Sen. Elizabeth Warren Introduces Legislation to Hold Largest Corporations Accountable
- By Maria Peroni
In August, Sen. Elizabeth Warren (D-MA) introduced the Accountable Capitalism Act, which would require corporations to be held accountable to employees and other stakeholders. Warren takes issue with the current principle of “shareholder value maximization,” in which a company’s primary goal is to increase the wealth of its shareholders.
A media release issued by Sen. Warren’s office describes a shift in the U.S. in ideology regarding corporate responsibility in the 1980s. Formerly, corporations balanced the interests of all stakeholders — employees, shareholders, and communities — when making decisions. But in the 1980s, the idea that corporations should focus solely on maximizing returns to their shareholders became dominant.
This ideology, Warren contends, has played out in a number of business practices. Over the last decade, for example, big American companies have dedicated 93 percent of their earnings to shareholders (versus less than half of their profits in the early 1980s), redirecting trillions of dollars that could have gone to workers or long-term investments. The result is that a rise in corporate profits and worker productivity has not led to increased wages.
Additionally, Warren argues that the focus on shareholder value has further concentrated wealth among the richest Americans, pointing out that the wealthiest 10 percent of American households own 84 percent of all American-held shares, while more than 50 percent of American households own no stock at all.
Critics of the bill, however, argue that it would not produce its intended effects. Jeffrey Miron, economics professor at Harvard University, told CNBC that the legislation would place a large burden on “honest,” law-abiding companies, which could encourage them to leave the country. “If we make it more onerous for companies to locate in the U.S., they’re going to locate somewhere else. And that hurts precisely the group Senator Warren is trying to help — that is, the employees of these corporations,” Miron said. “They will have no jobs instead of jobs with wages she thinks are too low.”
The Accountable Capitalism Act would require American corporations with more than $1 billion in annual revenue to obtain a federal charter as a “United States corporation,” which would obligate company directors to consider the interests of all stakeholders. The bill would also permit the federal government to revoke a United States corporation’s charter if the company has engaged in repeated and egregious illegal conduct.
The proposed legislation would also empower workers by requiring that no fewer than 40 percent of a corporation’s directors be selected by the corporation’s employees.
In order to ensure that any political expenditures benefit all corporate stakeholders, the bill prohibits corporations from engaging in political expenditures without the approval of 75 percent of its directors and 75 percent of its shareholders.
Currently, corporate executives are compensated primarily in company equity, which incentivizes focusing on shareholder returns. To ensure that they are focused on long-term interests of all corporate stakeholders, Sen. Warren’s bill prohibits directors and officers of United States corporations from selling company shares within five years of receiving them or within three years of a company stock buyback.