Welcome to the Party!
This past week, the U.S. Business Roundtable announced the release of a new "Statement of Purpose of a Corporation" signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders-customers, employees, suppliers, communities, and shareholders." The announcement is said to have come after many of its leaders pushed to turn the ship away from the decades old Friedman/Chicago School theory that the only purpose of a company is to maximize shareholder value.
There is a sinking feeling among some CEOs that the body politic is turning away from predator capitalism due to out of control CEO pay and stock buybacks, pale and male boards, the decline of unions, outsourcing and low-paying jobs, and the resulting rise of income inequality. So something had to be done.
We applaud the Roundtable and say, "Welcome to the party!” You can start by inviting your employees to join you in the corporate boardroom and establishing German-style works councils. Sharing corporate decision-making is the fastest way to ensure that your companies will be managed for the benefit of worker stakeholders.
If there’s one way to ensure that your corporate management will finally give workers a raise and a share of the profits, it’s having workers overseeing their firm’s executive compensation decisions. If there’s one way to ensure that your company doesn’t out-source vital production and intellectual assets, and instead restores your company's legacy and integrity and reshores high performance production and sustainable growth, it's those same workers.
In Suggestions toward Commonwealth Companies: Sharing Prosperity with Worker Stakeholders, presented at the 2017 "Many Futures of Work Conference," and cowritten by Annie Malhotra and myself, we called for stronger actions by workers as both shareholders to invest responsibly and as stakeholders to reclaim a legitimate role as a participant in the governance of companies. Both are calls to make the boss more accountable and to move toward a "commonwealth company" framework. Our paper may be included as a new chapter in a book on corporate governance planned for 2020.
Workers, after all, own a large chunk of corporate stock and the capital markets through their pensions and assets. And they are critical, after all, to the success of enterprises, according to a boatload of books and articles written by academics, economists, and yes, Roundtable corporate leaders.
With our paper, Annie and I wanted to start a broader conversation about how to create a "stakeholder governance" platform in the U.S., emulating the productive, competitive business models of Germany and the EU, where workers often have a right to sit on corporate or operating boards. European unions, which have more protections from bad corporate behavior, have long asserted that shareholder value must be balanced by worker-stakeholder rights.
We've also shared related blog posts including:
In our paper, Annie and I argued that there are many paths to get there, including federal legislation and collective bargaining. Shareholders can also wage shareholder campaigns and engage with company boards and management to argue for more worker directors.
We were pleasantly shocked to learn that Senators Elizabeth Warren and Tami Baldwin both introduced Senate proposals in 2018 to elevate Euro co-determination models in the U.S. Senator Warren’s "Accountable Capitalism Act" calls for workers to gain 40% of the board seats. Unions have increasingly pushed for board seats, sometimes successfully, and there are some cool shareholder campaigns demanding that the digital technology overlords seat workers. The Roosevelt Institute has been a major thought leader in this fight, and others are getting on board.
By the way, not all stakeholders are alike. Yes, customers and suppliers are important, but workers are the most important stakeholder. That means consulting with unions and worker representatives as a starting point. And we need to ensure that this is not yet another ploy to maximize CEO paydays, or stiff shareholders with legitimate proxy access and corporate governance concerns, which worries Dean Baker (read here) and Luigi Zingales (read here) in separate postings in the Washington Post. Bill Lazonick has been harping on the takeover by CEOs for decades.
So, it would great if corporate boards and CEOs got in front of the struggle for more corporate accountability that lies ahead, and took action. Out of tens of millions of employees, you should be able to, with the help of unions, find plenty of brilliant, competent, diverse people who will agree to join you in the boardroom!
In this Expresso, we want to share some of the many press and opinion articles that have been posted on this topic, with thoughtful analysis by Steven Pearlstein and David Ignatius at the Washington Post, and Robert Kuttner at the American Prospect.
Let us know what you think, and happy Labor Day!
[i] Thereby, better protecting the beneficiaries of pension investment.