New report unmasks financial institutions failing to deliver on ‘corporate stakeholder purpose’ declarations


Companies that have promised publicly to run their business for the benefit of all stakeholders have handled the Covid-19 crisis and social and racial inequality worse than companies with no such commitment, a new report from The Test of Corporate Purpose finds.

In 2019, 181 CEOs belonging to the Business Roundtable, including firms such as Amazon, Apple, and Bank of America, announced that they were redefining the purpose of a corporation to one that delivers value to all stakeholders, not just shareholders.

This is intended to replace the influential view espoused by Milton Friedman that the only responsibility of business is to increase profits, which until recently held sway with the leadership of most public firms.

One year on from the declaration, the Test of Corporate Purpose finds that there is a “small but negative effect” on a company’s response to the Covid-19 crisis among those that are signatories of the Business Roundtable in the United States, performing an average of 0.82 score points worse than non-signatories.

This adds further weight to previous studies of Business Roundtable members, which have found that very few received approval to sign the purpose statement from the board of directors, suggesting that it was a “PR move” rather than an important strategic decision for the company. Another study found signatories commit environmental and labour-related violations more often than their industry peers.

“We’re in a moment of both reckoning and renewal,” says Mark Tulay, founder and CEO, TCP and CEO, Sustainability Risk Advisors. “Companies have an unprecedented opportunity to decide on which side of history they will be remembered. Our study reveals that lofty statements from CEOs amount to little when put to the test.”

Wells Fargo, Morgan Stanley, and Bank of America are among the financial institutions that have made public commitments to the Business Roundtable, but were in the bottom quartile for their response to the Covid-19 pandemic and tackling inequality.

Wells Fargo was highlighted by the report’s authors as a member of the Business Roundtable, and a poor performer with regard to Covid-19 and inequality. In August, the American bank paid out USD7.8 million to settle allegations of hiring discrimination. Last year, the bank also paid out more than USD15 million over alleged discrimination against minority borrowers, as well as alleged predatory lending practices used against a Native American tribe.

Across the United States and Europe, companies with a consistent and positive track record of effectively managing issues relevant to Covid-19 or inequality have continued along the same outperformance trend during the crisis.

Companies with a positive track record in the five-year period leading up to the pandemic scored in average 11.34 points higher, while companies that proactively managed inequality issues scored 20.93 points higher during the crisis.

American asset manager Invesco, which is not a signatory to the Business Roundtable, ranked among the top quartile for its handling of Covid, which also included firms such as Aegon, AXA, BNY Mellon, BNP Paribas, Northern Trust, State Street, Schroders, Standard Life Aberdeen, and T Rowe Price.

Employees at Invesco receive a Covid-19 check-in survey at regular intervals, with 97 per cent of its employees agreeing that Invesco has prioritised their wellbeing in response to the pandemic, and an internal website providing employees with information, tools, and resources on how to stay healthy, connected, and productive during lockdown.

“With this study, empirical evidence continues to accumulate that the companies who signed the Business Roundtable’s ‘Statement of the Purpose of a Corporation’ are failing to deliver on their fine words,” says Robert Eccles, Visiting Professor of Management Practice, Saïd Business School, University of Oxford.

“If they don’t change their behaviour, their credibility will continue to diminish. They need to start with a company-specific, stakeholder-inclusive ‘Statement of Purpose’ signed by every member of their board. They then need to publish an integrated report with metrics and targets that demonstrate how they are delivering on their avowed purpose.”