Stakeholder Capitalism Is Back–Is Your Next Earnings Call Ready?

It has been two years since the Business Roundtable announced a new purposeThe statement that “the interests of stakeholders are relevant as a derivative of the duty to stockholders” was recently replaced by leading concepts of “value for customers,” “dealing fairly and ethically with suppliers,” and “supporting the communities in which we work.  

Wall street sign

The Business Roundtable’s updated purpose is a bellwether of the change that has taken place since its creation, which began endorsing the core principles of shareholder primacy in the late ‘90s. 

In the ‘70s, Nobel-winning economist Milton Friedman turned the concept of Stakeholder Capitalism on its head by refocusing corporations on shareholder primacy, essentially telling them the only rules of the game were play fair and make profit. 

While it might be easy to criticize Friedman’s approach as being somewhat myopic, it ushered in a new era of corporate governance laws, particularly in the U.S., and gave power to activism by holding accountable those who that were not delivering on the bottom line.  

But the world has changed. When Friedman was writing, I can’t imagine he contemplated a world where anyone could trade shares in a company, and in doing so gain a degree of control, through three clicks on a smartphone standing on a subway platform. 

Which is why, after two decades of influence in explicitly putting shareholders first, the growing atmosphere of widening wealth equality (and a parallel distrust in business), the Business Roundtable changed their statement, which didn’t include the word ‘shareholder’ until the final 50 words of its 300-word statement. 

The question is: so what? 

Cynics have argued the updated purpose statement, signed by 181 CEOs of America’s largest corporations, was just a PR stunt, piggybacking off the environment, social and governence (ESG) trend that gained significant impetus over the last five years.  

Notable academics Lucian A. Bebchuk and Roberto Tallarita of the Harvard Law School’s Program on Corporate Governance recently published a second paper on the subject. In it, they claim that the statement did not represent any meaningful change or commitment by corporations, stating as their evidence a lack in change of corporate documents that would have needed revision to meet the purpose statement’s aims.  

If they’re simply looking at the paperwork, they may have a point, but that doesn’t mean that the last two years have not witnessed a more evolved form of capitalism. 

The recent earnings season has shown us that many, if not most, companies are rethinking and reframing the way they think about generating value, and how they communicate it to internal and external audiences. 

Companies across sectors have faced tough questions this season from investors, analysts, and journalists alike on how they’re dealing with the big issues of the pandemic, inflation, supply chain, tight labor markets, and customer and employee health.  

Across the board, the most compelling outlooks have come from senior leaders who have taken their head out of the numbers. Instead, they leaned into earnings calls and interviews to proactively talk about the bigger picture of their mission, vision and values, contextualizing their responses while dealing head-on with the difficult questions. 

Meanwhile, others have faced brand new audiences this season. While #AMCTOTHEMOON may elicit an eyeroll from many, AMC’s CEO Adam Aaron actively welcomed the expanded audience to the Q2 earnings call. Striking a tone that met this new dynamic, he made a number of announcements that directly addressed the desires of new investors, such as new payment options and increased content offerings. The stock rose 4% in extended trading.  

So, what do businesses, and especially their communications teams, need to know? 

Purpose Matters 

  • First, although the pandemic coincides with many of these macro-economic issues, they are not transitory. Issues such as the current labor shortage and war on talent may be a short-term issue, but if evidence builds up that workers are empowered to make greater demands of their employers than before, the importance of the shift will be profound in the long term.  

Similarly, ESG issues are front of mind for investors, notwithstanding that a lot of short-term planning leaves little time for sustainability goals. According to figures reported by Bloomberg, Corporate Science-Based Targets commitments, i.e. those made in conjunction with the initiative of the same name to line up with Paris Agreement targets, have already set an annual record, with 590 companies now aligning their emissions trajectory with the global agreement. Investors are taking note, with BlackRock achieving the largest ETF launch to date, raising $1.25 billion for its new US Carbon Transition Readiness Fund. 

The issues matter, and they are going to continue to matter.  As a result, financial communications need to advance in tandem with the evolved form of capitalism we’re seeing in the modern age.  

Diversified Audiences  

  • The second point is that audiences are diversifying. You can make memes about Robinhood stock trading all you want, but with their recent $140 million acquisition of Say Technologies – a communications platform that allows even small shareholders to pose questions to the companies in which they invest – you can bet retail investor questions are going to be much broader than forecasting EBITDA. 

This is where we come full circle to the Business Roundtable:  they were clearly on to something with their updated purpose statement.  

Recent polling data from JUST Capital showed that although 65% of respondents believe companies are doing well at promoting an economy that benefits all Americans, the majority believe that companies are run mainly for the benefit of shareholders. Most respondents also stated that capitalism needs to evolve further if companies are to ensure the greater good of society. 

Pay equity isn’t just an issue for HR teams. Social justice isn’t just an issue for D&I committees. The environment isn’t just an issue for sustainability officers.  

This earnings season has shown us now more than ever that performance is only celebrated if it’s reinforced by a clear, compelling vision of the way executives intend to run their companies.  

The corporate scorecard has been upgraded; maybe your company’s earnings transcript should too. 

Benjamin leads financial communications for North America at Ketchum. He brings more than 15 years’ experience providing strategic counsel, media relations, financial communications and strategy across technology, retail, energy, construction, financial and professional services, education, and non-profit.

He has advised on some of the world’s largest and most complex transactions including global mergers and acquisitions, divestitures, IPOs, earnings, and fund launches, with significant experience in investment banking, private equity, venture capital and fund management, including shareholder activism.