The US debate over the future of capitalism continues to flare with a proposal for new legislation that would shift companies away from “shareholder primacy” and into the realm of “stakeholder governance”.

A newly published white paper, from non-profit organisations B Lab and The Shareholder Commons, proposes the US push through a Stakeholder Capitalism Act containing measures to give both company directors and investors revised fiduciary duties.

In an article for the Harvard Law School governance blog, the paper’s authors argue that there is a need for urgent reform while insisting the best elements of capitalism must be retained.

They say their policy measures are “designed to maintain the market mechanism inherent in profit-seeking but correct market failures that allow for profits derived by extracting value from common resources and communities, including workers.”

Their legal reforms, they say, consist of “revised fiduciary considerations that extend beyond responsibility for financial return…”

Among the key changes, the writers call for reforms that give investors a requirement to consider the “economic, social and environmental” implications of their decisions.

The white paper also calls on investors to report on how they have met these new responsibilities.

Directors’ duties

Company directors also face new responsibilities under the proposals. The white paper calls for a refreshed director’s duty to account for decision-making on financial returns but also the “viability of the social, natural and political systems”. There is also a proposal that companies report on their “stakeholder impact”.

Some of these changes may be familiar to UK readers. Here, the Financial Reporting Council has published a new stewardship code requiring investors report not just on their sustainability policies but also the outcomes.

Meanwhile, the FRC is working on substantial change to corporate reporting with a proposal to introduce a new public interest report, which would see companies report on how their activities impact the environment, communities, customers and suppliers.

‘Focused on shareholder value’

In the US, the debate around stakeholderism, or “purposeful” business, has been ongoing for some time. But in August last year the discussion was jet-fuelled when the Business Roundtable—a club for corporate leaders at some of the largest US corporates—declared its members would become “purpose-driven” corporates.

A year on and a blizzard of articles have poured cold water on the idea that anything is different.

Perhaps the most notable comes from academics Lucian Bebchuk and Roberto Tallarita, who say they found little evidence of change in Roundtable members.

“Notwithstanding statements to the contrary, corporate leaders are generally still focused on shareholder value. They can be expected to protect other stakeholders only to the extent that doing so would not hurt share value,” they write in the Wall Street Journal.

Some members, among them BlackRock, the world’s biggest fund manager, have faced intense pressure to fully explain how they will implement the intent behind the Roundtable’s statement of purpose.

If a Stakeholder Capitalism Act is to gain traction the drafters may will need more support from lawmakers. The coming US election may determine how much they receive.