Last August, the nabobs of Corporate America — the nearly 200 top CEOs who make up the prestigious Business Roundtable — sort of asked for forgiveness.
Twenty-two years earlier, the Business Roundtable had released an official policy statement that celebrated the notion that corporations essentially have only one responsibility: to make money for shareholders.
Corporate executives and boards of directors, the 1997 broadside pronounced, have a “paramount duty” to these shareholders. Other stakeholders — workers, community, customers — only matter “as a derivative of the duty to stockholders.”
This past summer, Business Roundtable CEOs delivered unto America a new policy statement that totally contradicted the smug certainty of that 1997 corporate decree.
All that business about shareholder primacy? We chief execs don’t believe that anymore, the new Business Roundtable “Statement on the Purpose of a Corporation” gave notice. We instead “share a fundamental commitment to all of our stakeholders.”
“Each of our stakeholders is essential,” the new statement concluded. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
Wow, commentators enthused, what an about-face, not just from the 1997 Business Roundtable declaration but from a near half-century of corporate behavior that has privileged wealthy shareholders — and the corporate execs who get rich making them richer.
Corporate America’s most powerful executives, one Fortune magazine analyst exclaimed, had tossed shareholder primacy “into the dustbin.”
Somebody better check that dustbin. Amid the horror of pandemic, shareholder primacy is once again roaring and soaring, right in the Business Roundtable’s own corporate backyard.
Consider, for instance, James Loree, the CEO of Stanley Black and Decker and a signer last summer of the Roundtable’s expression of eternal fealty to the idea that all stakeholders matter. On April 2, Loree’s hardware giant announced plans to furlough and lay off workers and shorten the workweeks of many of the employees still working.
Loree, who last year pocketed $18.7 million in executive compensation, justified these job and hour cuts as “necessary actions” that would “protect our employees” and position “the company to thrive into the future.”
Stanley Black and Decker shareholders, in the meantime, will thrive right now. Two weeks after the worker squeeze announcement, Stanley issued these shareholders nearly $106 million in dividends.
Or take the heavy machinery colossus Caterpillar. On March 26, Caterpillar CEO D. James Umpleby III — who took home $34.5 million in 2019 — announced a shutdown of two major plants. Just two weeks later, Caterpillar began moving shareholders half a billion dollars in dividends.
Caterpillar’s Umpleby, like Stanley’s Loree, had signed last summer’s Business Roundtable we-don’t-privilege-shareholders-anymore statement.
Caterpillar and Stanley Black and Decker, a biting Washington Post analysis points out, hardly stand alone in their commitment to keep shareholders as happy as can be while workers get the heave-ho. Top CEOs across the country are lavishing corporate cash on shareholders — and themselves — at worker and community expense.
In fact, add researchers at Donaldson Capital Management, 361 of the 421 S&P 500 companies that pay dividends have shelled out dividend dollars to shareholders “since the onset of the virus.” Ninety-eight of these corporations have actually increased their dividend payout since the coronavirus hit. Only 35 have decreased their payout to shareholders.
America’s CEOs have been quite open and brazen about this dividend spurt. Caterpillar’s Umpleby has assured Wall Street that his company remains “committed to returning substantially all our free cash flow to shareholders.”
And that commitment will mean plenty of cash for Umpleby, both as a major shareholder himself and as a Caterpillar exec whose personal compensation will remain lofty only so long as he keeps Caterpillar shares attractive to investors. Dividends, particularly in times of economic crisis, make shares attractive.
Not all the corporate CEOs who signed last summer’s Business Roundtable no-more-shareholder-primacy statement, to be sure, have been lavishing dividends on shareholders since the pandemic began. But all the CEOs who signed that statement have had the opportunity to separate themselves publicly from the shareholders-first behavior of their CEO peers. And none of the Business Roundtable CEOs have seized that opportunity. None of them have called their fellow CEOs out.
That silence speaks volumes. That silence reveals that nothing fundamental has changed in Corporate America. Shareholders still come first because keeping shareholders first keeps CEOs fantastically rich. And that reality won’t change until we as a society prevent chief execs from keeping all the rewards they have the power to grab.
The coronavirus crisis could help us advance that preventing. The pandemic’s raw, highly visible inequality of sacrifice is creating political space for taking on concentrated wealth and power. We had the same space a dozen years ago around the Wall Street financial collapse. But we squandered that opportunity. Wall Street’s most powerful emerged out of the Great Recession more powerful than ever.
This crisis could be different — if we boldly confront Corporate America’s executive class. One possible step in that direction: pressing lawmakers for new economic rules that require corporations to pay more than lip-service to the needs and rights of all corporate stakeholders.
One example: We could urge Congress to deny all pandemic-related aid — from either the federal Treasury or the Federal Reserve — to corporations that pay their CEOs over 50 times what their typical workers make. Caterpillar’s CEO last year took home 530 times the pay of his typical workers. Stanley’s chief executive take-home outpaced his company’s typical worker pay by 432 times.
If we linked CEO to worker pay, CEOs would have more of an incentive to enhance worker well-being and less of an incentive to exploit worker labor. Their CEO paychecks, after all, would only be able to rise if worker pay rose first.
A 50-times standard actually appears in the coronavirus relief bill that House Democrats put together late in March. But that bill never came up for a vote. The House ended up pressured to accept the Senate’s CARES Act instead, legislation that has little more on executive pay than some feeble limits on airline executive take-home that the Treasury secretary has the power to waive.
We can do a lot better than that.