Strategic CSR - Earnings guidance

Well, this isn't exactly the rationale I was hoping for, but the article in the url below notes that more companies are refusing to issue quarterly earnings guidance -- a blow to the short-term thinking (and misguided focus on shareholder value) that dominates our economic system: 

"Et tu, Walmart. Analysts covering the world's largest retailer will have to sharpen their pencils now that it has joined several other companies in scrapping quarterly earnings guidance (it kept it for the full year)."

It seems that the uncertainty injected into the economy, in recent months, is the 'excuse' CEOs are drawing on to avoid the glare of quarterly expectations:

"'Uncertainty' is practically a dirty word on Wall Street. After competitors scrapped their public forecasts, United Airlines instead took the unusual step last month of publishing two scenarios—one for a recession and another for an expansion."

As the author notes, however, the better approach might have been to scrap earnings guidance (i.e., not earnings reports) altogether:

"Unfortunately, that is a luxury mainly available to elite CEOs who are extremely secure in their jobs: Apple's Tim Cook, JPMorgan Chase's Jamie Dimon and, of course, Warren Buffett, who recently announced his impending retirement after six decades running Berkshire Hathaway."

Such a narrow focus on shareholder value, of course, is a relatively recent phenomenon, driven by neoliberal economic theory in the twentieth century (which resulted in most CEOs today being paid using stock options). But there is a strong argument to say that, not only is shareholder value a theory (rather than a legal fact), but that a singular (or even primary) focus on delivering it can be counterproductive to the long-term interests of the organization:

"Henry Singleton might be the greatest example of an executive who delivered with minimum regard for what Wall Street thought. Teledyne, the conglomerate he founded and ran for almost three decades, was a hot stock in the 1960s. … He was 'the smartest businessman I ever knew,' said the late Charlie Munger, who was vice chairman of Berkshire Hathaway."

 

Broad stakeholder support for not issuing guidance, particularly from the board and other key stakeholders, is what is required for CEOs to have the confidence to make decisions for the medium to long term, which is how the optimal level of value is created. While somewhat regular earnings reports are essential to allow for adequate oversight and governance mechanisms, quarterly earnings guidance is an unnecessary legacy of a disproportionate focus on shareholder value, which can be unhealthy, as noted in the article in the second url below:

 

"What would not be painful: a voluntary reduction in 'quarterly guidance,' or forecasts, by executives about how they expect their companies to fare. Warren Buffett of Berkshire Hathaway and Jamie Dimon of JPMorgan Chase recommended this change in a Wall Street Journal essay in 2018. Companies routinely use these forecasts to manipulate the expectations of financial analysts so that when earnings reports ultimately arrive, they constitute 'positive surprises' that set off rallies in the companies' shares."

 

While the article in the third url below suggests this development is gaining momentum and possibly being extended to earnings reports:

"The Securities and Exchange Commission is preparing a proposal to eliminate the requirement to report earnings quarterly and instead give companies the option to share results twice a year, according to people familiar with the matter. The regulator could publish the proposal as soon as next month."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e  

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

Elite CEOs Don't Need Earnings Guidance

By Spencer Jakab

May 16, 2025

The Wall Street Journal

Late Edition – Final

B12

https://www.wsj.com/business/elite-ceos-dont-need-earnings-guidance-a0e5de93

 

Is The the Time to End Quarterly Earnings Reports?

By Jeff Sommer

October 5, 2025

The New York Times

Late Edition – Final

BU4

https://www.nytimes.com/2025/10/02/business/trump-earnings-reports-investing-stocks.html

 

SEC Prepares Proposal to Eliminate Quarterly Reporting Requirement

By Corrie Driebusch

March 16, 2025

The Wall Street Journal

https://www.wsj.com/finance/regulation/sec-prepares-proposal-to-eliminate-quarterly-reporting-requirement-1d700bbb

Strategic CSR - Share buybacks

There is a good chance the motivation is distorted but, among all the noise and activity emanating from Washington DC, the announcement included in the article in the url below caught my attention: 

"President Trump lashed out at U.S. weapons manufacturers Wednesday, announcing new restrictions on executive pay and stock buybacks while also threatening to cancel contracts with one of the country's largest defense contractors."

