In an Op-Ed from the Wall Street Journal (full text here, may have to open in Incognito), Warren argues:
As recently as 1981, the Business Roundtable—which represents large U.S. companies—stated that corporations “have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy. … By 1997 the Business Roundtable declared that the “principal objective of a business enterprise is to generate economic returns to its owners.”
Retained earnings were once the foundation for long-term investments. But from 1990 to 2015, nonfinancial U.S. companies invested trillions less than projected, funneling earnings to shareholders instead. This underinvestment handcuffs U.S. enterprise and bestows an advantage on foreign competitors.
Before 1980, top CEOs were rarely compensated in equity. Today it accounts for 62% of their pay. Many executives receive additional company shares as a reward for producing short-term share-price increases. This feedback loop has sent CEO pay skyrocketing.
She has introduced a bill, the Accountable Capitalism Act, that would:
- Corporations with more than $1 billion in annual revenue would be required to get a federal corporate charter. The new charter requires corporate directors to consider the interests of all major corporate stakeholders—not only shareholders—in company decisions.
- Employees would elect at least 40% of directors.
- At least 75% of directors and shareholders would need to approve before a corporation could make any political expenditures.
- Directors and officers would not be allowed to sell company shares within five years of receiving them—or within three years of a company stock buyback.
I’m curious to hear your thoughts–should companies be responsible to more than their shareholders? How do you explain the change in business objective defined by the Business Roundtable? It seems to be in start contrast to each other. What could the potential impact be should this ever come to light? Vox estimates that trillions in stock wealth could disappear overnight.
Look forward to your thoughts.