Two years ago, in the before times—before the pandemic, before a painful period of racially charged protests and clashes, before the January 6 attack on the Capitol—a group of nearly 200 chief executives, all members of the Business Roundtable, signed the “Statement on the Purpose of a Corporation” (the Statement), making explicit that the United States’ largest corporations have a “fundamental commitment” to “all stakeholders,” including customers, employees, suppliers, communities, and shareholders. The Statement sought to address the ever-increasing tensions between executives and employees, between the boardroom and customers. At the time, we wrote that the Business Roundtable’s Statement was notable “for its lack of policy statements, promises, or ideals” and that real change required a shift from aspiration to action. Two years later, is there evidence that the required shift has been made?
Diversity in Leadership
Pressure from a variety of sources—legal, regulatory, shareholder, and others—have forced change in the boardroom. Since 2018, a dozen states have introduced or passed legislation or resolutions aimed at expanding board diversity. Asset managers like BlackRock and State Street continue to pressure companies to report on and improve board diversity. In spring 2021, Institutional Shareholder Services (ISS) announced its research reports would start to “call out” companies that “lack racial and ethnic diversity.” And in a step toward parity, NASDAQ just implemented a rule that will require companies listed on the exchange to report board diversity and to have on their board (or explain why they don’t) at least one person who identifies as a woman and one person who identifies as an underrepresented minority or LGBTQ.
These external pressures have led to meaningful changes in the boardroom. In the five-month period following the death of George Floyd, which in turn set off months of protests over systemic racism and police brutality, companies in the Russell 3000 named 130 Black directors, according to data compiled by Board Prospects. Last month, Spencer Stuart issued its annual report on board diversity and found that of the 456 new independent directors added to the boards of S&P 500-listed companies in the past year, nearly three quarters (72%) were either women or people of color. Broken down further, a record 47% of new independent directors were Black, Asian, or Latinx—compared to 22% in 2020, and 14% a decade ago.
These gains have not, however, spread as quickly to the C-Suite. Latinx executives represented a paltry 3.4% of Fortune 500 CEOs in 2020, while Black executives led 1% of the same set of companies. Women currently lead only 8.2% of Fortune 500 companies (though that represents a 75% increase since 2018).
In contrast, some company boards also approved increased compensation for their CEOs in the midst of the pandemic, despite the fact they missed their metrics and instituted layoffs. Many shareholders were not happy with this decision. In the first half of 2021, 37 Russell 3000 companies (3.7%) failed Say on Pay (up from 2.2% last year).
The Business Roundtable’s Statement also committed to a “healthy environment,” an issue that has continued to gain traction as global temperatures rise and the effects of climate change become ever more apparent in our day-to-day lives. This was evident in the proxy fight of the season—Engine Number 1 v. Exxon Mobil—in which the six-month-old startup fund managed to get three of its nominees elected to the fuel giant’s board. Even though the fund’s arguments were more pragmatic than ideological—disappointing returns in the last decade—its solutions centered around a focus on energy alternatives in a rapidly decarbonizing world. Some companies may be continuing to cynically kick the climate can down the road in favor of today’s bottom line, as The New York Times pointed out in a recent examination of select automakers’ aggressive opposition to electric vehicles, making a decision to prioritize market share over the environment. However, their position may be more nuanced, particularly as a successful rollout of electric vehicles relies on the development of an infrastructure that can support them.
Corporate Political Action
Finally, the call for transparency and accountability is gaining steam with respect to political spending. Over the past three years, the Center for Political Accountability (the Center) has pushed political spending disclosure proposals. The number of these proposals that have passed successfully has steadily increased over the past three years, from 36.4% in 2019 to 41.9% in 2020 to 48.1% in the first half of 2021. During the first half of 2021, the Center submitted 30 proposals. Of the 12 that went to a vote, six received majority votes, including two at 80% and one at 68%.
Some changes, however, are short-lived. In the wake of this year’s Capitol riot, nearly 200 companies committed to reviewing their political contributions, and more than 100 said they would suspend any PAC contributions to the 147 members of Congress who voted against certifying the results of the 2020 election. However, reports filed with the FEC during the first week of July show that a number of these companies have resumed contributions through their PACS or even in some instances directly to lawmakers who vocally opposed certifying the election.
In its press release announcing the Statement, the Business Roundtable made a bold promise about a “modern standard for corporate responsibility.” Indeed, in the ensuing 731 days, there have been some important and meaningful shifts in corporate culture, even in the midst of the Covid-19 pandemic.
American companies are positioned to become the global drivers of this transfiguration, but shifting from statement to action, from piecemeal progress to transformational change, is hard—and will require a methodical set of actions with tangible benchmarks for success, steps that take into account, as promised, “all stakeholders.” Perhaps the next 733 days will get us closer to that goal.