This week, Senator Elizabeth Warren (D-MA) penned an editorial in the Wall Street Journal assailing the current state of “shareholder value maximization” in the United States and pledging to “fix” the dynamic through a new bill requiring large companies to incorporate under a federal charter that would substantially change Board governance and duties. According to Warren, a likely 2020 Presidential candidate, beginning in the 1980s, companies began to shift away from a more holistic view of the role of corporations in society to a shareholder value maximization strategy. “In the early 1980s, large American companies sent less than half their earnings to shareholders, spending the rest on their employees and other priorities,” Warren writes, “[b]ut between 2007 and 2016, large American companies dedicated 93% of their earnings to shareholders.” Warren also blames the stagnation of real wages since the 1980s, on the move to maximizing shareholder value.
Warren’s proposed solution, the “Accountable Capitalism Act,” would require U.S. corporations with annual revenue exceeding $1 billion to be incorporated under a federal charter. It would also create “The Office of United States Corporations” within the Department of Commerce that would have the power to issue, rescind and revoke federal corporate charters, thus further federalizing corporate law. The new federal charter is modeled on state benefits corporation statutes and would impose a broader set of governance requirements on covered companies, including:
- A requirement to have a defined corporate purpose of “creating a general public benefit” which is “a material positive impact on society resulting from the business and operations of a United States corporation, when taken as a whole.”
- A set of standards of conduct for Directors and Officers, that, among other things, requires them to “balance the pecuniary interests of the shareholders of the United States corporation with the best interests of persons that are materially affected” by the company. Employees, shareholders, customers, and local communities must be considered in carrying out this obligation.
- 40% of the company’s directors must be elected by the employees, and the election standards are to be developed by the SEC in conjunction with the National Labor Relations Board, and the Labor Department would be in charge of enforcement
- Mandatory 5-year holding periods for officers and directors for all equity compensation; executives would not be permitted to sell shares within three years of the date of any corporate buyback program.
- Mandatory reporting of all political spending and a prohibition of political spending unless 75% of shareholders and 75% of directors approve the expenditure.