Corporate chiefs are getting credit from some typically skeptical sources for their decision to abandon decades of a shareholder-first approach to running the biggest American companies.
In a new mission statement organized by the Business Roundtable, leading CEOs on Monday committed to a much wider set of goals, including investing in employees, supporting their communities, and dealing fairly with suppliers.
It marked the first time the CEO forum updated its governing principles since 1997, when it codified a singular dedication to maximizing shareholder value that has come under increasing heat amid rising inequality. And while the new statement, clocking in at a brief 300 words, leaves plenty of room for interpretation, even some harsher critics of multinational corporations’ behavior said it marked a potential sea change for American capitalism.
“It’s almost astonishing,” Robert Hockett, a professor at Cornell Law School who is advising the Democratic presidential campaigns of Sens. Bernie Sanders (Vt.) and Elizabeth Warren (Mass.), told me. “They’re in effect coming right out and saying, ‘We’ve been wrong for the last 20 years.’”
Hockett — who helped the Warren team develop her Accountable Capitalism Act, designed to push CEOs away from a focus on quarterly profits — said there is some reason to be skeptical of the new direction as corporations, increasingly treated like political punching bags, look to improve their image.
But he also thinks at least "some folks in the BRT are recognizing there’s something unsustainable about an economy that’s all about shareholder primacy. It’s a collective action problem, and unless everybody agrees, no one or two firms can profit by doing it. … So it’s probably good politics on their part in addition to good economics.”
According to an account of the backstory by Fortune’s Alan Murray, the Roundtable’s statement came after a column by my colleague Steven Pearlstein in June 2018 caught the eye of BRT Chairman and JPMorgan Chase CEO Jamie Dimon, who launched an internal debate over it. In the column, Pearlstein argued the group’s 1997 statement is “now the source of most of what has gone wrong with American capitalism — from the accounting fraud to the shabby treatment of workers and customers, from the orgy of share buybacks to the never-ending string of unproductive mergers and acquisitions.”
Pearlstein, who has been criticizing the shareholder-first approach for two decades, wrote Monday that the Roundtable’s leadership “deserve lots of credit for initiating this rethink of corporate purpose.”
In a conversation with me on Monday, Pearlstein indicated he’s giving the CEOs the benefit of the doubt. “They all live in dire fear of activist investors. It causes them a great deal of heartburn, and they hate those guys,” he said. “So they need help in saying ‘No.’ Rather than thinking of them of as bad people with bad motives, it’s probably more correct to think of them as reasonably good people in a bad system. They have the power to change the system, but only if they act together.”
Roger Martin — a professor emeritus and former dean of the Rotman School of Management at University of Toronto and another longtime critic of shareholder primacy — said he finds the Roundtable statement “promising."
"Though these kinds of things can be hollow and insignificant, sometimes a simple and clear statement like this can have an outsize impact – which I think of as being the case with Friedman’s famous 1970 NYT magazine article stating that ‘the business of business is business.’ That became a focal point and rallying cry for business leaders. This statement could have a similar positive effort. I like it because it isn’t some long, ponderous essay. Rather, it is simple, clear and to the point.”
But the key, of course, will be taking action, Martin told me in an email, and that won’t be easy. CEOs, he said, “have little practice in following the principles of the new statement.” He recommended the Roundtable “develop a playbook to help their CEO members to take the first steps in making decisions in accordance with the new statement.”
CEOs have offered skeptics plenty of grist in recent years for the argument that big public companies are dodging opportunities to invest in their own workforces rather than cater to the demands of Wall Street. The most obvious example is how corporate chiefs treated the windfall from President Trump’s 2017 tax cut. Companies in the S&P 500 last year boosted their stock buybacks by more than a third, shattering a record. The moves pumped up their own share prices at the expense of raising worker pay or plowing money into the sort of investments in their own businesses that could translate into sustained, longer-term growth.
Lowe’s, the big-box home improvement chain, roughly doubled its buybacks last year, to $10 billion, even as it fired thousands of workers and offered them no severance, CBS News’s Kate Gibson reported last week.
