Sen. Elizabeth Warren, a Democrat from Massachusetts, introduced legislation on Wednesday that intends to completely upend the idea that companies are only accountable to shareholders.
The Accountable Capitalism Act, as the measure is called, would require corporations with more than $1 billion in annual revenue to get a federal charter of corporate citizenship, which would give it fiduciary responsibilities beyond maximizing shareholder value. As noted by Vox, the senator essentially wants to require corporations to have the same responsibilities under the social contract as the average U.S. citizen.
In an op-ed published Tuesday in The Wall Street Journal, Warren described a fundamental shift in thinking that took place among corporations in the late 20th century, from a focus on quality goods, customers, communities and building the economy to the singular goal of maximizing shareholder profits. Warren said this change has hurt workers and wage growth, while making the wealthiest 10 percent of U.S. households richer – because they are they individuals that own “84 percent of American-held shares.” Instead of reinvesting profits in workers or their business, for example, she cites the fact that companies are instead buying back shares.
A host of experts, however, are taking issue with some of Warren’s underlying assumptions, including her understanding of the role of profits.
“Profits measure whether businesses are making good decisions and adding value to society,” Chris Edwards, director of tax policy studies at the Cato Institute and editor of www.DownsizingGovernment.org, told FOX Business. “If American businesses weren’t earning profits, we’d all be in big trouble and our standard of living would fall.”
Edwards added that if corporations did not buy back shares and instead retained all their earnings, the U.S. would fall behind in innovation.
Others believe that a government mandate is not a viable solution to a perceived problem in the business community.
“I don’t want her … dictating what you can and cannot do, because that’s stagnation,” Steve Forbes, chairman and editor-in-chief of Forbes Media, told FOX Business’ Neil Cavuto on “Mornings with Maria” on Wednesday.
In order to give workers a larger say in the corporate decision-making process, Warren’s bill would also require 40 percent employee approval in electing corporate directors. And three-quarters of directors would need to approve any politically-motivated expenditures.
In a bid to reduce some financial incentives among executives, the Accountable Capitalism Act also aims to ban leaders from selling company shares within five years of receiving them, or within three years of a corporate stock buyback.
Warren’s idea isn’t necessarily a new one, though her approach might be. At the outset of the year, BlackRock CEO Larry Fink, in his annual letter to business executives, said companies should be expected to both create profits and contribute to society.