The Kickstarter Debacle Is a Perfect Example of Why “Stakeholder Value” Is Total BS

The Kickstarter Debacle Is a Perfect Example of Why “Stakeholder Value” Is Total BS

Last month, 181 CEOs in an organization called the Business Roundtable signed a document redefining the "purpose" of a corporation. The group, which

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Last month, 181 CEOs in an organization called the Business Roundtable signed a document redefining the “purpose” of a corporation. The group, which includes Jeff Bezos (Amazon), Tim Cook (Apple), Mary Barra (General Motors) and Jamie Dimon (JPMorgan Chase) previously considered that purpose to be the “generating long-term value for shareholders.”

The Business Roundtable–on paper at least–defines that purpose as “a fundamental commitment to all of our stakeholders,” which they define as “delivering value to our customers, investing in our employees, dealing fairly and ethically with our suppliers, supporting the communities in which we work,” and only then “generating long-term value for shareholders.”

Much of the mainstream business press took this redefinition as a recognition at the highest management level that today’s companies must do more than just strive to increase the stock price. They took at face value the Business Roundtable’s statement that “each of our stakeholders is essential. We commit to deliver value to all of them.”

There are four reasons why the “stakeholder value” is bullsh*t.

First, a basic principle of business is “What Gets Measured Gets Done.” Among all those  commitments to stakeholders, the only one that’s objectively measurable is shareholder value. Therefore, the CEOs will, at most, set up some easily-gamed metrics so that they can declare victory (“the community loves us three thousand!”) and then move on.

Second, mission statements are prime examples of the “Law of Inverse Relevance,” which is “the less you plan on doing about something the more you must talk about doing it.” Examples of this Law are mission statement goals like “achieve diversity” and “encourage work-life balance.” Talk becomes a cheap substitute for action.

Third and most important, CEO compensation in almost all companies is set up so that the financial interest of the CEO aligns perfectly with that of the shareholders. A CEO who increases shareholder value by screwing customers, employees, suppliers, and the community has everything to gain and nothing to lose.

To illustrate that a shift from shareholder value to stakeholder value is unlikely or even impossible consider Kickstarter. In 2015, Kickstarter declared itself a “public-benefit corporation,” which the firm defined as a “for-profit company that is obligated to consider the impact of their decisions on society, not only shareholders.” In other words, Kickstarter formalized stakeholder value in its actual charter.

That charter commits to “foster a supportive environment for employees… [and] build a diverse, inclusive, and equitable organization.” And Kickstarter, by all accounts, has tried to fulfill many of the goals that its charter defines.

However, some Kickstarter employees recently attempted to form a trade union. A union would be an obviously good thing for employees because it would give them a proverbial seat at the table.

If nimble Kickstarter–a self-declared, public-benefit corporation–balked when the rubber hit the road, how likely do you think it is that 181 huge and definitely-not-public-benefit corporations will give employees any real power? I’ll answer for you: not bloody damn likely.

For instance, the U.S. House passed the Forced Arbitration Injustice Repeal (FAIR) Act, which would give employees the right to sue their employers (like for sexual harassment) rather than be forced into arbitration, a process that vastly favors employers.  (Only 1.8% of arbitration ends up awarding money to aggrieved employees.)

If the Business Roundtable were serious about valuing employees as much as shareholders, it would want employees to have legal recourse when companies treat employees poorly. The CEO members who signed that document all be actively lobbying the Senate to pass the law. But I guarantee you that, if anything, those 181 CEOs are doing their level best to torpedo the whole idea.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.

This article is from Inc.com

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