The article in the url below continues to challenge the prevailing narrative in large sections of the media and academia that stakeholder capitalism has arrived:
"Chief executives love to talk about 'stakeholder capitalism.' But when they face a final choice to sell a company and divide the spoils between workers and shareholders, guess who gets the money? You got it: Shareholders are the winners—along with the executives themselves."
A constant distortion of the decision making inside companies continues to be the structure of compensation, which defaults primarily to share price (via stock options). And, again, it is academics in the law school that are taking the lead in exposing the apparent hypocrisy among businesses:
"An analysis of takeover deals during the pandemic by academics at Harvard Law School reveals the priorities of America's corporate leaders. In public, they talk about the importance of employees, communities, the environment and other stakeholders in the business. In private, they negotiate deals they know will lead to job losses and closed offices but don't demand compensation for the losers."
The conclusion, of this author at least, is depressingly familiar:
"Stakeholder capitalism has turned out to be standard shareholder capitalism, with a smiley face. That should be a wake-up call for those listening to high-profile investors such as BlackRock Chief Executive Larry Fink, who wrote to fellow CEOs in January to advocate having a corporate purpose, and announced the creation of BlackRock's 'Center for Stakeholder Capitalism.'"
Specifically, the research demonstrates that:
"Out of 116 takeovers of companies worth more than $1 billion since April 2020, precisely none included any legally binding protection of jobs or guaranteed compensation for those who would be laid off. By contrast, executives of the target firms were able to negotiate an average takeover premium of 34% for shareholders, compared with the pre-deal price. As well as the gains on the stock they held, 98% of deals offered executives a takeover payout of some kind, and just under half changed compensation terms to reward top management further."
And, twisting the knife:
"The crumbs thrown to stakeholders were explicitly unenforceable, except for a tiny amount of required bonuses. The required and nonbinding bonus pools provided for in deal terms together amounted to 0.4% of the gains made by shareholders from the takeover, according to [the research paper]."
Where there are shifts, the author argues (persuasively, I think), they are driven by market forces, rather than any reconsideration of the values underpinning many of the corporations that signed the BRT statement (see Strategic CSR – BRT), as well (of course) of those that were not signatories:
"What's changed is that workers and customers, helped by social media and tight labor markets, are able to demand more from companies on issues they once let slide. When employees can easily find a job elsewhere, and customers are able to organize boycotts with a few tweets, it is easier to press complaints about child labor in the supply chain, treatment of minorities and women, carbon emissions and crass executive comments. Companies vulnerable to such issues—not all are, but most—need to pay attention, and are increasingly dressing up such attention as 'stakeholder' concerns."
The ultimate conclusion?
"… don't be fooled. CEOs still care primarily about the bottom line (and their bonus), because that is what they are motivated to care about. They will pay attention to stakeholder concerns only to the extent that they affect that bottom line, and in a takeover they rarely matter."
Take care
David
David Chandler
© Sage Publications, 2020
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Shareholders Reign Supreme Despite CEO Promises to Society
By James Mackintosh
February 11, 2022
The Wall Street Journal
Late Edition – Final
B1, B10
