Has stakeholder capitalism really replaced shareholder primacy?

By Hugues Letourneau, Responsible Investment Leadership Manager

2019 is the year when stakeholder capitalism replaced shareholder primacy, or at least, this is what the US Business Roundtable (BR) would have us believe. In August, the US association published a statement on the purpose of the corporation which states that the signatories, which include the CEOs of the largest companies in America, “share a fundamental commitment to all of our stakeholders.” The stakeholders listed included, in order of appearance, customers, employees, suppliers, communities and shareholders. The statement garnered media attention because it was marked a departure from the association’s previous operating principle: that corporations existed principally to serve their shareholders. This central tenet of US capitalism grew out of the Milton Friedman Shareholder value doctrine, a doctrine which stipulated the following: “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game”

While it will take time to evaluate whether statement signatories committed to change, it is already possible to evaluate whether top corporate executives changed their interaction with the financial community. To do so, SHARE reviewed the first quarterly earnings release phone calls held after the publication of the letter by companies that have signed the statement and with whom we are engaging: JP Morgan, Amazon and Wal-Mart.

On those quarterly calls, financial analysts who issue buy/sell/hold recommendations on company stock get to ask questions to the company’s top corporate officers. Importantly, analysts on these phone calls do not represent direct shareholders in companies but their questions to corporate management have had an important role in shaping and reinforcing the notion that investors (and shareholders) are guided by quarterly profits. In many ways, this is as close as it gets to a live demonstration of shareholder primacy.

At JP Morgan, in response to a direct question on the implications of the statement, CEO Jamie Dimon argued that his decision-making matrix was already stakeholder focussed and that the statement merely reflected the current reality. “The BR didn’t get rid of shareholder value,” he said. “A lot of the world looked at shareholder value, and they heard rapacious profit-seeking, whereas most CEOs are thinking pretty long-term, building people, taking care of their employees and customers”.

At, the CFO and director of investor relations made no mention of the BR statement nor were they asked any questions by the financial analysts that cover the company. In terms of attention to the stakeholder groups listed in the BR statement, “customers” were mentioned 24 times on the phone against 10 mentions of “people” and “talent.” There was very little insight as to how the company values its 750,000 global workforce, only a mention that most of the 100,000 new hires in the 3rd quarter were for warehouse and transport roles. These tend to be lower wage and more accident-prone occupations.

At Walmart, there was no direct mention of the BR statement. The company did point to its commitment to stakeholders: “It has become our experience that we can create shared value for customers, associates, shareholders, communities and suppliers by thinking holistically.” However, it also suggested that it would not be changing the way it prioritises stakeholders: “We’ll deliver that without changing the purpose and values of this company.” The company also pointed to an application that its employees now use “to do their job more efficiently, which means they’re happier and more productive.” Nonetheless, customers received 84 mentions against 17 mentions of “associates” (Walmart employees) during the phone call, despite being the US company with the largest global workforce (2.2 million).

The publication of the statement undoubtedly opens a door for responsible investors to hold companies accountable to a stakeholder model. However, based on the first quarterly earnings phone calls held after the publication of the US Business Roundtable Statement, there is no suggestion that signatories envisioned a change of course in how they operate their businesses. Indeed, the Amazon, Walmart and JP Morgan phone calls advanced a belief that they are already doing and delivering on what is in the statement – SHARE believes otherwise!

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