Corporate accountability is key to the success of ‘stakeholder capitalism’



ImpactAlpha, Aug. 22 – Increasing accountability to employees, customers, suppliers and communities shouldn’t mean decreased accountability to shareholders. Especially when some of those shareholders are the ones who have been arguing on behalf of the interests of other stakeholders. 

Corporate accountability would seem to be the core of the new statement of corporate purpose adopted this week by nearly all of the CEO members of the Business Roundtable (see, “Stakeholder primacy: CEOs redefine the role of business in society”). The statement acknowledged the interests of stakeholders other than shareholders, but included no new mechanisms to enforce accountability to those interests.

Indeed, the Business Roundtable, along with some of the CEO signatories, have tried to limit resolutions from shareholders seeking to hold corporate management to account on issues ranging from climate risk to gun control to executive pay and diversity. 

Stakeholder primacy: CEOs redefine the role of business in society

On Wednesday, the U.S. Securities and Exchange Commission voted to increase scrutiny of proxy advisers, effectively making it more difficult for advisory firms to guide shareholders on votes on such issues. As the Financial Times reported, “The changes could have significant implications for the environmental, social and governance (ESG) investing sector.” Proxy advisors like ISS and Glass Lewis in recent years have often advised shareholders to press corporations for additional ESG disclosure.

The Roundtable supported the SEC vote and has also supported efforts by companies led by some of its CEO members to prevent some shareholder resolutions from coming to a vote at all. 

“Actions speak louder than words,” Andrew Behar, head of the shareholder advocacy group As You Sow, told ImpactAlpha. “If the new statement turns out to be cover for their continued pressure to deny shareholders a voice, then it will come back to bite them.”

Behar applauded the Roundtable’s embrace of the stakeholder-centric view that has been central to shareholder advocacy. “I am optimistic that a new day is dawning and that the Business Roundtable has been listening to its owners all this time and realizes that this is the path toward a safe, just, and sustainable world.”

A spokeswoman for the Roundtable did not respond to a request for comment.

Silencing shareholders 

In recent years, shareholder resolutions have moved from symbolic gesture to potentially powerful tool for pressuring corporate management. In 2017, a majority of shareholders at ExxonMobil  –  reportedly including BlackRock, State Street and Vanguard  – voted to require the oil giant to analyze the impact through 2040 of policies to keep the rise in global temperatures below 2 degrees Celsius. Occidental Petroleum shareholders also voted overwhelmingly to urge the company to assess its carbon risk.

Those votes spurred a corporate backlash against such resolutions. In May, Exxon Mobil, a signatory of the Business Roundtable’s stakeholder pledge, blocked a shareholder proposal submitted by Church Commissioners for England and the New York state comptroller’s office requiring the oil giant to set targets to substantially reduce its greenhouse gas emissions. 

“As long-term investors determined to protect the value of our portfolio, we are not going away,” New York State Comptroller Thomas P. DiNapoli said at the time.

JP Morgan, Chevron, Goldman Sachs, along with Exxon Mobil – all signatories to Monday’s pledge – have blocked shareholder resolutions in recent years calling for plans to lower emissions or mitigate climate risk, according to a resolution database maintained by As You Sow.

JPMorgan’s CEO, Jamie Dimon, chairs the Business Roundtable and was a prominent voice for the new statement. The bank is facing criticism from shareholders who have questioned its financing of oil-sands producers and pipeline companies (to the tune of $8.4 billion from 2014 through last year, according to a shareholder resolution). The bank resisted putting the shareholder resolution to a vote.

Impact accountability 

As You Sow’s Behar said corporations that have signed onto the new purpose “must now adopt it into their bylaws, policies, and practices.”  

Impact investors have pioneered methods and arrived at a shared consensus on how to manage and disclose impact on stakeholders. Stakeholder-committed CEOs should take up such practices, says Sara Olsen of SVT Group, an impact management consultancy.

“It is possible to quantify the effects the company has or may have on employees, suppliers, the environment, and communities, and to do so systematically,” she wrote on LinkedIn.

The Council of Institutional Investors, which represents U.S. pension funds and other institutional investors, cited corporate accountability in coming out against the Business Roundtable’s stakeholder pledge. The Council also opposed Wednesday’s SEC ruling limited the influence of the proxy advisors. 

The Business Roundtable’s pledge to stakeholders, the Council wrote on Monday, diminishes shareholder rights, “while proposing no new mechanisms to create board and management accountability to any other stakeholder group.”

In a letter last week, the Council warned that the SEC’s guidance for proxy advisers “may make it unnecessarily difficult” for shareholders to get information about companies. prior to annual general meetings.

Principles for Responsible Investment, signed by 2,200 asset owners, said, the SEC’s action will “greatly undermine investors who rely on their advice to integrate environmental, social and governance (ESG) considerations.”

Dennis Kelleher of Better Markets, a consumer advocate, said the vote limits information shareholders can obtain from proxy advisory firms while increasing the costs of investment advisors. “Corporate management would prefer to limit information to shareholders that would enable effective shareholder engagement,” he said.

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