B Lab U.S. & Canada Policy Update Plus 5 Actions You Can Take to Accelerate the Transition to a Stakeholder Economy
The rules that govern how the majority of corporations operate and make decisions are currently determined by one dominating policy: shareholder primacy. This concept requires corporate leaders and boards of directors to place returns to shareholders — profits — above all else. This theory means that every decision about ingredients for products, benefits for employees, and even locations for production factories must all tie back to either increasing or at least not harming the ability of the corporation to return profits to its shareholders. If a decision to offer paid parental leave, for example, can be shown to potentially reduce shareholder earnings, shareholders could bring a lawsuit to the company. This action is legally protected and in fact encouraged by shareholder primacy.
The COVID-19 pandemic and the reckoning with racial injustice have further exposed the flaws of shareholder primacy. The time to end this practice is now. Shareholder primacy is at the root of many of the challenges society faces — wealth inequality, systemic racism, gender inequality, and more.
As shareholder primacy is a legal requirement under state law for the vast majority of corporations, it will require policy action to change the rules of the game to focus on stakeholder governance instead. These models have also been called stakeholder capitalism, benefit governance, stakeholder-driven economics, and other related terms. In contrast, a benefit governance model requires a balance between impact on all stakeholders — including the environment, communities, and workers — and impact on the bottom line.
The United States and the business community stand at a crossroads. With a global pandemic and economic crises affecting all communities, business leaders face a choice about how to rebuild. Rather than go back to business as usual, company leaders — across party lines, in both private and public sectors, and from the streets to the boardrooms — must seek a new path. Legislative and regulatory changes can provide for mandatory benefit governance and expand investors’ fiduciary responsibilities to protect the broad interests of beneficiaries. With partners across industry and across the political aisle, business leaders can pursue these ambitious but realistic changes to build a more resilient economy.
This focus has driven the policy work of B Lab U.S. & Canada through this last year. The U.S. policy agenda revolves around three core reforms:
- First, in order to see systems change we need to see benefit governance in both companies and investors. This will prompt alignment across the investing chain so that all actors are managing their impact as well as the system in which they operate.
- Second, that companies and institutional investors be required to adopt benefit governance. While the voluntary adoption of a leading segment of the private sector, i.e. the current wave of Certified B Corporations and benefit corporations, can be influential, it will not be sufficient to enact true and lasting systems change.
- Third, living into these commitments will require transparency and disclosure using credible standards for both investors and companies.
[bcorporation.net 03.11.2021]