Tomorrow at Walmart’s shareholders’ meeting in Bentonville, Arkansas, Walmart workers will call out America’s broken corporate governance system and propose that Walmart workers be included on its board of directors. Walmart associate Cat Davis will be joined by Senator Bernie Sanders (I-VT), who will speak on behalf of workers’ right to participate in corporate decision-making. In other words, Sen. Sanders will be calling for a stakeholder governance model. Let us explain.
Mega corporations like Walmart run their companies with an ideology called “shareholder primacy” that is used to justify putting shareholder wealth over just about anything else, including increasing wages. This narrow focus on making already-wealthy shareholders more rich explains Walmart’s support for a starting wage of $11 an hour that keeps Walmart associates in poverty even when they work full-time. At the same time, the Walton family, which holds over 50 percent of Walmart’s stock, made $14 billion in the first six weeks of 2019 alone, as Walmart share prices went up, inflated by corporate stock buybacks.
If a stakeholder governance model was implemented in the US, workers would be included on boards, giving them a say in corporate decisions (for a full description of what we mean by stakeholder governance, see our brief “Towards Accountable Capitalism” and Susan Holmberg’s report Fighting Short-termism with Worker Power. This means that extractive choices like authorizing billions in stock buybacks (in order to artificially increase the value of a company’s stock)—a practice that drives stagnant wages—would be more likely to face far more scrutiny than when boards are elected entirely by (and for) shareholders.
The underlying economic argument for shareholder primacy is divorced from the reality of how businesses actually need to operate in order to succeed. The great flaw of shareholder primacy is the belief that shareholder incentives are aligned with business incentives. This is based on the idea that shareholders are the rightful owners of the corporation, as they’ve taken the riskiest investment, and thus must oversee managers to ensure that they make decisions that provide the largest return on that investment.
The result of this misguided view is increased pressure on managers to show constantly increasing stock value. This abridged timeline has created a short-termism problem, where business executives often prioritize short-term share prices over long-term investment in things like capital, labor, or research and development. To keep managers in line, corporate leaders now pay them in stock, so that managers’ personal incentives are more aligned with shareholders’—and thus overall business and worker concerns become decreasingly prioritized.
As executives and shareholders scramble to boost stock value, wages for typical (non-executive) workers across the economy have not risen in line with corporate profits, and corporations led by finance-minded executives buy up competitors instead of innovating to compete. The result is a stagnant corporate sector, artificially propped up by pretty stock exchange numbers. This model is not sustainable.
To reorient corporate behavior and fix our economy more broadly, corporate decision-making must change. It, however, cannot change with the same people sitting at the boardroom table. Employees have the most day-to-day interaction with the company and are most invested in its success in the long term—their livelihood literally depends on it. To shift back to long-term business-focused governance, shareholders should share decision-making with those who work at and for the company —people who would face serious hardship if the company faltered—rather than shareholders who can exit the company with the click of the mouse (and a lot of cash). Not only is there precedent for stakeholder governance (it is commonplace in Europe), but it also does not mean that board decisions will change dramatically overnight. This type of model does, however, mean that the long-term prosperity of the company and its workforce might matter as much as stock price gains—or even more.
Notably, worker advocates like Cat Davis are not the only people who understand the harms of shareholder primacy. Actors across the political spectrum have identified shareholder primacy as a hindrance to our economy, including Senator Marco Rubio (R-FL), who recently published a report analyzing the consequences of rising shareholder payments for investment. Senator Elizabeth Warren (D-MA) introduced the Accountable Capitalism Act, and Senator Tammy Baldwin (D-WI) has called for worker representation on boards as well.
In calling to include employees on corporate boards, workers and policymakers are pointing to a common-sense solution for America’s lack of shared economic prosperity. Stakeholder corporate governance is capable of pointing US corporations back towards a norm where those who create value for a company share in its success. Policymakers who want to rebalance the American economy should take note of Cat Davis and other worker organizers nationwide. And as she points out, corporations do not need to wait for Congress to act; they can include employees as potential members of their boards even without any change to the law.