By John D. Stoll
One year and a pandemic ago, a group of nearly 200 of America's
most powerful executives vowed to employ a kinder, gentler way to
measure business success.
Shareholders, the Business Roundtable pledged, would be just one
of the stakeholder groups that a company would be judged on
pleasing. Despite the trying times, boosters say that the
ballyhooed effort is flourishing.
In a televised interview this week, Salesforce.com Inc. Chief
Executive Marc Benioff called the company's strong earnings "a
victory for stakeholder capitalism." A signatory to the pledge, Mr.
Benioff said, "We did a great job for our shareholders this
quarter, but we also did a great job for our stakeholders."
Congrats to Mr. Benioff on thriving in tough times, but what
exactly does he mean by "stakeholders"? Employees? Customers?
Vendors? Communities in which Salesforce does business? The
rainforest? All of the above?
And, how does the billionaire founder justify this claim when
shortly after that interview Salesforce notified staff of plans for
around 1,000 layoffs? This despite Mr. Benioff's no-layoff pledge
in March on Twitter and the challenge to other CEOs to follow his
lead. (Hint: the pledge was for 90 days.)
A spokeswoman for Salesforce said the company is "eliminating
some positions that no longer map to our business priorities," and
added that "for affected employees, we are helping them find the
next step in their careers, whether within our company or a new
Mr. Benioff isn't the only one wading through the murkiness of
the moment. Run through the 181 CEO names on the Business
Roundtable letter and you'll be hard pressed to find a company
represented that hasn't had to cut off a limb to save the
Try running an office-furniture maker ( Steelcase Inc.) when
people are working from home en masse. Or try running a hotel chain
( Marriott International Inc.) or an airline (United Airlines
Holdings Inc.) when few are traveling. Job cuts are inevitable;
supply chains become vulnerable; communities where companies
operate, in the end, are left fending for themselves.
That's too narrow and bleak a view, Joshua Bolten, the CEO of
the Business Roundtable, told me this week. His organization is
composed of CEOs and advocates for public policies aligned with
their interests. The pandemic "created not only an opportunity, but
an imperative" for the big companies who signed last year's pledge
to come up with specific solutions shortly after sticking their
One example he pointed to was the push major corporations made
for creating the federal Paycheck Protection Program, which has
come under criticism but provided aid to ailing small businesses.
Massive companies didn't necessarily stand to directly gain from
it, but they had a mutual interest.
"What America's large corporations have done over the last six
months -- when we look at it in retrospect -- will have helped
sustain the economy, " he said. "They sustained their own universes
in which they operate and I think the long-term shareholder
JPMorgan Chase CEO Jamie Dimon, another signer of the
stakeholder pledge, said the lifeline for small businesses saved
roughly 30 to 35 million jobs. Mr. Bolten said many of
small-business jobs that were saved are in industries that support
Still, some governance experts, investors and academics
criticize the Business Roundtable's stakeholder pledge as being too
broad and aspirational to really hold leaders accountable.. No one
will fault the executive who delays a climate-change initiative
when the survival of the company is on the line. And, Mr. Bolten
admits that it's equally unfair to rip an executive who cuts
The view that it is possible to always strike a win-win for
shareholders and other stakeholders is misguided, said Lucian
Bebchuk, the director of the Harvard Law School Program on
Corporate Governance: "There are a lot of decisions where there is
a tradeoff." Mr. Bebchuk, a critic of stakeholder capitalism
proposals, said the current regulations and corporate bylaws often
demand that investors emerge as the winner when a tradeoff is
necessary -- even if other stakeholder interests need to be
Mr. Bolten said the pledge wasn't intended to be a cure-all:
"This is a complicated journey."
Nell Minow, vice chair of ValueEdge Advisors, which consults
with institutional investors on corporate governance, agrees with
Mr. Bebchuk about tradeoffs, but she cautions "those tradeoffs are
rarely permanent." She said directors need to push executives to
weigh long-term risks and reward them for making moves that
ultimately pay off.
She pointed to Costco Wholesale Corp., which has thrived during
the pandemic as people stuck at home need more groceries and
household products. Costco's stock is trading near an all-time
high, but Ms. Minow said it's not just a matter of being in the
right place at the right time.
Costco's attention to more than just shareholder interests paid
off: The warehouse club was paying employees premium wages before
its competitors were forced to raise their hourly pay to attract
and keep workers during the pandemic. Costco's pay policies fuel
high worker-retention rates, which undergird the warehouse-club's
resilient business model..
Michael Kesner, a partner at compensation consultant Pay
Governance LLC, told me boards will increasingly use "resilience
scorecards" to judge whether a CEO is successfully balancing the
long-term needs of the business against the short-term demands of
Mr. Kesner used a business close to my heart to illustrate his
point, high-end bicycle makers seeing unprecedented demand for its
"Trek and Giant are probably going to have record revenues," he
said. "But are they having a great year?" Depends on the measure.
Managers are enjoying strong investor sentiment, plants are running
full capacity, pricing power has never been better.
That doesn't change the business reality that the supply chain
is in shambles. Bike shops are bare. Locked-down Americans trying
to satisfy an itch to get out and ride are fed up.
"Are the guys running the bike shops selling these things
dying?" Mr. Kesner asks. That takes the shine off the glossy
Mr. Kesner said compensation packages will remain
disproportionately tilted toward aligning executive actions with
shareholder interest. Meeting financial goals and driving stock
price performance are still the clearest ways to measure
But, he expects boards to use far more discretion in evaluating
performance for 2020 than in years past. Goals set in February
became impossible to achieve in a matter of weeks.
"Directors will be taking a broader look at the business and
steps that management is taking to rebuild," Mr. Kesner said. "It's
not just about surviving this, it's about setting yourself up to
thrive when this is in the rearview."
He has identified more than a dozen boards that are developing
resilience scorecards, and creating several categories to
"The pandemic has created that opportunity," he said. But
evaluating resilience requires a lot of judgment after years of
relying on formulaic measures, such as revenue growth or total
"It's not going to be so black and white," Mr. Kesner said.
Write to John D. Stoll at firstname.lastname@example.org
(END) Dow Jones Newswires
August 28, 2020 12:52 ET (16:52 GMT)
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