Capitalism: A pledge of reform, one year on
It’s been a year since nearly 200 of the country’s most powerful CEOs signed on to a remarkable letter, said Andrew EdgecliffeJohnson and Billy Nauman in the Financial Times. The document, issued by the Business Roundtable, “redefined the purpose of America’s corporations to emphasize their commitments to customers, employees, suppliers, and communities.” In last place on that list of “stakeholders” were the investors, a dramatic departure from the long-held assumption that big business should always put shareholders first. The chaos caused by the pandemic has given those CEOs, who include Amazon’s Jeff Bezos and Walmart’s Doug McMillon, a chance to live up to their promises. One survey by Just Capital, a nonprofit that tracks corporations’ impact on society, found that firms “whose CEOs signed it performed better than others in providing everything from paid sick leave to financial assistance” during the Covid-19 crisis. Yet critics call the Roundtable letter toothless, and say that its vague promises make it hard to “hold boards to account for their stakeholder pledges.”
The Roundtable promise has proved to be “worse than meaningless,” said Jerry Useem in TheAtlantic.com. In the first four weeks after the coronavirus hit the U.S., businesses that signed “were almost 20 percent more prone to announce layoffs or furloughs” than similar companies that didn’t join the pledge. Signers were also “less likely to donate to relief efforts, less likely to offer customer discounts, and less likely to shift production to pandemic-related goods.” Moreover, “signers actually paid out 20 percent more of their capital” in dividends to shareholders than non-signers. The new capitalism looks much like the old capitalism.
Amen to that, said Andy Puzder in The Wall Street Journal. Shareholder capitalism has “created the greatest period of prosperity in human history.” Businesses do “enormous social good” precisely by rewarding investors for funding businesses that benefit consumers. Stakeholder capitalism would imperil that prosperity by shifting firms’ focus away from profit, “reducing the incentive to invest and the capital available for growth.” The result would be fewer jobs, lower pay, less innovation—and smaller returns in your 401(k).
It’s shortsighted to think about success in terms of Wall Street’s “one-year time horizon,” said Judith Samuelson in Qz.com. Today, on average, “over 90 percent of profits of public companies are paid out in the form of dividends or share repurchases.” That’s up from 50 percent in the 1970s. This is not a good formula for the “long-term goals of corporate health.” A “growing number of employee-led campaigns reflect impatience for change.” But “you can’t dismantle a half-century of shareholder primacy” in a single year.