The Business Roundtable’s August 2019 pledge to redefine the purpose of a corporation as one that “promote[s] an economy that serves all Americans” was seen as a historic step for corporate responsibility—and nothing has put that commitment to the test like the COVID-19 pandemic, the subsequent economic fallout, and the heightened attention on racial inequality over the past few months.
Did the 181 business leaders who signed the pledge rise to meet their promise of stakeholder governance? Did they step up during these crises to take care of their workers’ jobs and health and answer their communities’ calls for equity? According to a new study: not really.
A study released on September 22 from KKS Advisors, a consultancy group that focuses on sustainability strategies, and A Test of Corporate Purpose, an initiative formed in 2020 to assess how purpose-driven companies have responded to the recent crises, takes a look at how companies have reacted to the current moment. The report uses data from Truvalue Labs, an environmental, social, and corporate governance analytics company, to see how companies performed on COVID-19 issues, such as employee health and safety and fair wages, and inequality issues such as board diversity, unethical pricing, and pay gaps.
Ultimately, the companies that signed onto the BRT pledge “performed no better than their nonsignatory counterparts through the 2020 crises,” the report found. It cites a Harvard study’s finding that the decision to sign that pledge was made mostly by CEOs alone, without board approval, suggesting that the promise was largely a PR move.
One stark example that the pledge was not followed with action, according to the latest report, is with Wells Fargo. This spring, Wells Fargo rejected a shareholder proposal that asked the company to become a benefit corporation, which codifies into corporate law that broader commitment to stakeholders, not only shareholders. Wells Fargo leaders commissioned a law firm to study that request and concluded, per the report, that it would be a mistake to become a B Corp because there would be “uncertainty regarding decision-making in a public benefit corporation . . . where the interests of stockholders and other stakeholders or the public benefit diverge.”
“And therein lies the conundrum,” the report authors write. “The interests of stockholders and other stakeholders will not always align, at least along the narrow lens of profits. Companies will have to reckon with this reality if this transition is to mean anything.”
The report also calls out Amazon, whose CEO, Jeff Bezos, also signed the BRT statement, for its reported issues with worker safety during the pandemic, and the lawsuit that alleges Whole Foods punished workers who wore Black Lives Matter face masks after the death of George Floyd. In a written statement quoted in The New York Times, Amazon called the report “flawed research” that relied on “the meaningless measure of ‘sentiment about company actions’ and fails to evaluate the actual response — which in the case of Amazon was proactive, swift and effective.”
The companies that did effectively manage the COVID-19 pandemic and inequality issues were the ones that have long had a positive track record on social issues, and accountabilities already in place such as board oversight and sustainability audits, per the report. It’s not enough for a company to make a commitment to its stakeholders, the authors write; they have to quantify their performance through clear metrics.
At the core of the failed responses, though, is shareholder capitalism, which the report says is “no longer fit for purpose.” After 50 years of shareholder capitalism, and now with “the convergence of climate change, a pandemic and systemic inequality,” Thomas Kuh of Truvalue Labs writes in the report, that way of doing business “is inadequate for resolving fundamental challenges. Indeed, it is part of the problem.”