August 19, 2019

The Business Roundtable: Who Are Shareholders?

Executive Director

Today, the Business Roundtable issued a statement about acting on behalf of all of its stakeholders, rather than just shareholders. Missing from their thinking is a vital question: who are the shareholders?

Today's statement, a sharp break from decades of past practice in which the Business Roundtable described the purpose of the corporation as serving shareholders, attracted wide attention. The Wall Street Journal's front page declared, "Top CEOs Say Firms Have Duties Beyond Shareholder Value," and the New York Times proclaimed, "Shareholder Value Is No Longer Everything, Top C.E.O.s Say." Both articles discussed economic inequality, Milton Friedman's perspective on the role of the corporation, and the need to invest in employees.

I have yet to see anyone comment on the most revealing assumption made by the new statement: namely, that the five stakeholders it says corporations should serve (customers, employees, suppliers, communities, and shareholders) are inherently distinct and non-overlapping. And that assumption is the problem. When corporations face crises, these five groups will have competing interests, and if all five are different sets of people, that means some people will win and some will lose.

Two groups in particular stand out as non-overlapping. Right now, 84% of corporate shares are held by the richest 10% of American households. By contrast, in an emergency, nearly 40% of Americans, many of them employed, could not find $400 in cash, let alone a stock certificate.

What if, instead of a promise that corporations ought to serve the interests of both of these groups, we had a proven way of increasing the overlap between the two?

What if a majority of the average corporation's shares was held by its employees?

We do not have to guess, because the nation's 6600 employee-owned companies give us an evidence-based way to know. Research shows employee-owners having 92% greater net household wealth and 33% higher income from wages. We know that their employers do invest in them by being dramatically more likely to offer tuition reimbursement, flexible schedules, parental leave, and health benefits. We know that these benefits apply to people in all demographic groups, educational levels, and income categories. (See We also know that all this is possible because employees who are owners make their businesses stronger than the competition: more productive, more durable, and faster growing. (See Academic Research on Employee Ownership.)

The Business Roundtable statement closes with the 181 signatory CEOs agreeing that "each of our stakeholders is essential," but those five stakeholder roles do not need to be exclusive. Every business is a supplier and a customer. Every person is in a community. Most of us are employees. Why not make an economy where more of us are also shareholders?