The Business Roundtable's August 2019 statement on corporate purpose was hailed a signal that corporate CEOs had embraced a kinder, gentler capitalism in which the executives and the company's stakeholders would sit around singing Kum Bay Yah. According to an article in this week's The Economist, however:
The latest data on incentives suggest shareholders come first. The 20 [BRT-member] firms’ [studied in a paper by Lucian Bebchuk and Roberto Tallarita] non-executive directors earn an average 56% of their compensation in the form of equity stakes, which are by definition driven by shareholder value; 87-95% of their bosses’ pay is tied to performance. Only Duke Energy, Eastman and Marriott tie bonuses to a quantified stakeholder metric—and only in a limited way. Eastman includes three measures of employee safety, but it is up to the compensation committee to decide what weight to assign to each.
The firms’ hands may have been tied. Fully 70% of the brtstatement’s signatories are incorporated in Delaware, whose corporate law is shareholder-friendly. The state’s former chief justice goes so far as to argue in a recent article that “within the limits of their discretion, directors must make stockholder welfare their sole end”.
This need not be a problem .... Farsighted bosses have always known that promoting long-term shareholder value requires delivering for customers and treating workers and suppliers reasonably. It is unclear if the same can be said of championing fuzzy stakeholderism.
