Business Roundtable signatories fail to come good on stakeholder revolution

A new report reveals gaping holes in corporate promises

It’s been just over a year since the Business Roundtable pledged to redefine the purpose of a corporation to one that delivers value to all stakeholders, not just shareholders.   

CEOs of large corporates such as Amazon, Apple, and Bank of America, signed onto the updated Principles of Corporate Governance signalling an end to Milton Friedman’s doctrine of shareholder primacy established in the 1970s. It was a move widely welcomed by the public, investors, and other corporate stakeholders.   

But a new report has found that wide-spread economic devastation brought on by COVID and the ongoing movement against racial injustice have tested the promises made by these companies. 

The study, funded by the Ford Foundation and compiled by KKS Advisors and the Test of Corporate Purpose (TCP), found that being a signatory had a “small but negative” effect on a company’s response to the COVID-19 crisis. 

In simple terms, these companies have done no better than other companies in protecting jobs, labor rights and workplace safety during the pandemic. 

The study found that being a signatory only had a small effect on achieving racial and gender equality.   

Researchers used the data of 619 companies, whose shares are included in the S&P 500 and the FTSEurofirst 300, to examine how they performed between June and July on a range of indicators relevant to the pandemic, such as workplace safety, to racial inclusivity, including the diversity of governing boards.

The study singles out Amazon as an example. This year the company has sold more than $164 billion worth of goods, but has also been accused of failing to protect workers. 

The report added that across the US and Europe, companies that have a consistent and positive track record of effectively managing issues relevant to COVID-19 or inequality have continued along the same outperformance trend during the crisis.

“Our results suggest that corporate commitments to purpose are less informative about a company’s future performance on social and human capital issues than other indicators,” the report said.  

“What matters more is whether a company has a strong track record of proactively managing issues that may become material during a crisis, and whether a company is an early responder on relevant issues during a crisis.” 

But, the report did take the time to highlight positive examples of BRT signatories that had performed better than most. These companies included BlackRock, which donated $50 million for emergency services, including the delivery of vital medical equipment to hospitals.

It also noted the leading role played by BlackRock chief executive Laurence Fink in steering investments toward companies that limit climate change.

Researchers urged companies to focus on translating their purpose commitments into action, and said if they didn’t, they risked reputational issues when unfulfilled claims were inevitably scrutinised.   

“During this time of great social need, companies must quickly adapt, respond, and innovate to strengthen corporate resilience and deliver value for society and shareholders,” the report said. 

“We encourage the investor community to pay attention to company track records on social issues that are likely to become more important as a result of emerging trends, and to identify companies that respond quickly to events as a signal of superior future performance.” 

See a full copy of the report here.