COVID-19 and the Decline of "Shareholder-First" Capitalism

May 01, 2020

Bloomberg opinion columnist Joe Nocera describes how several American corporations are considering "the greater good" and moving away from a singular focus on creating shareholder value in responding to COVID-19.

The post-World War II economic rebuilding as a historical precedent:  Nocera credits a focus on the needs of the country and a collaborative spirit on the part of corporate executives with helping launch America's rapid post-war economic expansion.  He contrasts the post-war corporate actions (hiring more workers than they needed, paying them more than necessary, and keeping prices low) with those taken in the 2008 financial crisis, asserting that the interests of shareholders in that scenario were far more important to executives than the needs of workers and communities.

Nocera sees hope in two high profile examples involving HR Policy members:  Xerox and Bank of America.  Xerox CEO John Visentin sought to deploy his company's scientists to solve the problems created by the pandemic, leading to joint ventures to produce N-95 masks and low-cost ventilators.  Bank of America's efforts to support its employees—and CEO Brian Moynihan's assertion that helping people is as important as financial results—demonstrate Nocera’s thesis that the "insidious force" of putting shareholder value first is waning.  Moynihan and others have outlined Stakeholder Principles for the global corporate community in response to the COVID-19 crisis.

There are many similar examples of companies putting a priority on the interests of their workers and communities during this crisis.  And companies are clearly putting worker safety first as they plan their return to the workplace.  That will likely remain the case for the near term—until vaccines and therapeutics are widely available and confidence is restored.

Why this matters: Once the threat to public health has subsided, if this shift in the relative importance of stakeholders persists, the implications for executive pay programs will be significant.  A single-minded focus on financial results will need to give way to a more nuanced and expansive definition of corporate performance—and executive pay programs may need to be transformed.