Stakeholder Capitalism – Falling Short of the Promise

The Business Roundtable (BRT) exclusively represents chief executive officers (CEOs) of America’s leading companies. A little over a year ago, the BRT announced a statement on corporate purpose that was described by the organization as “moving away from shareholder primacy.”  Many observers considered this statement as “an important shift in corporate America” and a “sea change in terms of how the core purpose of business is defined.”

stakeholder capitalism falling short

The BRT stated that “while each of our companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.” Commitments included delivering value to customers, supporting the communities in which they work, and generating long-term value for shareholders.

New Study Reports Lack of Progress

Over the past year the pandemic and the movement for racial justice have tested the BRT’s pledge to elevate social concerns to an equal footing with shareholder interests.

Financed by the Ford Foundation, a new study by KKS Advisors and The Test of Corporate Purpose was released evaluating how corporations have responded to the pandemic and the movement against racial injustice over the past year. Its advisory board includes a professor of management at the University of Oxford, and senior executives from financial firms including Morgan Stanley and Liberty Mutual.

The report titled Covid-19 & Inequality: A Test of Corporate Purpose reveals companies’ lack of progress in meeting their commitments. “Since the pandemics inception,” the study concludes, the Business Roundtable statement “has failed to deliver fundamental shifts in corporate purpose in a moment of grave crisis when enlightened purpose should be paramount.”

The report says that the BRT signatory companies responded worse than others during the pandemic crisis. The authors of the report concluded that these leaders did not translate their commitments to purpose into actions. The study’s findings support critics that argued the BRT statement was a PR move rather than a signal of a significant shift in how business operates.

The Test of Corporate Purpose report warned companies that commitment without action and progress could very well lead to a public backlash. The authors say It’s important that leaders take steps now that move beyond words to real actions. They emphasized we are living in precarious times with many voices demanding transformation. It’s critical that leaders not only commit to creating value for society; they must deliver it.

Steps to Activate Corporate Purpose

The report outlines several concrete steps that companies can take to realize their corporate purpose by embedding it throughout the organization. The report’s authors state, “to be effective, every employee needs to know and drive forward your purpose.” In essence, purpose has little meaning if leaders don’t embed it into their organizations. It must become an integral part of the company’s identity, and leaders need to ensure that every aspect of the organization’s culture reflects it.

The report offers three steps leaders can take to activate company purpose. 

1 – Demonstrate a personal commitment to the purpose

  • Research shows that employees are more likely to trust their leaders’ commitments are authentic when they hear them talk about it and see them live it through their behavior and decisions.
  • Employees of one of the BRT signatory companies said that their leader’s vision and purpose appeared to be hollow. They said they failed to see the company pass up any short-term profits because of a genuine belief in the purpose. This led to increased employee cynicism.
  • When leaders’ behaviors are inconsistent with their words, stakeholders become skeptical.

2 – Connect every employee’s work to the purpose

  • According to a Harvard Business Review article, irrespective of their jobs, all employees want to understand how their work advances the company’s purpose. Engagement with their jobs and companies depends on this connection.
  • Understanding how their jobs contribute to a societal purpose enables employees to experience a greater emotional connection with the work and improves performance.

3 – Integrate the purpose into the organizational systems

  • Corporate recruitment activities should be reviewed to ensure their approaches lead to a diverse workforce. 
  • Companies must create effective onboarding strategies that guarantee new hires understand and accept the company values.
  • Corporate operational policies and procedures must allow employees to act in alignment with the values. And promotion and compensation systems should reward purpose-aligned behaviors and results.

The Business Roundtable’s Response

Joshua Bolten, the president of the BRT, said the statement “was not a demotion of the long-term shareholders, because, in our view, the interests of all the stakeholders align in the long-run success of the enterprise. But it is a rejection of short-term shareholder interests.”

Companies can realize immediate gains in their stock prices by cutting costs through layoffs or slashing benefits. “But in the long term that’s not going to serve the enterprise well if you haven’t properly taken care of all of your other stakeholders,” Mr. Bolten said. “You cannot take care of any one of them without taking care of them all.”

Mr. Bolten said the new report masks how Business Roundtable members have aided during the pandemic, providing help with childcare, and the flexibility to work from home, while increasing philanthropic efforts.” But according to a New York Times article, “the economic divide has proved especially stark during the pandemic: shareholders suffered initial plunges in asset values but then recovered; tens of millions of wage-earners remain jobless, massing at food banks.” 

The report notes that few companies that signed the BRT statement submitted it to their governing boards for approval, a fact cited in a Harvard Law School legal review as evidence the pledge is an exercise in public relations. 

Mr. Bolten’s response was that board passage was not required, because BRT member companies have already embraced the statement’s principles. He said, “the statement has to be viewed as both capturing an evolution and expressing an aspiration.”

The report highlights Wells Fargo for rejecting a shareholder proposal that sought to support the BRT pledge by exploring the possibility of converting the bank’s legal structure into a benefit corporation that would require addressing stakeholder interests.

Evangelist for Stakeholder Capitalism

Marc Benioff, chief executive of Salesforce, has been a strong evangelist for stakeholder capitalism and Salesforce is a member of the BRT. From its founding in 1999, Salesforce has donated 1 percent of its equity, 1 percent of its products and 1 percent of its employees’ time to a range of philanthropic efforts.

With more than 54,000 employees worldwide, Salesforce provides Mr. Benioff with a prominent platform to advance stakeholder capitalism. Overall, the company has performed far better than most in responding to the pandemic and the drive for racial justice according to the KKS study.

Mr. Benioff described the objectives of the Business Roundtable as a long-term project. “I’ve seen from my own viewpoint a systematic change in how CEOs behave over the last 20 years,” he said. “I never said it’s a revolution, but I said it’s an improvement.”


Kent Nutt

About Kent Nutt

Kent is a marketing and communications entrepreneur in high-tech and nonprofit industries. He’s a strategic thinker and hands-on implementer with experience building end-to-end, transformative marketing and communications programs for startups, Fortune 500 companies, growing nonprofits, and academia. Sectors included telecommunications, 3D printing, network software, semiconductors, web analytics, and scientific research.