Emerging Markets Law

Business Roundtable Endorses Corporate Stakeholder Duties

business rountable meeting with world map in background

The Business Roundtable, a who’s who of corporate and legal business leaders, issued a statement endorsing the idea that corporate boards should not only serve their shareholders but should also make decisions to benefit all of the “stakeholders” of the corporation.

The Business Roundtable claims to represent “chief executive officers of America’s leading companies.” These are large corporations that include companies like JPMorgan Chase, General Motors, Oracle, Johnson & Johnson and other large enterprises. The latest statement reflects a growing trend in academic circles that asks corporations to not pursue shareholder value as the only goal of the corporation, but to also pursue values aimed at employees, customers, communities and others that have a “stake” in the corporate enterprise.

A favorable point of view would argue that expanding the corporation’s mission to include value-creation for stakeholders will empower corporate boards to have a more beneficent and pro-consumer view of their charge. Corporate boards will be asked to consider the wider employee and community-focused impacts of their decisions.

A more skeptical view, however, might suggest that asking corporate boards to consider the vague concept of “stakeholder values” merely opens the door to increased litigation and corporate virtue-signaling.

Traditionally, corporate board members were charged with pursuing shareholder value at risk of personal liability. A board member who voted on a corporate decision in a way that lost shareholder value might be liable, in certain situations, unless the board member could demonstrate that the decision was intended, after due consideration of the topic and in good faith, to be one that would benefit shareholders in the long run.

If, however, the corporate board member is supposed to have a divided loyalty between shareholders, employees, customers and the community at large, how is the corporate board member supposed to reconcile those values when they are in conflict? For example, if the board must decide between maintaining an unprofitable plan (which would be bad for shareholders) or closing the unprofitable plant (which would be bad for employees) then which bad alternative is the right choice?

Statements that encourage corporate board members to consider the wider community impact of their decisions might be laudable as a matter of public relations, but can very quickly increase the risk of litigation and personal liability. Attorneys who advise corporate boards should monitor this trend with an eye towards the potential for future litigation.

Stay Connected

Subscribe to blog updates via email

Contributors