I like it because it discourages an emphasis on shareholder value, while also addressing the mildly corrupt nature of government contracting in the defense sector:

 

"An executive order posted Wednesday evening said companies 'are not permitted in any way, shape, or form to pay dividends or buy back stock, until such time as they are able to produce a superior product, on time and on budget.'"

And the intention behind the executive order is specific:

"Earlier Wednesday, Trump said in a Truth Social post that he would limit executive pay to $5 million, but the dollar figure wasn't included in the executive order. … Trump also singled out contractor RTX in a separate social-media post, saying that the company 'has been the least responsive' to the Pentagon's needs and 'the slowest in increasing their volume, and the most aggressive spending on their Shareholders rather than the needs and demands' of the U.S. military."

While enforcement will be a challenge (and limiting pay will not amount to much unless stock options are also capped), the intention responds to a real issue: 

"Saying that he was addressing defense contractors and the defense industry, Trump wrote, that '…Defense Contractors are currently issuing massive Dividends to their Shareholders and massive Stock Buybacks, at the expense and detriment of investing in Plants and Equipment. This situation will no longer be allowed or tolerated!'"

Again, I am not confident that the issue is fully understood or that the order will be systematically implemented, but the story was still encouraging to see.

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e  

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Trump Lashes Out at Defense Firms, Buybacks

By Marcus Weisgerber and Drew FitzGerald

January 8, 2026

The Wall Street Journal

Late Edition – Final

A4

https://www.wsj.com/business/trump-defense-industry-executive-order-9cc2c42e

Strategic CSR - Walmart

Here are a few charts from the article in the url below about Walmart's turnaround that I find encouraging. Collectively, I believe (hope?) that the charts tell a story of an emerging stakeholder perspective and, in particular, the value of an organization treating its employees as its primary stakeholder. First is Walmart's decision, made back in 2009 and in response to extensive external pressure, to raise the hourly pay of its employees – a decision that played out gradually, over time:

Second is the growth in Walmart's annual sales, with a more motivated workforce, covering roughly the same period:

 

Finally, lagging behind, is the company's share price. Initially, the stock market responded negatively to Walmart's announcement of its intention to increase employee pay. This changed when the value of the company treating its employees well became apparent:

 

Much of the data in the article is taken from an upcoming HBS case that focuses on the decision by Walmart to improve the working conditions of its employees as driving its subsequent success. Perhaps even HBS has now come around to the benefits of a stakeholder perspective (and the value of an organization treating its employees as its primary stakeholder), after so many damaging decades of promoting shareholder primacy.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e  

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

A Decade-Old Flop Is Now Held Up As Walmart's Shining Success

By Sarah Nassauer

October 18-19, 2025

The Wall Street Journal

Late Edition – Final

B1, B11

https://www.wsj.com/business/retail/walmart-employee-treatment-success-f96761f4

Strategic CSR - Delaware

Within corporate tax law in the U.S., the article in the url below reports there is currently a struggle to remain the state of choice for incorporation:

"Delaware is fighting to maintain its status as the country's corporate capital. … Delaware has long reigned supreme as a home for companies' legal residence, or where they incorporate their businesses. More than two-thirds of Fortune 500 companies are incorporated in the state."

The reason for the threat to Delaware's crown is, apparently, companies not appreciating the application of the law:

"Executives of public companies have expressed frustration with the Delaware Court of Chancery, often following legal rulings that didn't go their way. Officials elsewhere are taking note."

From the states' point of view, of course, the goal is to maximize incorporation fees through a race to the bottom – appeasing corporate interests by further undermining the concept of shareholder democracy:

"Delaware Gov. Matt Meyer has signed a law that will make it harder for shareholders to sue companies, an attempt to quell threats by U.S. corporations to move their legal residences to other states. … Texas introduced a new court system for corporate matters last year. Musk is in the process of reincorporating Tesla to the Lone Star State from Delaware. Meta is considering moving its incorporation to Texas. Hedge-fund manager Bill Ackman tweeted that his Pershing Square is looking to leave Delaware and incorporate in Nevada or Texas."

