Six Reasons We Don’t Trust the New “Stakeholder” Promise from the Business Roundtable

A new statement from the Business Roundtable commits to stakeholder interests instead of making the primary purpose of the company shareholder value. Long-term shareholders are increasingly committed to explicitly ESG investing, which values stakeholder interests as a way to minimize investment risk. But I am skeptical about what the CEO signatories to this statement have in mind for six reasons.

1. We’ve seen this before. The last time the BRT deployed stakeholder rhetoric it was during the 1980’s era of hostile takeovers, when a feint to the interests of anyone other than shareholders was the best way to entrench management. The CEOs who signed this statement know that accountability to everyone is accountability to no one. It’s like a shell game where the pea of any kind of obligation is always under the shell you didn’t pick. It’s shoot an arrow at the wall and then draw a bull’s-eye around it goal-setting.

2. It does not really mean anything. As the law and basic economics already make clear, stakeholder interests are already included within the obligation to shareholders; sustainable shareholder value requires commitment to employees, customers, suppliers, and the community. There is also a serious credibility problem here. Barry Ritholtz notes dryly, “Scan the list of 181 signatories to the recent memo and it’s a Who’s Who of corporate behavior that has burdened and disadvantaged the very stakeholders they will now champion.” His exhaustive lists include many specific examples of opposition to unions, health, environmental, consumer protection and safety rules, and efforts to reduce shareholder oversight. Jordan Weissmann makes a similar point on Slate, pointing out that Senator and Presidential candidate Elizabeth Warren has proposed stakeholder legislation, and if the signatories to this statement want to be believed, they should support it.

3. It is not consistent with the principles of capitalism. Capitalism is not named after the managers; it is named after the providers of capital, the shareholders. Its foundation is the strict and scrupulous fiduciary obligation (“the punctilio of an honor the most sensitive,” as Justice Benjamin Cardozo said in Meinhard v. Salmon), that gives credibility to capitalism by addressing…