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Seeing Other People: The Business Roundtable Reconsiders ‘Shareholders First’ Doctrine

V&E Corporate Governance Update, September 5, 2019

In mid-August, the Business Roundtable released a new Statement on the Purpose of a Corporation, signed 181 CEOs of the top U.S. companies, including the likes of Jeff Bezos, Larry Fink, Lachlan Murdoch and Jamie Dimon. The Statement provides that

Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance that include language on the purpose of a corporation. Each version of that document issued since 1997 has stated that corporations exist principally to serve their shareholders. It has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are inseparable.

The Statement goes on to discuss these CEOs’ and their companies’ commitment to delivering value to customers, investing in employees, dealing fairly and ethically with suppliers and supporting the communities in which they work, as well as generating long-term value for shareholders. The Statement echoes Larry Fink’s letter to CEOs earlier this year, in which BlackRock’s Chairman and CEO stated that “[p]rofits are essential if a company is to effectively serve all of its stakeholders over time – not only shareholders, but also employees, customers, and communities.”

The boldness of the Statement cannot be underestimated, however it also stops short of suggesting that the corporation may consider interests other than those of shareholders if the interests of various stakeholders diverge. In other words, it is fine for a company to consider the interests of customers, employees, suppliers and communities provided those interests also serve the long-term interests of its shareholders. However, the shift from an inward “board-focused governance” — as a reminder, the 2012 Business Roundtable principles of corporate governance focused on governance matters like independent chairs, majority voting, risk oversight and succession planning — to an outward corporate responsibility focus is noteworthy.

Will the Statement’s positions adopted by the CEOs of top U.S. companies result in meaningful change in how corporations engage with key stakeholders? Well, shortly before Jeff Bezos signed the Statement, Amazon received twelve shareholder proposals for its 2019 annual shareholders’ meeting that were included in its proxy statement, including proposals regarding products allegedly promoting bigotry or hate crimes, sexual harassment, climate change, food waste, board diversity, gender pay equity and the integration of ESG metrics into executive compensation. The Amazon board recommended “against” all shareholder proposals.

Find more related articles in our Developments in Governance and Disclosure: Summer 2019 report.

Visit our website to learn more about V&E’s Corporate Governance practice. For more information, please contact Vinson & Elkins lawyers Gillian Hobson, Robert Kimball, David Oelman, or Sarah Fortt.


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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.