Given the emphasis placed on finding the most lenient legal environment, the state of choice has varied over the years:

"A century ago, New Jersey was the incorporation capital of the country. The state lost the title, and Meyer said he doesn't want Delaware facing a similar fate because of complacency."

Although why states care so much about levels of incorporation is unclear:

"Even if companies move to incorporate and list stock in Texas, the benefits to the state beyond bragging rights are less clear. Moving a company's incorporation isn't the same as moving its headquarters; in practical terms it means the business rents a P.O. box in the state, not an office building."

More fundamentally, why any company should care that much about shareholder interests is somewhat baffling. It is as if Ford was 'owned' by everyone who purchased one of its cars, whether they bought it directly from the company through one of their dealerships, or indirectly from a prior owner. For Ford, issuing shares to raise capital is very similar to 'issuing' cars to generate revenue. In both cases, the firm is 'producing' something, with little associated rights, that can be sold initially for money, and then traded on a third-party exchange.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e  

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Delaware Punches Back at Texas Efforts to Lure Away Companies

By Corrie Driebusch

March 26, 2025

The Wall Street Journal

https://www.wsj.com/business/delaware-punches-back-at-texas-efforts-to-lure-away-companies-73a95d7a

 

Strategic CSR - Patagonia

The article in the url below provides some details on the opaque organizing structure that Yvon Chouinard created for Patagonia when he relinquished control of the company, in 2022 (different, but no doubt related, to its decision to restructure as a Benefit Corporation, in 2021; see Strategic CSR – Patagonia). As Chouinard announced at the time (somewhat inaccurately, but still worth reading), "Earth is now our only shareholder." I noted the decision when it became public, but did not understand anything about the scale and potential impact of the decision – something Patagonia deliberately does not advertise and, as illustrated in Chouinard's original statement, left vague:

"Here's how it works: 100% of the company's voting stock transfers to the Patagonia Purpose Trust, created to protect the company's values; and 100% of the nonvoting stock had been given to the Holdfast Collective, a nonprofit dedicated to fighting the environmental crisis and defending nature. The funding will come from Patagonia: Each year, the money we make after reinvesting in the business will be distributed as a dividend to help fight the crisis."

Right, as clear as mud, which brings us back to the article that is the focus of today's newsletter, which is the first somewhat detailed analysis of how things have been working out, ever since:

"Patagonia, the outdoor apparel brand, is funneling its profits to an array of groups working on everything from dam removal to voter registration. In total, a network of nonprofit organizations linked to the company has distributed more than $71 million since September 2022."

And from, moving forward:

"Patagonia paid an initial $50 million dividend to Holdfast in 2022. It made another payment to Holdfast last year. … Each year going forward, Patagonia will transfer all the profits it does not reinvest in the company to Holdfast."

Given the amount of money that is being distributed, along with the ideological nature of the causes, Hodfast's activity is beginning to attract some attention:

"Holdfast Collective created and manages five nonprofit groups — Holdfast Trust, Chalten Trust, Sojourner Trust, Wilder Trust and Tail Wind Trust. They are registered under a section of the tax code, 501(c)(4), that allows them to make unlimited political donations, provided their primary purpose is social welfare. The nonprofit groups, which pay management fees to Holdfast Collective, hold 98 percent of Patagonia's nonvoting shares. The shares are valued at $1.7 billion but will not be sold."

One of the founding principles of the structure is that it has to distribute all the money it receives from Patagonia, every year, and does not try and carry over any funds. This means they are able to distribute broadly to other organizations deemed sympathetic to the causes Chouinard cares about, even if they don't directly work to sustain the environment:

"And there was a slew of political contributions last cycle, including $100,000 each to Senate Majority PAC and House Majority PAC, which work to elect Democrats to Congress, as well as smaller gifts to groups such as the Black Voters Matter Fund, the Center for American Progress Action Fund and the Georgia Investor Action Fund."