And Roundtable members have shown a capacity for making splashy public commitments to social responsibility without necessarily matching them in action. BlackRock CEO Larry Fink, a signatory to Monday’s statement, last year used his annual letter to shareholders to call for better corporate stewardship. Months later, as other Wall Street titans were backing away from dealings with Saudi Arabia in the wake of Post contributing columnist Jamal Khashoggi’s murder, Fink said his asset management giant would continue to do business with the kingdom. The firm went ahead with opening an office there even after the U.S. intelligence community concluded Saudi leadership was behind the killing.
Others have taken steps to get ahead of the political debate. Walmart, Target and Amazon over the last year have all announced plans to raise their minimum pay (Amazon CEO Jeff Bezos owns The Washington Post). McDonald’s announced in March it would stop lobbying at all levels of government against minimum-wage increases.
“This sort of stuff builds on itself, and it’s the way norms change,” Pearlstein says.
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— White House eyes payroll tax cut. Even as top Trump advisers publicly downplay the risk of recession, Trump and his team are behaving as if the economy is teetering. "Several senior White House officials have begun discussing whether to push for a temporary payroll tax cut as a way to arrest an economic slowdown, three people familiar with the discussions said, revealing growing concerns about the economy among [Trump’s] top economic aides," my colleague Damian Paletta reports.
"The talks are still in their early stages and have included a range of other tax breaks. The officials also have not decided whether to formally push Congress to approve any of these measures, these people said, speaking on the condition of anonymity because they were not authorized to disclose internal discussions. But the White House increasingly is discussing ideas to boost a slowing economy, they said."
- The White House denied any payroll cuts are under discussion: "Even though deliberations about the payroll tax cut were held Monday, the White House released a statement disputing that the idea was actively under 'consideration.'"
- Such cuts could be popular: "Workers pay payroll taxes on income up to $132,900, so cutting the tax has remained a popular idea for many lawmakers, especially Democrats seeking to deliver savings for middle-income earners and not the wealthiest Americans."
- The catch: "... Payroll tax cuts can also add dramatically to the deficit and — depending on how they are designed — pull billions of dollars away from Social Security. The payroll tax cuts during the Obama administration reduced taxes by more than $100 billion each year, but the administration directed revenue to Social Security programs so those initiatives did not lose money. The cuts added to the deficit, however."
- And: The New York Times reported the White House is also considering potentially reversing some of Trump's tariffs, though many are skeptical this will happen.
Trump also called on the Fed to cut interest rates by a full point. WSJ's Rebecca Ballhaus, Andrew Restuccia and Paul Kiernan: "Trump on Monday called for the Federal Reserve to sharply cut interest rates and again criticized the central bank’s chairman for a “horrendous lack of vision,” while reiterating his belief that the U.S. economy is strong.
"The president said in a pair of tweets Monday morning that the Fed should cut its benchmark interest rate by at least a full percentage point and resume its crisis-era program of buying bonds to lower long-term borrowing costs. Such moves would typically be considered only when the economy faces serious peril, which Fed officials don’t believe to be the case. White House officials have said in recent days that they don’t believe the U.S. is headed toward a slowdown."
— Trump administration delays Huawei ban: “The Trump administration agreed Monday to allow some U.S. companies another 90 days to continue doing business with Huawei Technologies Co., a move it said would help small rural telecom carriers dependent on Huawei gear,” the Wall Street Journal’s Katy Stech Ferek and Drew FitzGerald report.
“Monday’s action will most directly affect about 40 mostly rural U.S. cellphone carriers and cable operators that Huawei said it served. The federal government and analysts estimate Huawei hardware makes up less than 1% of equipment used by U.S. telecom networks.”
— Here’s what tariffs will cost you: “The average American household will be down $1,000 per year thanks to the newest round of tariffs on Chinese goods, according to J.P. Morgan,” CNBC’s Maggie Fitzgerald reports. “The firm estimates the average annual tariff cost per household will increase from $600 from the first two rounds of tariffs. The new tariffs are scheduled to begin Sept. 1 and in mid-December.”
