Randi Val Morrison is Vice President at the Society for Corporate Governance. This post is based on her Society for Corporate Governance memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here); and For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here).
A new WSJ op-ed: “‘Stakeholder’ Capitalism’ Seems Mostly for Show” (Lucian Bebchuk and Roberto Tallarita, Harvard Law School Program on Corporate Governance) posits that the corporate CEOs that signed onto the Business Roundtable’s (BRT) updated Statement of Purpose of a Corporation last year appear to have done so primarily to generate positive PR rather than to reflect real change in how their companies operate based on the fact that few signatory CEOs sought or obtained board approval or ratification. The conclusion rests on the theory that if CEOs believed that signing onto the updated statement was an “important corporate decision,” they would not have signed on without their board’s approval as a matter of good corporate governance. The assertion that few signatory CEOs sought or obtained board approval or ratification is based on responses to the authors’ inquiries from 48 companies, or approximately 27% of all CEO signatories, and the authors’ extrapolated expectation that the balance of companies that did not respond to their inquiry would have responded similarly.*
The op-ed theorizes: “The most plausible explanation for the lack of board approval is that CEOs didn’t regard the statement as a commitment to make a major change in how their companies treat stakeholders. That may be because they believe their companies are already meeting the standard for taking care of stakeholders. But it still implies that they believed signing the statement wasn’t a major step for their businesses.” The op-ed seeks to further support its view about signatory CEOs taking action merely for appearances based on the authors’ review of the companies’ corporate governance guidelines, which purportedly commonly reflect a “shareholder primacy” approach.
Comment on the Proposed DOL Rule
More from: Sarah Keohane Williamson, Victoria Tellez, FCLTGlobal
Sarah Keohane Williamson is CEO and Victoria Tellez is a Senior Research Associate at FCLTGlobal. This post is based on their FCLTGlobal comment letter to the U.S Department of Labor. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here), Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Robert H. Sitkoff and Max M. Schanzenbach (discussed on the Forum here), and Companies Should Maximize Shareholder Welfare Not Market Value, by Oliver D. Hart (discussed on the Forum here).
The Department of Labor (“The Department”) is inviting public comments on a proposal to codify a regulatory structure for the Department’s current “Investment duties” regulation at 29 CFR 2550.404a-1. This amendment would assist ERISA fiduciaries in establishing regulatory guidelines for plan fiduciaries in light of recent environmental, social, and governance (ESG) investment trends. The Department of Labor has voiced concerns that these trends may lead plan fiduciaries to “choose investments of action to promote environmental, social, and public policy goals unrelated to the interests of plan participants and beneficiaries in financial benefits from the plan and expose plan participants and beneficiaries to inappropriate investment risks”.
Based on FCLTGlobal’s review of existing academic evidence, our own analysis, and research informed by our multi-year conversations with our Members and other experts, we suggest the Department carefully consider the following:
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