The argument over shifting from “shareholder” to “stakeholder” corporate governance has taken an unexpected turn. Until now, debate has focused on whether the big multi-national companies professing to be recent converts to stakeholderism are simply paying lip service to the idea.

But academic Joel Bakan now argues that “good corporations” that claim to work for stakeholders over just shareholders are “bad for democracy”.

Bakan, a professor at the University of British Columbia, captures his argument in an article for the Harvard Law School governance blog and in a recently published book and film, New Corporation: How “Good” Corporations are bad for Democracy.

He claims that big multinationals—including members of the Business Roundtable, a club for top US chief executives from companies like JPMorgan Chase, Apple and Amazon—who claim they are working in the interests of workers, communities and the environment, have “not actually changed, at least not in terms of their legal mandates”. Corporate law still requires these companies work in favour of shareholders.

But, Bakan writes, companies use the cover of being stakeholder companies to “push governments to free them from regulations designed to protect public interests and citizens’ well-being, claiming they can be trusted to regulate themselves.”

He adds that there is a “widely held view among new corporation advocates that ‘good’ corporations deserve greater domain and democratic governments less”. These companies, he says, “say they care about social and environmental values while, at the same time, lobbying against and strategically avoiding taxes that governments rely upon to operationalise those values.”

‘Not a meaningful commitment’

The Business Roundtable pledged in 2019 that its members would, in future, shift their focus to all stakeholders with a statement that has since become viewed as a seminal moment in corporate governance. The statement said: “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

But Roundtable members have attracted much criticism, accused of failing to live the values they espoused in the 2019 pledge. Investors have also faced claims they have failed to hold Roundtable members to account based on the statement.

But perhaps the most telling critique has come from a pair of Harvard professors and research looking at which Roundtable members have changed their constitutions or boardroom guidelines to reflect their new commitment. Lucian Bebchuk and Roberto Tallarita conclude Roundtable statements seem to have been “for show”.

They write: “Overall our findings support the view that the BRT (Roundtable) statement did not represent a meaningful commitment and was not planned or expected to bring about meaningful improvements in the treatment of stakeholders.”

Profit and purpose

Observers in the UK have paid close attention to Roundtable companies. Amin Aboushagor, a governance expert formerly with the Institute of Directors, says: “While many of those who signed up to the pledge may genuinely want to act on its promises, other pledgees may only be paying lip-service for the sake of convenience. Ultimately, so long as the pursuit of profit is put before a meaningful purpose that benefits society, nothing will change.”

Elsewhere, Chris Turner, a director at Better Business Act, a campaign to rewrite section 172 of the UK’s Companies Act, says Roundtable members have been “disappointing”.

“Even those that have taken positive steps aren’t moving at the pace required given the social and environmental challenges we face,” he says. “Lobbying undertaken by companies who see their role as simply enriching shareholders has led to poor outcomes for citizens, employees, consumers and the environment. In part, this is because companies’ legal mandates have not kept pace with their public pronouncements.”

The Business Roundtable did not respond to a request for comment.