Lucian Bebchuk is the James Barr Ames Professor of Law, Economics, and Finance and Director of the Program on Corporate Governance at Harvard Law School; and Roberto Tallarita is a Lecturer on Law and Associate Director of the Program on Corporate Governance at Harvard Law School. This post is based on their forthcoming article.
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); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Stakeholder Capitalism in the Time of Covid by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Does Enlightened Shareholder Value Add Value? by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and The Perils and Questionable Promise of ESG-Based Compensation by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here).
In August 2019, in the Business Roundtable’s Statement on the Purpose of a Corporation (the “BRT Statement”), numerous major company CEOs announced their commitment to deliver value to all stakeholders and not just shareholders. Some observers viewed this event as a milestone and the Statement as reflecting a meaningful commitment to improve the treatment of stakeholders (the “Commitment Hypothesis”). Others, by contrast, including us in previous work, viewed the Statement as a PR move with little practical impact on stakeholders (the “PR Hypothesis”). Which hypothesis best explains the BRT Statement?
In a forthcoming article, Will Corporations Deliver Value to All Stakeholders?, we investigate the aftermath of the BRT Statement to assess whether joining it represented a meaningful commitment or was mostly a public-relations move.
Our analysis is based on a review of a large array of corporate documents of the 128 U.S. public companies that joined the original BRT Statement in August 2019 (the “BRT Companies”). We manually collected and analyzed over six hundred corporate documents, which we are making publicly available in an online archive, the BRT Corporate Purpose Archive. The documents include governance guidelines, bylaws, proxy statements, and SEC no-action letter requests, and cover the period through the end of August 2021, two full years after the publication of the BRT Statement (the “Two-Year Period”).
Our analysis of these documents provides considerable evidence inconsistent with the Commitment Hypothesis and in support of the PR Hypothesis. These findings, we argue, have significant implications for the heated debate on stakeholder capitalism.
Below is a more detailed account of our analysis:
Modernization of Beneficial Ownership Reporting
More from: Charles Penner, Robert Eccles
Robert G. Eccles is Visiting Professor of Management Practice at Oxford University Said Business School, and Charlie Penner is former head of impact engagement at JANA Partners and former head of active engagement at Engine No. 1. This post is based on their recent comment letter to the U.S. Securities and Exchange Commission.
Related research from the Program on Corporate Governance includes The Law and Economics of Equity Swap Disclosure by Lucian A. Bebchuk (discussed on the Forum here); The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.
In this post, we provide comments on the proposed rules. We appreciate the opportunity to provide comments on the proposed rules relating to the Modernization of Beneficial Ownership Reporting. One of us, Charlie Penner, has been working in shareholder activism for over a decade, starting in traditional activism and more recently focusing on expanding activist efforts to environmental, social, and governance (ESG) issues that are material to long-term investors. Examples include campaigns to encourage Apple to give families more effective tools to address the negative impacts of excessive screen time on kids and to place highly qualified directors on ExxonMobil’s board to help better prepare for the future in a gradually decarbonizing world. The other, Professor Bob Eccles, has been working for decades to demonstrate that companies need to manage their material ESG issues in order to generate long-term shareholder value. He was a tenured professor at the Harvard Business School and now has an appointment at the Saïd Business School at the University of Oxford. He is also the Founding Chairman of the Sustainability Accounting Standards Board (SASB) and one of the founders of the International Integrated Reporting Council (IIRC).
Shareholder activism has long served as a market-driven solution when boards and management have ignored shareholder concerns like poor governance, wasteful spending, or excessive management compensation and, more recently, concerns like climate change, human rights in company supply chains, responsible technological development, and other ESG matters. If activists are successful, they can be rewarded for their efforts by an increase in the value of their holdings, which is shared by all other existing shareholders. Activist shareholders are a small percentage of the overall market, and to be successful they must offer ideas that will resonate with other shareholders, including long-term investors. While many shareholders engage with companies, activists are unique in their ability to put shareholder democracy into action by giving shareholders a choice of new board representation in the small number of cases where such change is warranted. Otherwise, directors of public company boards run unopposed, which is the case at almost every public company every year.
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