Senate working group targets corporate governance reform

Four Democrat US senators have formed a working group with the aim of shifting corporate America away from shareholder capitalism.

Elizabeth Warren (Massachusetts), Tom Carper (Delaware), Tammy Baldwin (Wisconsin) and Mark Warner (Virginia) want to develop legislative proposals and conduct oversight focused on reforming corporate governance.

The group wants to overhaul corporate governance so it focusses not just on shareholders but the wider society as well.

The senators said they are looking to address issues of climate change and worker protections.

“For far too long, many companies have disregarded broad-based growth and put short-term profits ahead of workers, fuelling inequality and restricting opportunities for the poor, for young people, and for people of colour,” the senators said.

“Short-term financial pressure often pushes corporations to forgo necessary long-term investments, ignore the threat of climate change, and concentrate opportunity in ways that exclude too many of our communities,” they added.

The group has pledged to work together on ways they can “fundamentally reform corporate governance in America”.

The group said that over the past 30 years corporate profits have surged while the portion shared with labour has declined, resulting in soaring inequality.

It added that the Covid-19 pandemic had exacerbated these problems and highlighted the need for urgent reform of corporate practices.

A Joe Biden election to the White House could mean a significant shift in US policy towards business and corporate governance as well as being a huge boost for sustainable investing.

Earlier this year, he said shareholder primacy would end under his presidency.

“It’s way past time we put an end to the era of shareholder capitalism,” Biden said in July.

“The idea the only responsibility a corporation has is with shareholders - that’s simply not true. It’s an absolute farce. They have a responsibility to their workers, their community, to their country. That isn’t a radical notion.”

During Donald Trump’s presidency, corporate governance rule changes have been made that critics believe undermine shareholder democracy.

Some US companies are worried about the focus on ESG from shareholders and the pressure they put on boards regarding environmental and social issues.

Trump-appointed officials have introduced a raft of rules targeting shareholder voting and pension fund allocations.

The Securities and Exchange Commission (SEC) introduced new restrictions on proxy advisory firms that recommend how investors should vote in corporate elections in July.

In September, the SEC announced new rules restricting shareholders’ access to corporate proxy voting by limiting the filing of resolutions.

The Labor Department has also finalised a rule making it more difficult for pension fund managers to include socially responsible funds in portfolios and retirement plans.