Many corporate executives are looking forward to the prospect of divided government in Washington, with President-elect Joe Biden in the White House but Republicans potentially holding onto the Senate, because they hope it will limit the chances of what they see as progressive overreach. But CEOs who have made commitments on issues such as climate change and racial justice should reject the outdated mantra that all regulation is bad for business and use their influence to push for a “stakeholder capitalism agenda,” both with Republicans on Capitol Hill and the Biden administration.
The notion that corporations have responsibilities not just to shareholders but also to employees, customers, communities, and the planet has gained widespread acceptance, yet corporate law and regulatory policy has yet to catch up. That creates risks for businesses that want to do the right thing and rewards for those that don’t. With new leadership in Washington, there’s a chance to change that.
Writing stakeholder capitalism into law would make it easier for CEOs to practice what they preach.”
During the campaign, President-elect Biden said stakeholder capitalism “isn’t a new or radical notion, these are basic values and principles that helped build this nation.” He has chosen top economic advisers with experience putting these principles into practice in the private sector. And leading Democrats, including Vice President-elect Kamala Harris and Senator Elizabeth Warren (D-MA), have proposals to translate them into policy.
If CEOs come to the table in a constructive attempt to help shape the new administration’s plans, they could bring a valuable private sector perspective to the policy process and help ensure new legislation and regulations make their companies stronger and our economy more fair.
Writing stakeholder capitalism into law would make it easier for CEOs to practice what they preach. There’s a reason prominent corporations have begun calling for governments to regulate them more aggressively, from automakers opposing the Trump administration’s rollback of fuel economy standards to tech companies urging Congress to set clearer rules about privacy and misinformation—it’s easier to do the right thing when it’s required by law.
For example, retrofitting facilities to improve energy efficiency saves money in the long run, and providing generous paid family leave to workers pays off in less turnover and higher productivity, but both require upfront investments and patience that can be hard to sustain when competitors are gaining an advantage by cutting corners. Regulation that raises the floor for acceptable corporate conduct can relieve that competitive pressure and reward companies that invest in their workers, protect the environment, and build resilience for the long term.
Now is the time for business leaders to step up. President-elect Biden has made it clear he intends to move quickly on multiple fronts and that he is eager to work with the business community. CEOs should take advantage of this opportunity to advance a stakeholder capitalism agenda with three priorities: removing obstacles for purpose-driven business, measuring for accountability, and empowering the most essential stakeholders in any company—workers.
First, CEOs should advocate for removing obstacles that make it harder for them to practice stakeholder capitalism, especially the threat of legal consequences.
A good place to start would be for executives to call on the Biden administration to quickly reverse the Trump administration’s misguided rule limiting economically and socially responsible investing in retirement plans and attempts to force banks to continue lending to fossil fuel companies. This could be done right away by executive action. The Trump administration has warned ESG investing could violate fiduciary responsibilities to retirees required by the Employee Retirement Income Security Act (ERISA) and threatened financial institutions that see climate risk as investment risk, despite the fact that ESG-focused funds consistently outperform the market. The new administration should reassure investors that there is no legal risk.
Longer term, the goal should be changes to corporate governance that codify stakeholder capitalism and provide legal backing for CEOs to pursue the environmentally and socially responsible business practices they say they want, with clearer rules of the road and a level playing field. Senator Warren has proposed requiring all corporations with more than $1 billion in annual revenue to apply for a new federal charter that would spell out their responsibilities to workers, customers, and communities. While such a plan might be difficult to pass through a divided Congress, it’s the states that currently govern corporate charters so CEOs who believe in stakeholder capitalism could focus their efforts there for now. As it happens, the key state is the President-elect’s home of Delaware, which sets the standard for the nation. CEOs could urge Biden to convene state officials and business leaders from across the country for a summit on stakeholder capitalism and use his home-state influence to support legal reforms in Delaware that could be adopted more widely.
The goal should be changes to corporate governance that codify stakeholder capitalism and provide legal backing for CEOs to pursue the environmentally and socially responsible business practices they say they want.”
Second, CEOs should support new requirements for corporate transparency on everything from climate risks to pay equity and diversity, which would encourage more companies to align their business practices with their values. It’s often said that businesses measure what matters, so if stakeholder capitalism is going to take root, more companies will have to put metrics behind their commitments. Requiring public disclosure of those metrics will drive more accountability and, ultimately, progress.