There are lots more details about Holdfast's activities in the article, but I primarily enjoyed learning more about how it came about, and the selfless act by Chouinard to protect what he and his wife had created, for the foreseeable future:

"Because the Chouinards did not sell the company and retain the proceeds or leave the company to their children, they did not face a significant tax bill. And because they donated the shares to 501(c)(4) organizations, they did not receive a substantial tax write off. Instead, the family paid about $17.5 million in taxes to facilitate the transaction in 2022."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e  

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

At Patagonia, Profits Fund Preservation

By David Gelles and Kenneth P. Vogel

February 12, 2024

The New York Times

Late Edition – Final

B1, B2

https://www.nytimes.com/2024/01/30/climate/patagonia-holdfast-philanthropy.html

 

Strategic CSR - Unilever

I am divided on the importance of the article in the url below – an announcement by Unilever that it plans to give shareholders a regular vote on its sustainability plan (see also Strategic CSR – Unilever):

"Unilever PLC said it would become the first major company to voluntarily give shareholders a vote on its efforts to reduce carbon emissions, seeking greater engagement with investors on climate issues."

On the one hand, it is inflating the importance of shareholders in company decisions, while not giving a similar level of access/influence to other stakeholders. On the other hand, however, it is an acknowledgement that Unilever feels the issue of sustainability has evolved to the point where it will generally win these votes; it also is a smart strategic move to wrest the initiative away from shareholders and control the way debates on this issue are handled at the firm's AGM:

"The owner of Dove soap and Ben & Jerry's ice cream said Monday it would seek approval from investors every three years on its plan to mitigate its carbon impact and the risks of climate change on its business. However, the vote would be only advisory and doesn't require Unilever to make changes. Major investors say they are putting more emphasis on addressing the threats posed by climate change, with shareholder resolutions on the issue becoming more common. By proposing its own climate resolutions for shareholders to vote on—which take into account the challenges and realities of achieving them—Unilever is in the driving seat, said one big investor."

And, then again, perhaps Unilever is just resigned to the inevitable:

"BlackRock Inc., one of Unilever's largest investors, said earlier this year that it would be increasingly likely to vote against management and boards if companies don't disclose climate-change risks and plans in line with key industry standards."

Alternatively, perhaps it is better for Unilever to proactively instigate this change, which allows it to constrain the vote as "advisory" only, while continuing to stretch its own performance on this issue:

"A Unilever spokeswoman said investor interest in managing the transition to net zero was growing and that the company wanted to send a signal that it was serious about meeting these targets."

Either way, the timing of the announcement was fortuitous, given yesterday's announcement by the SEC that it will start requiring firms to report the environmental impact of operations and the risk climate change poses to the business. Unilever is more progressive on such issues than most companies – a position that is reflected in the timelines and targets the firm is pursuing:

"The consumer-goods giant is among the growing number of companies setting public targets for cutting carbon emissions over the next few years. London-based Unilever has promised to eliminate emissions from its own operations by 2030 and to do the same from sourcing to point of sale by 2039. It also plans to halve the footprint of its products in the next decade, which involves the more difficult process of cutting emissions from consumers using its products."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Unilever Allows Climate Input

By Saabira Chaudhuri

December 15, 2020

The Wall Street Journal

Late Edition – Final

B6

https://www.wsj.com/articles/unilever-to-give-investors-advisory-vote-on-climate-change-plan-11607971421

 

Strategic CSR - Blockchain

The article in the url below is an interesting discussion about the technology underpinning NFTs and cryptocurrencies (i.e., blockchain). In particular, it quotes Mark Cuban (entrepreneur and owner of the Dallas Mavericks NBA team) on how the technology is only just beginning to reach its potential as people become aware of its broader application. One passage, in particular, caught my attention:

"Mr. Cuban then notes, 'But these are just proof of concepts. Not the end game.' I quickly emailed back, 'OK, I get that. Like what?' The floodgates opened. 'NFTs are just one application of smart contracts. Think about textbooks being NFTs. You buy it. Use it. Easily resell it. Publishers get royalty on each sale.'"

He continues:

"'Think how stocks work right now. Most people think they own the stock. They own the right to the stock. It's held in street name. It gets lent out to shorts and they don't collect the [interest] on the borrow. And then of course there is front running and payment for order flow and the fact that a share of stock doesn't truly convey the holder any real ownership rights. If every share or block of shares was an NFT then it all would be transparent.'"

