Intel Corp. and International Business Machines Corp. , that have begun pressuring lawmakers on social issues, often with a warning: Change laws or risk losing business. … What sets apart the new activist CEOs is how they use their names and corporate muscle to campaign directly against specific laws governing social issues, often on short notice, sometimes by threatening to withhold business.
This is a point made in my article Corporate Purpose in a Populist Era, which is available at SSRN: https://ssrn.com/abstract=3237107.
The values of the elites (the Oligarchs and Clerisy, as Kotkin calls them), on the one hand, and those of non-elites, on the other, have been diverging for several decades. In his 1995 classic The Revolt of the Elites, Christopher Lasch identified the emergent split between what he called the New Elites and the rest of society. Lasch identified several trends that have accelerated in subsequent years. First, he argued, American elites had become increasingly global, rejecting nationalism and patriotism, and refusing to be tied to places or people. Today we refer to those elites, as well as their global counterparts and those who aspire to join them, as Davos Man:
January is when the World Economic Forum (WEF) holds its annual conference at a Swiss mountain resort to “improve the state of the world.” More than a business meeting for 2,500-plus globetrotting academics, executives, politicians, and lobbyists, it is a tribal celebration for leaders who worship a holy trinity of ideas: capitalism, globalization, and innovation. In a 2004 essay, Samuel Huntington, who popularized the term “Davos Man,” described this breed of humans as “view[ing] national boundaries as obstacles that thankfully are vanishing.” (And, yes, more than 80 percent of attendees at the WEF conference are male.)
As The Economist’s Schumpeter columnist observed in 2013, “[o]rdinary folk trust Davos Man no more than they would a lobbyist for the Worldwide Federation of Weasels.” This distrust took on considerable political weight in the 2016 Presidential campaign, as the populists who voted for Trump recognized that a minority comprised of “people from ‘anywhere’” ruled the majority of people who came from “somewhere.”
The first group … holds “achieved” identities based on educational and professional success. Anywheres value social and geographical mobility. The second group is characterised [sic] by identities rooted in a place, and its members value family, authority and nationality.
Whereas Anywheres, whose portable identities are well-suited to the global economy, have largely benefited from cultural and economic openness in the West, he argues, the Somewheres have been left behind—economically, but mainly in terms of respect for the things they hold dear. The Anywheres look down on them, provoking a backlash.
The disdain in which elites now hold non-elites was another critical emergent trend Lasch identified. As Christopher Lasch explained, “the new elites, the professional classes in particular, regard the masses with mingled scorn and apprehension.” Many of Lasch’s new elites dismissed the masses’ values as “mindless patriotism, religious fundamentalism, racism, homophobia, and retrograde views of women.”
Middle Americans, as they appear to the makers of educated opinion, are hopelessly shabby, unfashionable, and provincial, ill informed about changes in taste or intellectual trends, addicted to trashy novels of romance and adventure, and stupefied by prolonged exposure to television. They are at once absurd and vaguely menacing—not because they wish to overthrow the old order but precisely because their defense of it seems so deeply irrational [to the new elites] ….
This tension was perhaps nowhere more pronounced than with respect to religion. When Lasch wrote over two decades ago, he opined that “[a] skeptical, iconoclastic state of mind is one of the distinguishing characteristics of the knowledge classes. ... The elites’ attitude to religion ranges from indifference to active hostility.”
If anything, today’s elites have become even more hostile to religious values. As Samuel Gregg observes, the Davos Man’s moral creed is “a mélange of social liberalism, environmentalism, and a new order of a borderless world. Religion is … considered the refuge of fanatics and anyone stupid enough to be skeptical of gender ideology and techno-utopianism.”
In contrast, modern right-wing populists are highly religious. According to a 2011 Pew Research Center analysis, for example, Tea Party members were “much more likely than registered voters as a whole to say that their religion is the most important factor in determining their opinions on … social issues.” Likewise, a subsequent Pew analysis found that “white born-again or evangelical Christians and white Catholics … strongly supported Donald Trump ….”
Today’s elites thus hold non-elites in at least as much disdain as did the elites of Lasch’s period. The Clerisy, in particular, scarcely bothers to conceal its disdain for the traditional middle and working classes. This disdain manifests itself in a variety of ways, perhaps most notably through the increasing separation between the working class and the elites.
