On August 19, the Business Roundtable released a statement, signed by 181 CEOs, that shifted the group’s position from shareholder primacy to a stakeholder model. That shift turned up the heat on a long-simmering debate between the two competing schools of thought.
In the postwar era — as part of the post New Deal social compact — American corporations operated under the stakeholder model, balancing employee and community welfare with shareholder profit demands. This was also the era in which the union workforce peaked.
Then, in the 1970s and 1980s, shareholders began demanding greater returns from the bloated corporations of the day, especially the diversified conglomerates. This shareholder revolution established the primacy of shareholder interests.
CEOs shifted their focus to driving shareholder value, powering the economic growth and dynamism of the 1980s. Now, after a generation, the shareholder primacy model is being challenged by the stakeholder model.
There were three basic reactions to the Roundtable statement that map closely to the historic evolution of this debate.
The first was support: It’s a significant and welcome shift in capitalism. The second, opposition. Corporations shouldn’t move beyond shareholder primacy. The third reaction was skepticism; the statement was simply an attempt to defend corporate capitalism ahead of the 2020 elections.
Brunswick surveyed 1041 American adults to gauge awareness of the announcement, to understand American’s reactions, and to test the public’s view of the debate. We learned 10 things:
Timing is everything. With the emerging skepticism about the market among young voters and Democrats, a heavily contested Democratic primary, and a possibly decelerating economy, the Roundtable is clearly adjusting to shifting popular opinion and defending the free market.
We asked, "How well do publicly traded companies serve the needs of society as a whole." While 51% of Republicans answered "very well" or "fairly well," only 34% of Democratic voters responded positively. In fact, 66% of Democrats said "not well at all" or "not very well." The statement is clearly pointed at this blue wall of skepticism.
Public awareness is low. Only 23% of Americans were aware of the statement, compared to the 60% who knew about the President’s statements about buying Greenland or the 60% following the stock market’s reaction to a potential recession.
Media coverage did not break through to the general public or even to opinion elites. Only 39% of opinion elites are aware of the statement.
But, the reaction was positive. In contrast to some media coverage, 80% of the Americans aware of the statement had a positive opinion about it. Only 6% had a negative reaction. This highlights the difference between media coverage of an event and the public’s reaction. It also suggests the shift meshes with contemporary public opinion.
It created a positive image lift. Americans aware of the statement had an improved perception of the companies and the CEOs that signed it. This is critically important during an election season where corporate America will come under heavy attack.
This isn’t partisan. There was no difference between the reactions of Democrats, Republicans, Clinton voters and Trump voters. This issue is not yet polarized by party.
It’s a generational shift. The Roundtable statement is consistent with a historic generational shift toward corporate activism. In polling conducted in May, we found only around one quarter of the Silent Generation and Boomers unequivocally believed corporations should "take action on important issues in American life" but 40% of GenX, 41% of Millennials and 40% of GenZ unequivocally supported active corporate engagement.
People are taking the CEOs at their word. We pressure tested the perceived sincerity of the CEO signatories in a "forced choice" question; 68% of Americans believe the signatories are sincere, compared to the 32% who believed CEOs are just trying to "sound like they are doing the right thing."
The public is giving business leaders the benefit of the doubt. This may be an opportunity for corporate America to show they are part of the solution, not part of the problem.
The stakeholder model is supreme. We pressure tested the stakeholder model against a range of arguments for shareholder primacy, using a "forced choice" question design common in political message testing.
In a messaged, head-to-head contest, shareholder primacy could only achieve a maximum of 26% support vs the stakeholder model. Even a majority of active investors sided with the stakeholder model (65%) over shareholder primacy (35%). Shareholder groups and Wall Street may support shareholder primacy, but a clear majority backs the stakeholder model.
Still, people remain deeply skeptical of CEOs. When asked how well corporations serve the needs of various groups, the public believes corporations are extremely good at serving the needs of CEOs but poor at serving the needs of "society as a whole."
In fact, the public believes corporations are much better at serving CEOs than they are at serving their shareholders. The onus is on CEOs to deliver.
Investing in employees is very popular. We tested all the solutions mentioned in the Roundtable statement. The action that garnered the greatest support was investing in employee training and education. It was a bipartisan winner, suggesting it is an initiative corporate America can take to build public support and defend their license to operate.
This makes sense, as we know from other research that Americans clearly understand that they now operate in a knowledge economy and must upgrade their skills as technology and automation accelerate.
Based on this research, the Roundtable strategy appears to be a reaction to three emerging trends:
First, there are increasing social expectations for corporations driven largely by Millennials, but also by GenX and GenZ. Second, there is a generational shift in attitudes toward the market. A recent Gallup poll found that among Democratic voters socialism was viewed more positively than capitalism, a trend driven by younger voters.
The Roundtable statement can be interpreted as an acknowledgment that the winds may soon be blowing against corporations and corporate capitalism.
Finally, the large Democratic primary field is supporting a leftward shift in the party, as candidates take bolder positions trying to stand out. As a moderate, Joe Biden’s front runner status appears less certain, especially among voters 34 and under, where he trails both Sanders and Warren badly according to a recent Quinnipiac survey.
The Economist nailed it in a recent editorial.
"The CEOs’ motives are partly tactical. They hope to pre-empt attacks on big business from the
left of the Democratic Party. But the shift is also part of an upheaval in attitudes towards
business happening on both sides of the Atlantic. Younger staff want to work for firms that take
a stand on the moral and political questions of the day."
They say that demography is drama in slow motion, and we now have a snapshot of that drama at the end of Summer 2019.
Robert Moran is a partner at the Brunswick Group and the global head of Brunswick Insight.
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