- The apparel industry is bracing for the impact of new tariffs, the WSJ's Esther Fung and Inti Pacheco report: "In all, about $33 billion in apparel, shoes and hats are among the items subject to a 10% tariff on Chinese imports beginning Sept. 1, according to a Wall Street Journal analysis of data from the Office of the U.S. Trade Representative and the Census Bureau."
— Social networks say China used fake accounts to target Hong Kong: “Twitter and Facebook said Monday they had taken action against China for using hundreds of fake accounts to sow political discord during the Hong Kong protests, marking the first time the social media giants had identified Beijing directly for spearheading such an operation,” my colleagues Marie C. Baca and Tony Romm report.
“The new takedowns by Facebook and Twitter reflect the extent to which disinformation has become a global scourge, far surpassing the once-secret efforts of Russian agents to stoke social unrest in the United States during the 2016 presidential election.”
Pence says aggression in Hong Kong will damage trade deal prospects. "For the United States to make a deal with China, Beijing needs to honor its commitments, beginning with the commitment China made in 1984 to respect the integrity of Hong Kong's laws through the Sino-British joint declaration," Vice President Pence said Monday during a speech at the Detroit Economic Club, per CNN's Maegan Vasquez. "As the President said yesterday, it would be much harder for us to make a deal if something violent happens in Hong Kong."
Mooch pens Post op-ed about why he was wrong to back Trump: "[Trump’s] online insults directed at me on Monday were predictable after I publicly said that he’s unfit for office. The tenor of his abuse only reinforces my thinking: I can no longer in good conscience support the president’s reelection," Anthony Scaramucci writes.
"This isn’t a Road to Damascus moment; my concerns have been building publicly for a while. And I’m not seeking absolution. I just want to be part of the solution. The negatives of Trump’s demagoguery now clearly outweigh the positives of his leadership, and it is imperative that Americans unite to prevent him from serving another four years in office."
- Why he broke from Trump: "I broke from Trump because not only has his behavior become more erratic and his rhetoric more inflammatory, but also because, like all demagogues, he is incapable of handling constructive criticism. As we lie on the bed of nails Trump has made, it’s often difficult to see how much the paradigm of acceptable conduct has shifted."
Trump responded by continuing to lash out at Scaramucci on Twitter:
Nobody ever heard of this dope until he met me. He only lasted 11 days! pic.twitter.com/RzX3zjXzga— Donald J. Trump (@realDonaldTrump) August 20, 2019
Speaking of losing friends, Trump has also cut off investor Tom Barrack, Politico's Daniel Lippman reports: "The intimate relationship between the wealthy California investor and the president has fractured so badly that the two no longer speak, current and former White House officials say. The key issue driving the two men apart: Barrack’s role as chairman of the president’s 2017 inauguration fund, which is under investigation by prosecutors."
— Boston Fed chief: No need to lower rates. WSJ's Michael Derby: "Federal Reserve Bank of Boston President Eric Rosengren remains worried that central bank interest-rate cuts are unwarranted and could destabilize the financial sector—but signaled he’s open to action if convinced the economy was taking a turn for the worse.
"In an interview on Bloomberg’s television network on Monday, Mr. Rosengren reiterated his view that the economy is doing pretty well and also doesn’t need cheaper short-term borrowing costs. Mr. Rosengren was one of two central bank officials that opposed the Fed’s late July rate cut."
— GE pushes back on fraud claims: “General Electric doubled down on its financial performance and reputation Monday, less than a week after a hefty report accused it of fraud and suggested the conglomerate was headed toward bankruptcy,” my colleague Rachel Siegel reports.