While business leaders might be expected to be allergic to new government transparency mandates, the private sector is already moving in this direction. In January, BlackRock began pressuring companies it invests in to disclose their long-term climate risks. Since then, the number of companies meeting rigorous reporting guidelines set by the Sustainability Accounting Standards Board has more than doubled. (Our social impact communications agency Evergreen Strategy Group has worked with BlackRock.) In October, the Business Roundtable called on companies to report every year on efforts to increase diversity among senior management and on corporate boards. It would be a natural next step to welcome regulations standardizing these requirements.
As an initial step, companies that have taken strong stands on pay equity, such as Salesforce, could throw their weight behind the plan proposed by Vice President-elect Harris to require large companies to publicly disclose data on salaries to ensure they pay women fairly, with violators facing hefty fines—parts of which the Biden administration could begin implementing right away by executive action.
Finally, CEOs should embrace the spirit of stakeholder capitalism by supporting policies that empower workers.
In industries such as tech and publishing, employees are seizing a voice for themselves and insisting that companies do more to live their values. But there’s been less attention paid to the voices of low-wage, frontline workers in less-high-profile sectors—especially people of color and women—who have borne the brunt of recent wage cuts, furloughs, and layoffs. During the pandemic, we’ve seen some business leaders embrace their responsibility to workers by expanding benefits such as paid leave and sick days. Others have created emergency relief funds to help workers cover unexpected expenses. These are good steps, but there is no better way to empower frontline workers than by strengthening their right to organize and bargain collectively.
That could begin by encouraging the Biden administration to make reform-minded appointments to the National Labor Relations Board. Many CEOs may be skeptical of embracing new rules making it easier for workers to unionize, but this issue is at the heart of stakeholder capitalism. And there are good reasons for business leaders to give labor policy a fresh look. For example, President-elect Biden wants to explore expanded sectoral bargaining, which would allow unions to bargain with an entire industry rather than individual companies.
If unions can win concessions from whole sectors on increased wages or benefits—or if governments do it by legislation—then values-driven companies that pursue high-road labor practices won’t be at a competitive disadvantage to others that exploit and shortchange workers. The politics are also changing: there is a growing movement among conservatives such as Senator Marco Rubio (R-FL) and Oren Cass, executive director of the think tank American Compass, to question old Republican assumptions and take a fresh look at new approaches to empower workers, including sectoral bargaining. If CEOs throw their weight behind these proposals, they could help build a new cross-partisan consensus.
The test for CEOs who want to be seen as champions of stakeholder capitalism should be advocating for making it the law of the land.”
No one is expecting groups such as the Business Roundtable to back every idea from Senator Warren and other progressives, but there is a surprising amount of common ground on which to build a stronger future for stakeholder capitalism. And it would be a mistake to believe that, with the Biden administration leading the way on challenges such as climate change and income inequality, the private sector can afford to step back. In the post-Trump era, expectations among employees, customers, and investors for companies to live their values will only rise.
CEOs don’t have to wait for Inauguration Day to get started. The heads of General Motors, Microsoft, Target, and Gap have already met with Biden along with key labor leaders, a positive sign for future collaboration. Groups such as Ceres that coordinate lobbying efforts on specific issues can help carry these conversations forward and drill down on policy. CEOs should also direct their in-house government relations teams to engage directly with the new administration and Congress.
This behind-the-scenes work is necessary but not sufficient. It’s also important for business leaders to use their platforms to publicly back specific reforms. Just as it’s no longer enough to say you care about climate change if you’re not prepared to back bold national policies to curb emissions, the test for CEOs who want to be seen as champions of stakeholder capitalism should be advocating for making it the law of the land.
If business leaders view the ascendance of progressive policymakers focused on deep structural problems in the economy not as a threat but as an opportunity, they can work together on a wide range of reforms that make it easier to live their values and will pay dividends for years to come.
Corey Ciorciari is senior vice president for policy at Evergreen Strategy Group. He previously served as a policy adviser to Senator Kamala Harris and former Secretary of State Hillary Clinton.
Nick Merrill cofounded Evergreen Strategy Group. He previously was a senior adviser and traveling press secretary to Secretary Clinton.
Dan Schwerin cofounded Evergreen Strategy Group and was a longtime policy adviser and speechwriter for Secretary Clinton.