Will Corporations Deliver Value to All Stakeholders?

Supporters of stakeholder governance advocate relying on corporate leaders to use their discretion to protect stakeholders, and they seem to take corporate pledges to do so at face value. By contrast, critics question whether corporate leaders have incentives to protect stakeholders and to follow through on pledges to do so. We provide empirical evidence that can contribute to resolving the debate between these rival views. We use for our testing the Business Roundtable’s 2019 Statement on the Purpose of a Corporation (the “BRT Statement”), which was widely viewed as a major milestone. We investigate whether subsequent choices by signatory companies are consistent with the view that the Statement represented a meaningful commitment (“the Commitment Hypothesis”) or was made mostly for show (“the PR Hypothesis”). 

We review a wide array of hand-collected corporate documents of the 128 U.S. public companies that joined the BRT Statement (the “BRT Companies”). Examining the two-year period following the issuance of the BRT Statement, we obtain the following six findings:

First, the numerous BRT Companies that updated their corporate governance guidelines during the two-year period generally did not add any language that improves the status of stakeholders and, indeed, most of them chose to retain a commitment to shareholder primacy in their guidelines.

Second, as of the end of the two-year period, most of the BRT companies had governance guidelines that reflected a shareholder primacy approach.

Third, in SEC submissions or securities filings responding to the over forty shareholder proposals that were submitted to BRT Companies regarding their implementation of the BRT Statement, most of the BRT Companies explicitly stated that their joining the BRT Statement did not require any such changes, and none of them accepted that the Statement required any changes.

Fourth, all of the BRT Companies had and retained corporate bylaws that reflect a shareholder-centered view.

Fifth, in their proxy statements following the BRT Statement, the great majority of the BRT Companies did not even mention their joining the BRT Statement, and, among the minority of companies that did mention it, none indicated that their endorsement required or was expected to result in any changes in stakeholder treatment.

Sixth, the BRT Companies all continued to pay directors compensation that strongly aligns their interests with shareholder value and avoided any use or support of stakeholder-oriented metrics.

Overall, our findings support the view that the BRT Statement was mostly for show, and that BRT Companies joining it did not intend or expect it to bring about any material changes in how they treat stakeholders.