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Mark Cuban Knows Crypto

By Andy Kessler

May 24, 2021

The Wall Street Journal

Late Edition – Final

A17

https://www.wsj.com/articles/mark-cuban-knows-crypto-11621785848

 

Strategic CSR - Revlon

The article in the url below dives pretty deep into the weeds of U.S. corporate law, but it is potentially an important step in the direction of tighter corporate governance (increasing the burdens placed on a firm's board of directors) and against one of the few remaining 'rights' that shareholders possess. Specifically, the article covers a recent decision in U.S. federal court:

"In a little-noticed December ruling in a case involving a failed 2014 leveraged buyout, Jed S. Rakoff, a federal judge in the Southern District of New York, threw some sand into the otherwise well-lubricated gears of what has been a 40-year financial bonanza. It's about time we started asking tough questions about the ramifications of loading up companies with huge amounts of debt they will surely have difficulty repaying."

Specifically, because the board's decision to sell the company knowingly placed the firm with a debt load that was likely to force it into bankruptcy, the judge held that the board had been "reckless" in its decision and are therefore liable:

"In other words, Judge Rakoff said in his ruling, officers and directors had better think twice before agreeing to sell a company to a buyout firm. What had for decades been considered a virtue — selling a company for a market-clearing price to the benefit of existing shareholders — might have become a vice. Judge Rakoff's decision 'has the potential of really blowing up,' said Brian Quinn, a law professor at Boston College."

The facts of the case, in the opinion of the judge, mean that the directors are not protected by the business judgment rule:

"Judge Rakoff … said [the board] could not take cover behind the business judgment rule, which usually protects directors from being held accountable for past business decisions so long as they were made in 'good faith.'"

The author of the article, who was a former investment banker (specializing in M&A), argues that this case has implications beyond the specific facts (in spite of idiosyncrasies that suggest it might have limited influence) because it challenges the long-held 1986 decision by the Delaware Supreme Court known as 'Revlon.' Revlon applies as precedent during the sale of a firm and is important because it establishes the burden on directors during the sale to seek the highest price possible for shareholders, irrespective of the wishes of other stakeholders in the firm. This recent decision suggests this may no longer be the case:

"The ruling has the potential to hold accountable those responsible for allowing otherwise solvent companies to be sold into circumstances that would soon enough cause their bankruptcy. … In the wake of Judge Rakoff's ruling, Big Law quickly sought to warn clients that officers and directors of companies needed to be more vigilant about who they agree to sell a company to and what the buyer plans to do with it. The days of just selling a company to the highest bidder regardless of the consequences — the legal standard on Wall Street since the Delaware Supreme Court decided the so-called Revlon case in 1986 — might just be over."

If so, then this case would be another nail in the coffin of the idea that 'shareholder democracy' has any substantive meaning in the U.S.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

The End of Private Equity

By William D. Cohan

March 1, 2021

The New York Times

Late Edition – Final

A19

https://www.nytimes.com/2021/02/28/opinion/business-economics/private-equity-reckoning.html

Strategic CSR - BRT

The article in the first url below reviews progress by signatory companies to last year's statement on stakeholder capitalism by the Business Roundtable, BRT (see Strategic CSR – Business Roundtable and Strategic CSR – Business Roundtable (II) and Strategic CSR – Business Roundtable (III)). In the original statement, "the CEOs of more than 180 major companies" pledged to broaden their purpose to focus on all stakeholders, rather than merely shareholders. The media responded very positively to this and influential voices in academia have heralded the statement as an important turning point in the evolution of the stakeholder perspective (e.g., see here). The article below, in contrast, sets out to collect data to see whether this optimism has necessarily turned out to be warranted:

"Although the Roundtable described the statement as a radical departure from shareholder primacy, observers have been debating whether it signaled a significant shift in how business operates or was a mere public-relations move."

This attempt to quantify whether each company was genuine in its intent focuses on the extent to which the decision was treated as important, internally:

"Major decisions are typically made by boards of directors. If the commitment expressed in the statement was supposed to produce major changes in how companies treat stakeholders, the boards of the companies should have been expected to approve or at least ratify it."

