How boards need to adapt to stakeholder capitalism

May 3, 2021, 10:59 AM UTC

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Good morning.

Critics of CEO involvement in “social” issues—gun control, voting rights, police reform, inequality, etc.—often argue that CEOs should stay out of such matters because they aren’t “accountable.” Unlike politicians, they weren’t elected to office, and can’t be removed if citizens disagree with their actions.

But CEOs are accountable—to their boards. And as CEOs redefine their role in society, boards need to be intimately involved. In his critique of the Business Roundtable’s 2019 statement on stakeholder capitalism, Harvard Law professor Lucian Bebchuk said he asked the public relations offices of BRT companies whether their CEOs had consulted with their boards before signing the statement. Forty-seven of the 48 that responded said “no.” Bebchuk took that as a sign of the lack of seriousness of the BRT change. But it also raises a question about whether boards are doing their jobs.

Dambisa Moyo—a former Goldman Sachs economist—has a book coming out this week entitled How Boards Work that explores the issueShe has a decade of experience in the space, currently serving on the boards of Chevron and 3M, and previously doing stints with SABMiller and Barclays. “We have a lot of anti-capitalism, anti-corporation sentiment out there,” she told me last week. “The reason I wrote the book is because I wanted to reassert the importance of the corporation.”

Moyo sees change as imperative. Boards must become “custodians not just of a single organization, but of our economic well-being as a whole,” she writes. CEO selection needs to move away from being based just on strategy, finance and operations. “The big thing that’s missing is ethics,” she told me. “Over 50% of the time I’ve had to fire or punish or censure a CEO, it has been for an ethical infringement.” Moyo also argues boards need to step up their attention to environmental and social goals, which have moved “from being a ‘nice to do’ to being part of an integrated reporting system.”

None of this is easy. “As the concept of shareholder primacy fades,” she writes, “it is replaced by the competing and sometimes conflicting priorities of employees, consumers, governments and shareholders… If a company adjusts too little, it leaves itself at risk of losing its license to trade… But adjust too much, and the company risks becoming uncompetitive.”

Which puts more pressure on boards than ever before. Are they up to the task? TBD.

Other news below. And be sure to read Eamon Barrett’s fascinating piece on Inner Mongolia’s effort to ban Bitcoin mining.

Alan Murray


Yes politics

Remember when the CEO of productivity software firm Basecamp last week banned "societal and political discussions" at work? The result: around a third of the company's staff accepted buyouts, apparently including its entire iOS team and its heads of design, marketing and customer support. TechCrunch

European travel

The European Commission has proposed allowing non-essential travel into the European Union not just by people who have been fully vaccinated with an EU-approved jab—as Commission President Ursula von der Leyen revealed a week ago—but also for those arriving from countries with low COVID infection rates. Fortune

Risky business

What did Credit Suisse get for its risky dealings with now-collapsed Archegos Capital, which cost the bank $5.4 billion? Last year, it made a measly $17.5 million in fees off Archegos. Financial Times

Party post

There has been an unusual amount of domestic Chinese criticism for a government social media post that mocked India over its COVID crisis. The now-deleted post, from the Communist Party's Central Political and Legal Affairs Commission, juxtaposed the successful launch of a Chinese rocket (carrying the first module for China's space station) with what looked like a mass cremation in India. Caption: "China lighting a fire versus India lighting a fire." (P.S. The Chinese rocket's core stage is going to make an uncontrolled reentry, hopefully not onto an inhabited area.) Bloomberg


Vaccination dilemma

Japan's business elite is grappling with the question of whether they should go get vaccinated overseas, so as to be able to exploit what is seen as an exceptional window for dealmaking. But while that would mean being able to undertake useful trips, it might also involve a serious reputational hit, given Japan's extremely low vaccination rate and the idea that everyone is persevering together. Financial Times

Buffett analysis

Warren Buffett on the U.S. economy: "It's almost a buying frenzy…People have money in their pocket and they're paying higher prices." At Berkshire Hathaway's annual meeting, he said the red-hot recovery was down to the Fed and the U.S. government. However, he also warned that inflation is higher "than people would have anticipated six months ago." (Bonus read: The WSJ on how the quick restart has caught many U.S. businesses flat-footed.) Bloomberg

Ethereum's rise

The second-most prominent cryptocurrency, Ethereum, has been outperforming the most prominent, Bitcoin. The price of one ether has cleared $3,000, marking a 25% price rise in the last week, and a quadrupling of its value so far this year alone. MarketWatch

Understanding China

As he writes in this piece for Fortune, Matthews Asia investment strategist and former U.S. diplomat Andy Rothman reckons there are five things people outside China fail to understand about its economic rise, ranging from Chinese entrepreneurialism to China's dominant role in global growth. Fortune

This edition of CEO Daily was edited by David Meyer.

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