Will Corporations Deliver Value to All Stakeholders?

We have benefitted from discussions with and suggestions from Jesse Fried, Scott Hirst, and Kobi Kastiel. We also gratefully acknowledge the valuable research assistance of Jack Bagley, Aaron Haefner, Ariella Kahan, Peter Morgan, Zoe Piel, Aisha Saad, Navjit Sekhon, Travis Taylor, and especially Wanling Su. The Harvard Law School Program on Corporate Governance and the John M. Olin Center for Law, Economics, and Business provided financial support. A summary of this Article appeared on Lucian A. Bebchuk & Roberto Tallarita, ‘Stakeholder’ Talk Proves Empty Again, WALL ST. J. (Aug. 19, 2021, 6:20 PM), https://www.wsj.com/articles/stakeholder-capitalismesg-business-roundtable-diversity-and-inclusion-green-washing-11629313759 [https://perma.cc/M6NX-UBUN]. All corporate documents manually collected and reviewed for this Article are available in an online archive, the BRT Corporate Purpose Archive. The Archive, which holds over six hundred such documents, is accessible on BRT Corporate Purpose Archive, HARV. L. SCH. PROGRAM ON CORP. GOVERNANCE, https://pcg.law.harvard.edu/data/BRTPurposeArchive (last visited Apr. 1, 2022) [https://perma.cc/CB8Z-BWMZ]. This Article is part of the project on stakeholder capitalism of the Program on Corporate Governance at Harvard Law School. Other parts of this project are Lucian A. Bebchuk & Roberto 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. The most celebrated pledge by corporate leaders to protect stakeholders was the Business Roundtable’s 2019 Statement on the Purpose of a Corporation (the “BRT Statement”). The BRT Statement expressed a commitment to deliver value to all stakeholders, not just shareholders, and was widely viewed as a major milestone that would usher in “stakeholder capitalism” and significantly improve the treatment of stakeholders. If any companies could be expected to follow through on stakeholder rhetoric, those whose CEOs signed the highly visible BRT Statement would be natural candidates to do so. 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.