Specifically, they operationalized this in terms of who was the highest authority who signed-off on the decision:

"We contacted the companies whose CEOs signed the Business Roundtable statement. … Of the 48 companies that responded, only one said the decision was approved by the board of directors. The other 47 indicated that the decision to sign the statement, supposedly adopting a major change in corporate purpose, was not approved by the board of directors."

The researchers then reflect on the possible interpretation of these findings:

"What can explain a CEO's decision to join the Business Roundtable statement without board approval? Even 'imperial' CEOs tend to push major decisions through the board rather than disregard it. … 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."

To reinforce the idea that any major change in focus by the statement's signatories should have been approved by the Board, the researchers checked the governance documents for each company. They found these documents are essentially unchanged and "mostly reflect a clear 'shareholder primacy' approach":

"Take the corporate governance guidelines of JPMorgan Chase, whose CEO, Jamie Dimon, chaired the Business Roundtable at the time the statement was issued. These guidelines state that 'the Board as a whole is responsible for the oversight of management on behalf of the Firm's shareholders.'"

Johnson & Johnson is another example cited:

"The corporate governance guidelines of Johnson & Johnson —whose CEO, Alex Gorsky, served as chairman of the Business Roundtable Corporate Governance Committee—indicate in clear terms that 'the business judgment of the Board must be exercised . . . in the long-term interests of our shareholders.'"

The article concludes:

"The evidence is clear: Notwithstanding statements to the contrary, corporate leaders are generally still focused on shareholder value."

While I am not sure these data are quite as definitive as the authors suggest, they are certainly not an indication that things have changed. It is still early, but these studies are beginning to emerge and I have not seen one that paints the BRT signatories in a positive light. For another, more recent example, see the article in the second url below:

"The coronavirus, its attendant economic devastation and the ongoing movement against racial injustice have collectively posed the first test of the lofty words proclaiming a kinder form of capitalism. The results have fallen short of the promise, according to a study released Tuesday and obtained in advance by The New York Times. The Business Roundtable's statement of a purpose of a corporation, released last year, was touted by prominent executives as a landmark in the evolution of corporate governance. But its signatories have done no better than other companies in protecting jobs, labor rights and workplace safety during the pandemic, while failing to distinguish themselves in pursuit of racial and gender equality, according to the study."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

'Stakeholder' Capitalism Seems Mostly for Show

By Lucian Bebchuk and Roberto Tallarita

August 7, 2020

The Wall Street Journal

Late Edition – Final

A15

https://www.wsj.com/articles/stakeholder-capitalism-seems-mostly-for-show-11596755220

Stakeholder Capitalism Falters in Study

By Peter S. Goodman

September 22, 2020

The New York Times

Late Edition – Final

B1, B4

https://www.nytimes.com/2020/09/22/business/business-roudtable-stakeholder-capitalism.html

Strategic CSR - Shareholder democracy

Count the article in the url below as another strike against the idea of shareholder democracy here in the U.S. Specifically, the article discusses an interesting practice that I was unaware of – share lending:

 

"[Investment firms, such as BlackRock, Vanguard, and Fidelity, who commonly hold a large percentage of a listed firm's shares] loan shares through brokers and intermediaries who act for clients unknown to the original lenders. Short sellers often borrow those shares to bet against companies, paying fees to funds that supply them with those shares. Those fees get passed back to fund investors."

 

While this is a good source of income for the funds (particularly in times of low yield, such as these), the result is that the funds are not able to use the votes associated with the loaned shares at the focal firm's annual general meeting:

 

"Investors from hedge funds to pensions make these tradeoffs all the time. For the biggest asset managers, the decision can occur on a massive scale as these firms direct trillions of dollars for investors."

 

This is particularly interesting choice for funds such as BlackRock, that have made so much noise about forcing executive teams to respond more directly to the firm's broad set of stakeholders:

 

"While investing giants have raised their voices to prod companies to address society's most pressing problems, they sometimes decide not to control the ballots that drive change. Their choice to loan out shares in some of the heavily shorted companies breaks with many people's assumption that firms overseeing economic interests in companies will cast full votes to maximize the value of the shareholdings."

