Some felt the statement pushed the theory of “shareholder primacy” aside – and we’ve been going around & around since then on whether this was simply a return to the BRT’s original position, whether it affects directors’ fiduciary duties, whether investors care, and whether corporate practices align with the statement. Many have steadfastly emphasized that this is just a debate on semantics and that the BRT statement didn’t change anything about how management or boards actually function, since the promotion of other stakeholders can typically be justified as something that also benefits shareholders in the long run.
Consistent with that view, this forthcoming article from Harvard Law Prof Lucian Bebchuk and Roberto Tallarita, which was also the subject of a WSJ op-ed last week, found that very few signatories involved their boards in the decision to sign the statement. ...
Bebchuck & Tallarita also looked at the corporate governance guidelines of the companies whose CEOs signed the BRT statement – and found that most of them reflect a “shareholder primacy” approach – e.g., stating that the business judgment of the board must be exercised in the long-term interest of shareholders.
I haven’t been in any of these c-suites or boardrooms, but I’d venture a guess that many had already been discussing long-termism and stakeholder governance prior to the BRT’s statement (even if they weren’t using those specific catchphrases) – with a view towards maximizing long-term shareholder value. Were the BRT commitments illusory, or just within the scope of those prior discussions? Either way, the absence of board involvement seems to indicate that no change to director fiduciary duties was intended.
This article from UCLA Law Prof Stephen Bainbridge agrees that the evidence is that most BRT members remain committed to shareholder value maximization – and suggests two possible reasons why the BRT publicly shifted its position:
First, the members may be engaged in puffery intended to attract certain stakeholders for the long-term benefit of the shareholders. Specifically, they may be looking to lower the company’s cost of labor by responding to perceived shifts in labor, lower the cost of capital by attracting certain investors, and increase sales by responding to perceived shifts in consumer market sentiment. They may also be trying to fend off regulation by progressive politicians. Second, some BRT members may crave a return to the days of imperial CEOS.
Last August, the Business Roundtable (an organization of around 200 corporate CEOs) announced it was amending its Principles of Corporate Governance to eliminate the statement that the “primary purpose” of a corporation was to serve its shareholders. The CEOs wanted to reconcile the statement of principles to what they felt they actually do – namely, balance the interests of a number of corporate stakeholders, including customers, employees, suppliers, and communities.
The amendment reinvigorated the “shareholders vs. stakeholders” debate. The shareholder wealth maximization absolutists, like Professor Stephen Bainbridge at UCLA and a number of op-ed columnists at the Wall Street Journal, were aghast. The anti-corporate crowd, people like Senator Warren, thought it was at least a hopeful first step.
My forthcoming article, The False Dichotomy of Corporate Governance Platitudes, suggests there is far less significance to the debate than meets the eye.
Aghast does not seem the mot juste. Flabbergasted and annoyed would be the words I would chose.
In any event, as you may know, my reply to Jeff has been posted:
Making Sense of The Business Roundtable’s Reversal on Corporate Purpose (July 30, 2020). UCLA School of Law, Law-Econ Research Paper No. 20-03, Available at SSRN: https://ssrn.com/abstract=3664078
