Joshua Bolten of the Business Roundtable is Still Trying to Defend the BRT's Corporate Purpose Statement ... and Failing

Business Roundtable President Joshua Bolten in today's WSJ:

It’s been a year since 181 CEOs of America’s largest companies overturned a 22-year-old policy statement that defined a corporation’s principal purpose as maximizing shareholder return. In its place, Business Roundtable adopted a new Statement on the Purpose of a Corporation declaring that companies should not only serve their shareholders but also deliver value to their customers, invest in employees, deal fairly with suppliers, and support the communities in which they operate.

The CEOs who signed the new statement believe it better reflects their conviction that businesses can’t flourish over the long term or appropriately reward their shareholders without investing in the stakeholders who make success possible.

Sorry, but I don't buy that. As Lucian Bebchuk and Roberto Tallarita correctly argue, "the BRT statement should not be expected, and was largely not intended by its signatories, to bring about major changes in the treatment of stakeholders." 

Bebchuk and Tallarita point out that 

The most important corporate decisions (such as a major acquisition, the amendment of the by-laws, or an important change in the corporate strategy) require or at least commonly receive approval by a vote at a meeting of the board of directors. Thus, if the commitment expressed by joining the BRT statement had been expected to bring about major changes in a company’s choices and practices, it would have been expected to be approved by the board of directors.

Based on their research, however, the decision to sign the statement was almost exclusively made by CEOs.

Bebchuk and Tallarita also posit that:

Corporate governance guidelines (also called corporate governance principles or policies) are official governance documents that are typically approved by the board of directors. They are updated with some frequency and contain the main governance principles and procedures of a public company. Although governance guidelines mostly deal with governance processes, they also often contain general principles or specific provisions regarding the goals that directors must pursue.

These documents therefore provide a natural place to look for the company’s official position on corporate purpose. If companies whose CEOs signed the BRT statement are indeed committed to “moving away from shareholder primacy,” we should expect this commitment to be reflected in the companies’ governance guidelines.

Their sample of BRT companies found no evidence of changes in the statement of corporate purpose.

So what is going on here? I suggest five possibilities, of which the last strikes me as the most plausible. 

1. 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.”
2. 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. Accordingly, there is an increasingly widely held view in the business community that to attract Millennial and Generation Z workers and customers, companies must project an image as social justice activists. Nike’s embrace of Colin Kaepernick is but the most obvious example of this phenomenon, but even such heartland companies as Walmart are embracing socially progressive stances, despite the risk of alienating their Red State customer base.
3. The BRT may be trying to head off regulation by progressive politicians. As Wall Street Journal columnist David Benoit has observed, “Democratic presidential candidate Elizabeth Warren has argued that the primacy of shareholder returns has worsened economic inequality, enriching wealthy investors at the expense of workers.” With the mainstream of the Democratic Party seemingly moving in Warren’s direction on business and finance issues, the BRT’s members may have hoped that a voluntary—and perhaps intentionally ambiguous—embrace of corporate social responsibility platitudes would help them fend off more intrusive regulation in the event of a Democratic presidential victory in 2020. Indeed, Wall Street Journal columnist Holman Jenkins contemptuously dismissed the BRT statement as a “fig leaf” adopted in case the BRT’s members “must powwow with President Warren 17 months from now.”
4. 4. The BRT may be responding to pressure from a few very powerful 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.
5. Some BRT members may crave a return to the days of imperial CEOS. This is the flip side of #3. 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.