 

The funds are clearly focused on the fees associated with this lending practice, while the result can be influential in determining the outcome of shareholder ballots:

 

"Many managers typically don't retrieve shares that have been lent out unless they think their vote is worth giving up income from lending out shares. The shares they put on loan are conduits for short selling. [For example,] In the last two weeks of April, GameStop has roughly 90% of shares outstanding sold short."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

Investing Giants Cede Full Vote Power

By Dawn Lin

June 11, 2020

The Wall Street Journal

Late Edition – Final

B1, B10

https://www.wsj.com/articles/how-investing-giants-gave-away-voting-power-ahead-of-a-shareholder-fight-11591793863

also in full, here:

https://www.morningstar.com/news/dow-jones/202006111673/investing-giants-cede-full-vote-power-wsj

 

Strategic CSR - Business Roundtable

A number of you kindly forwarded variations of the article in the url below to me:

 

"Nearly 200 chief executives, including the leaders of Apple, Pepsi and Walmart, tried on Monday to redefine the role of business in society — and how companies are perceived by an increasingly skeptical public."

 

Specifically, it is the Business Roundtable making this announcement on behalf of its members:

 

"Breaking with decades of long-held corporate orthodoxy, the Business Roundtable issued a statement on 'the purpose of a corporation,' arguing that companies should no longer advance only the interests of shareholders. Instead, the group said, they must also invest in their employees, protect the environment and deal fairly and ethically with their suppliers."

 

My immediate reaction is incredulity – do they mean that they do not understand their firms are already doing this? The stakeholder version of CSR is not either/or so much as it is more/less. In other words, all firms are already doing it; sure, they could be doing more of it, but they are already doing it to some extent. The fact that the Business Roundtable was not able to express itself in this way is shocking and demonstrates the amount of thought they put into the statement ahead of time. As The Wall Street Journal put it in its editorial response to the statement (August 20, 2019, pA14):

 

"At a practical level this is largely symbolic. … To be successful, any company must serve its customers, adequately reward its employees, cultivate the loyalty of suppliers, and maintain good relations with the communities where it operates. At the Business Roundtable's level of high-toned generality, who could disagree?"

 

At a deeper level and on reflection, I have a number of reactions to the statement that, in essence, add up to the reason that I wrote my book. In short, I think it is interesting that the Business Roundtable is announcing this change, but it is not very clear that they mean much by it. For a start, the framing is very mainstream. That is, while they pay lip service to the idea of value creation for stakeholders, they fail to demonstrate that they understand how that process actually occurs and that it encompasses 100% of what the firm does.

 

They also, of course, do not recognize that shareholder primacy is a theory (rather than a legal obligation), yet this is implicit in the statement and central to what they are saying. By announcing they are able to unilaterally shift the purpose of the firm to serving all stakeholders, the Business Roundtable is recognizing that there is currently no legal obligation to maximize shareholder value. If there was a legal obligation, then they couldn't just change it with a white paper policy statement. It would have been helpful if they had explicitly stated this (and it is concerning that they do not appear to make the connection), but the outcome is the same. 

Related to this point, one group whose purpose is undermined by this decision is B-lab, which advocates for Benefit Corporations (hence, B-Lab's somewhat desperate full-page ad response in Sunday's New York Times, https://images.app.goo.gl/vAPqG491URyzFykn8). As I have long argued, Benefit Corporations are premised on a misunderstanding of the legal relationship between shareholders and the firm. If, according to the Business Roundtable's new announcement, all firms can do what Benefit Corporations can do, why do we need Benefit Corporations?

 

Overall, therefore, this looks like business as usual to me. It seems as though the Business Roundtable felt like it needed to say this, but it is not quite sure why it is saying it and, by extension, what implications it will/should have for its members. In other words, it is an exercise in impression management, largely driven by growing societal criticism of CEOs/firms/capitalism (take your pick):

 

"The shift comes at a moment of increasing distress in corporate America, as big companies face mounting global discontent over income inequality, harmful products and poor working conditions."

