Abstract
The 2019 Business Roundtable Statement on the Purpose of a Corporation, endorsed by 183 CEOs of major U.S. companies, is not such a dramatic break from the past, but rather the next step in a steady retreat from a purely financial approach and an evolution to embrace a stakeholder approach, which is now gaining more and more lip service. The major purpose of this paper is to analyze this Business Roundtable Statement and relate it to three major corporate governance issues: CEO pay, non-financial performance metrics, and sustainability reporting. Then the paper introduces the Commonsense Corporate Governance Principles, which were initially published in 2016 and updated with Version 2.0 in 2018, sponsored by 21 CEOs of major U.S. companies. These Principles provide significant guidance and recommendations for corporations, boards of directors, shareholders, and other stakeholders to follow if they want to create an environment-friendly to meet the fundamental commitments in the Business Roundtable Statement. Accordingly, the major sections of this paper are introduction, CEO pay issues, non-financial performance metrics, sustainability reporting, corporate governance impacts, key points in both versions of the Commonsense Principles, key changes in the Commonsense Principles 2.0, discussion, and conclusions.
Highlights
On August 19, 2019, the Business Roundtable (BR), representing the most powerful Chief Executive Officers (CEOs) in the United States, issued a 300word Statement on the Purpose of a Corporation.Since 1978, BR has periodically issued Principles of Corporate Governance
An August 2019 study by the Economic Policy Institute found that CEO compensation had grown 940 percent since 1978 while typical worker compensation had risen just 12 percent over that same period
Following the corporate governance guidance and recommendations above does not guarantee that a company will meet the commitments in the Business Roundtable Statement
Summary
On August 19, 2019, the Business Roundtable (BR), representing the most powerful Chief Executive Officers (CEOs) in the United States, issued a 300word Statement on the Purpose of a Corporation.Since 1978, BR has periodically issued Principles of Corporate Governance. Since 1997, each version of the document has endorsed principles of shareholder primacy, i.e., that corporations exist principally to serve shareholders. This new Statement supersedes previous statements and outlines a modern standard for corporate responsibility. Each of our stakeholders is essential and we commit to deliver value to all of them, for the future success of our companies, our communities, and our country” (BR, 2019a). This new Statement includes signatures by 183 of the 192 current CEO members of the BR
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