Empty Promises from Stakeholders are Commonplace

In 2019, the Business Roundtable (BRT), a prominent U.S. business lobbying group, made a significant announcement. The BRT's CEOs committed to leading their companies for the benefit of all stakeholders, marking a potential shift in investment policy. However, a study conducted by Professor Lucian Bebchuk of Harvard Law School suggests that this change may not have materialized into action.

The study, which examined over 130 companies that signed the BRT commitment, found that very little changed in the companies concerned. Most continued to promote shareholder primacy in their corporate governance guidelines, and the companies did not mention stakeholders in their statements on their company's purpose.

Despite the bold announcement, most companies explicitly stated that the commitment to the BRT statement did not require any changes. There have been over 40 proposals from shareholder groups to implement the BRT commitment since 2019, but none of the companies seemed to accept that the BRT statement requires changes in dealing with stakeholders.

The findings show that companies are slow to shift away from shareholder primacy. The study suggests that more transparency is needed to ensure that stakeholder issues receive the attention they deserve. The study's findings indicate that words may not always be followed by actions in this context.

However, the shift is reflected in the focus on employees and customers, collectively known as stakeholders. The pandemic has resulted in a shift in annual reports towards social values, such as integrity, people, and community. This shift is a positive step towards the BRT's commitment to stakeholder capitalism.

The study also found that a few companies that did mention the BRT commitment did not include shareholder approval. This omission raises questions about the extent to which the announced shift has been approved by the shareholders or reflected in the companies' communications and policies.

Despite the slow transformation, as of now, most of the 130 companies that joined the Business Roundtable in 2019 have publicly reaffirmed their commitment to stakeholder capitalism. However, only a minority have formally amended their corporate charters to reflect this change in purpose.

The study's findings underscore the importance of engagement activities in understanding the culture of the organizations they invest in and helping them move forward for the benefit of all. The approach of focusing on ESG themes is labor-intensive but yields good results for all parties.

In conclusion, while the Business Roundtable's shift towards stakeholder capitalism was hailed as a profound change and the "end of shareholder primacy", the study's findings suggest that the announced shift may not have been fully realized. More transparency and engagement are needed to ensure that the commitment to stakeholder capitalism becomes a reality.