For Want of a Tool the Business Roundtable may Lose the Kingdom
Last week, the Wall Street Journal celebrated the one-year anniversary of the Business Roundtable (BRT) statement that terminated its longtime devotion to shareholder primacy and commenced its commitment to stakeholder capitalism by inviting Joshua Bolten, CEO of BRT, to declare total victory. According to Bolten, it was “a good year for stakeholder capitalism,” the “Business Roundtable CEOs are living up to their commitments,” and prevailing against “quick-hit, short-term capitalism.”
His saccharine story of the triumph of light over darkness in only one year would have been more impactful, at least to me, if there had been one scintilla of data or evidence to back up his claims. There wasn’t, which left me shaking my head about WSJ editorial standards. I have written a lot of editorials, and whenever I do, I am faced with a barrage of questions, through round and round of editing, about the facts behind and evidence for anything that I argue in the editorial. So why on earth does Bolten get a complete free pass to lavish nonstop praise on his employer from the pages of the WSJ without providing data to back his claims?
And how does it square with the editorial on the same WSJ page two weeks earlier by Harvard Law School governance expert Lucien Bebchuk? He pointed out that in his survey of BRT signatory CEOs, a mere 2% of respondents sought the approval of their board of directors to engage in this dramatically new way of running their corporation. The remaining 98%, he concluded, didn’t think that the commitments were consequential enough to bother discussing them with the board. With this real data in hand, Bebchuk concluded that “stakeholder capitalism seems mainly for show.”
When it was issued, I truly welcomed the BRT statement. While I think that the Bolten piece is embarrassing, I also think that Bebchuk’s “for show” criticism is overly harsh because it implies intent to deceive the public. I have worked with a number of BRT CEOs and such cynical behavior would be inconsistent with my observation of them. However, my view is unchanged from a year ago when I predicted that despite BRT’s commitment, its members wouldn’t behave in this new way unless they had access to new tools that would help them to do so.
This is because a general rule in life is that when we don’t have a tool for doing something, we just don’t do the thing. For example, before there was a tool for proving that you — not somebody else — owned a piece of land, you didn’t invest meaningfully in making improvements on such land, like building a house or a factory. Then countries developed a tool we have come to call a land registry system. Only then did real estate investments and values soar — except in those countries that still don’t have functioning land registry systems. In business, options trading was small potatoes until Fischer Black and Myron Scholes created a tool for valuing options — the Black-Scholes Option Pricing Theorem — and then people started trading options in virtually untold volumes. Companies didn’t advertise online until Google provided a tool for figuring out, by measuring clicks, whether it made a whit of difference or not. Pension funds didn’t invest in sustainable companies until they had a tool for rating a company’s ESG performance.
In my experience, the central importance of creating enabling tools is not well enough appreciated by those who advocate and/or promise change. Any doctor who tells her patient that he needs to lose 20 pounds but doesn’t provide a set of tools to help the patient achieve the goal is going to be sorely disappointed with the lack of progress at the next appointment. Any environmental advocate who encourages investors to invest only in environmentally responsible companies is going to be disappointed in investors’ behavior until such time as the investors are provided with a tool for distinguishing between environmentally responsible and irresponsible companies.
So, while I wouldn’t accuse the BRT and its members of being deceitful, I would say that BRT leadership hasn’t been very responsible about their commitment. Collectively, they committed to something they didn’t have the tools to carry out and did nothing (at least of which I am aware) to build the required tools. That is why Bolten faced a situation by which he lacked any compelling data to which to point in his celebratory editorial.
Fortunately for BRT, others are doing its work for it. For example, MIT/Sloan professor Zeynep Ton has done compelling research on the preponderance of bad jobs in America and, more importantly, on tools for addressing the challenge. She points out that even before COVID, 32% of the US workforce, accounting for 46.5 million jobs, are in occupations with a median wage of less than $15/hour. For a sole breadwinner, that is not a living wage even if the person is able to work 40 hours/week at that wage — and many in those occupations aren’t offered 40 hours/week by their employers. But in addition to identifying the problem, she showed in her 2014 book, The Good Jobs Strategy, how companies can prosper by making sure their workers’ jobs are high-quality. More recently, she created the Good Jobs Institute (of which I am Chair), which provides a toolbox for corporations to transform bad jobs into good jobs while prospering financially.
Others have been developing tools that could also help BRT members live up to their commitments. The Science-Based Targets Initiative provides a toolbox for helping corporations commit to progress on their contribution to environmental sustainability. B-Lab has provided the B-Corporation charter as a tool for helping corporations govern themselves in a more holistic fashion, consistent with the BRT statement. Eric Ries has created the Long Term Stock Exchange (with which I am also involved) to provide a tool for corporations to use to actually overcome the short term focus of the traditional exchanges. I lay out a comprehensive program for corporate executives to follow in my new book, When More is Not Better: Overcoming America’s Obsession with Economic Efficiency. These represent but a few of the tools that are readily and freely available to BRT signatories to actually live up to their commitments — and I am confident some signatories already are.
Had BRT really wanted to show broader and elevated responsibility for bringing about stakeholder capitalism, it would have both created and issued tools for its members to carry out the commitments in its lofty statement. It didn’t. Fortunately, though with only a fraction of BRT’s collective resources, others have done the job for the BRT. It is time for BRT and its members to more consistently and comprehensively pick up the tools and get to work. At a minimum, BRT should endorse the use of a selection of these tools for its members rather than sitting there and hoping good things happen — because we all know that hope is not a strategy. Otherwise, the BRT commitment is likely to look hollower with each passing day, and in this social/political environmental that would be dangerous.