 

Rather than take on the (valid) criticisms with an intellectual defense of the value creation process (with a commitment to elevate all stakeholders and demote shareholders because their legal standing is no different), they instead engage in what one of you phrased to me as "all words," with little prospect for substantive action. It is notable, for example, that the Council of Institutional Investors (whose membership overlaps significantly with the Business Roundtable) issued its own response, criticizing the announcement because it "undercuts notions of managerial accountability to shareholders."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: http://studysites.sagepub.comstudy.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Shareholder Value is no Longer Everything, Top C.E.O.s Say

By David Gelles and David Yaffe-Bellany

August 19, 2019

The New York Times

Late Edition – Final

A1, A15

https://www.nytimes.com/2019/08/19/business/business-roundtable-ceos-corporations.html

 

Strategic CSR - LTSE

The article in the url below reports on the latest developments with the proposed Long Term Stock exchange (LTSE):

 

"The founders of the Long-Term Stock Exchange (LTSE) want to operate a full-fledged US stock exchange, with a twist: The exchange aims to combat short-term thinking by introducing extra rules designed to reward long-term shareholding and long-term business strategies. The LTSE and Investor's Exchange (IEX) disclosed today that IEX, an upstart exchange already operating under US Securities and Exchange Commission approval, last week formally filed with the SEC for the LTSE to handle initial public offerings via special securities listings on IEX."

 

It is interesting that they are working with IEX, which is the stock exchange set-up by Brad Katsuyama to try and compete against the high-frequency trading algorithms (and featured in Michael Lewis' book, Flash Boys). The goal is to open an independent stock exchange with a long-term, sustainable focus:

 

"By piggybacking on IEX, the LTSE hopes to accelerate the ability of companies to go public with the LTSE's rules binding them and their investors. The LTSE plans to submit an application to become a full-fledged stock exchange, a significantly tougher proposition, after the SEC has ruled on its arrangement with IEX."

 

While certainly well-intentioned, I think the LTSE contains flaws that are similar to the Benefit Corporation project. First, if the main purpose is to raise money (as the founder states it is), there are many alternative sources of capital today. It is not clear that we need another stock exchange for IPOs:

 

"The LTSE, founded by San Francisco entrepreneur and The Lean Startup author Eric Ries, is an ambitious project to overhaul how companies raise money, allow employees to sell shares, and practice good corporate governance. It comes amid challenges to Wall Street's traditional approach to financing businesses, with many companies shunning public markets altogether, while others turn to newfangled fundraising methods like cryptocurrency initial coin offerings instead of stock offerings."

 

Second, the rules mentioned in the article seem pretty superficial. The most important, I think is the restriction on short-term incentives.

 

"The rules for companies listing via the LTSE include:

• Increased voting rights for shareholders who hold company stock for long periods of time
• Restrictions on offering short-term incentives to executives
• Additional disclosures, such as clearly showing the impact of any stock buybacks
• A board-level long-term product and strategy committee, to focus on issues of governance and sustainability"

It will be interesting to see if that gets any traction. A stronger rule would be no stock-based compensation at all, which is what I would like to see firms adopt. If I can do my job without performance incentives, I am not sure why executives cannot. Just pay them a salary! But, this speaks to a more fundamental issue, which is that all firms can already adopt these measures, if they wanted to:

 

"The LTSE acknowledges in the SEC filing that companies could voluntarily adopt the rules it has drawn up without listing through the LTSE. But it contends that the structure it has created allows for regulatory enforcement of the rules, giving them more impact."

 

Finally, I am somewhat sympathetic to the argument in the article that we might lose some of the shareholder oversight. Short-sellers, in particular, perform a valuable buffer against corruption:

 

"Critics say that the LTSE's rules would overly insulate company executives from shareholders, reducing the accountability that can help boost performance over the long term."

 

While I do not trust shareholders much, I am not sure I would rather trust executives to act with any less oversight than at present! :-)

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

The company aiming to create a long term-focused stock exchange has applied to handle IPOs

By Kevin Delaney

March 19, 2018

Quartz

https://qz.com/1232025/eric-riess-ltse-which-aims-to-create-a-new-us-stock-exchange-has-filed-with-the-sec-to-handle-ipos/