“GE’s stock plunged more than 11 percent Thursday after Harry Markopolos, the whistleblower who raised flags about Bernie Madoff’s Ponzi scheme in 2008, published a 175-page report alleging the company misled investors in financial statements to the tune of $38 billion. He called GE ‘a bigger fraud than Enron.’ ”
- Their response: “CEO Lawrence Culp deemed it ‘market manipulation — pure and simple,’ noting that Markopolos stands to gain from a drop in GE’s share price. Markopolos has said that he examined GE at the request of an unidentified U.S.-based hedge fund and that he would receive a 'decent percentage' of any proceeds the hedge fund earns from shorting its stock.”
— Saudi oil company looking at possible IPO: “Saudi Aramco asked several banks to bid for roles in its possible initial public offering, people familiar with the matter told CNBC on Monday,” CNBC’s Mary Catherine Wellons and Maggie Fitzgerald report.
“An IPO of the state-controlled oil company has been a longtime goal of Saudi Arabia’s Crown Prince Mohammed bin Salman, who values the company at around $2 trillion. The state-owned oil company would be the world’s biggest IPO.”
— 23 Texas towns hit by ransomware: “Twenty-three Texas towns have been struck by a ‘coordinated’ ransomware attack, according to the state’s Department of Information Resources,” CNBC’s Kate Fazzini reports.
“According to a weekend update by the Texas DIR, the attacks started Friday morning and though the locations aren’t named, ‘the majority of these entities were smaller local governments.’”
— Deadline looms for companies to report pay data: “Companies across the U.S. are preparing to give federal regulators the most detailed information ever collected about how they compensate workers of all genders, races and ethnicities,” WSJ’s Kelsey Gee reports
“All employers with more than 100 workers must disclose a broad array of pay information to the Equal Employment Opportunity Commission by Sept. 30. The move is part of a push by the government to narrow longstanding earnings gaps, agency officials have said.”
— Regulators prepare to roll back Volcker limits. Bloomberg's Jesse Hamilton: "Wall Street regulators are set to roll out a Volcker Rule overhaul that’s meant to respond to banker complaints about the trading ban’s complexity and compliance demands. The Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency are poised to approve the rewrite of the post-crisis measure Tuesday, with three other agencies set to follow. The revamp, known as Volcker 2.0, is an attempt to simplify the 'proprietary trading' ban that forbids banks from making short-term investments with their own capital. It also aims to clarify some limits on banks’ investing in private equity and hedge funds."
The push is part of a broader effort by Trump-era regulators to ease restrictions on Wall Street, the NYT's Jeanna Smialek, Peter Eavis and Emily Flitter report. "Some of the changes, seemingly incremental and technical on their own, could add up to a weakening of capital requirements installed in the wake of the crisis to prevent the largest banks from suffering the kind of destabilizing losses that imperiled the United States economy... Some current and former Fed officials worry that the central bank and its fellow regulators are giving large banks, which are making big profits, an unnecessary gift that could leave the economy exposed in the next downturn.
Via the FT's Robin Wigglesworth, a new Goldman Sachs chart shows the U.S. deficit is remarkably high compared to the strength of the economy:
- Home Depot, Kohl's, Urban Outfitters, Medtronic are among the notable companies reporting earnings, per Seeking Alpha.
- The Federal Reserve's Federal Open Market Committee (FOMC) releases its July meeting minutes on Wednesday.
- Target, Lowe's, Nordstrom, L Brands and the Royal Bank of Canada are among the notable companies reporting earnings on Wednesday, per Seeking Alpha.
- Fed. Vice Chairman Randal Quarles gives a speech on community development during an event in Utah on Wednesday
- Dick's Sporting Goods, Hewlett-Packard, Hormel Foods, The Gap, Toro Co., Williams-Sonoma are among the notable companies reporting earnings on Thursday, per Seeking Alpha
- Fed chair Jerome Powell kicks off the board's annual Jackson Hole Economic Policy Symposium on Friday.
- Foot Locker, Meredith Corp., Red Robin Gourmet Burgers Inc and the Buckle are among the notable companies reporting earnings on Friday, per Seeking Alpha
From The Atlanta Journal-Constitution's Mike Luckovich: