Economists Aneesh Raghunandan and Shiva Rajgopal have a great op-ed in today's WSJ:
The Business Roundtable made a big splash in August by “modernizing its principles on the role of a corporation.” No longer stressing the unique importance of maximizing shareholder value, the organization got 181 CEOs to sign a statement outlining a corporate commitment to various “stakeholders,” of which shareholders are only one, listed alongside customers, employees, suppliers and communities.
Why did they sign? We see two possibilities. Either they are genuinely committed to lead in socially conscious business practices, or they are trying to pre-empt criticism. One way to determine which explanation fits better is to compare the behavior of publicly listed signatory firms to that of public nonsignatory firms in the same industries, matched by firm size and financial performance.
They find four reasons to think that signatory firms are less socially responsible than non-signatories:
- More violations of federal compliance.
- Increase in share buybacks.
- Larger market shares.
- Weaker association between CEO compensation and stock-return performance.
They conclude:
These findings suggest that Business Roundtable signatories aren’t leaders in socially conscious environmental, social or governance practices or stakeholder orientation.
