Over the decades, America’s multinational corporations have favored their shareholders and short-term profits. This meant cutting wages, getting rid of unions, giving their technologies to their competitors and investing in stock buybacks instead of investing in R&D and domestic plants.
However, in 2018, CEOs signed a commitment letter to lead their companies not just for the benefit of their investors, but “for the benefit of all stakeholders: customers, employees, suppliers, communities, and shareholders.”
Jamie Dimon, CEO of J.P. Morgan Chase, commented that, "the American dream is alive, but fraying. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business communities’ unwavering commitment to continue to push for an economy that serves all Americans.”
It has been four years since the pledge. It’s now time to see if there is evidence that shows America’s multinationals have really changed their ways and are actually trying to benefit all stakeholders
Profit-shifting. Multinational corporations avoid billions in U.S. taxes by exploiting international tax loopholes and profit-sifting to low-tax countries. According to the Institute for Taxation and Economic Policy, Fortune 500 corporations are avoiding up to $767 billion in U.S. federal income taxes by holding more than $2.6 trillion of “permanently reinvested” profits offshore.
In their latest annual financial reports, 29 of these corporations reveal that they have paid an income tax rate of 10% or less in countries where these profits are officially held, most likely in offshore tax havens. This puts U.S.-based corporations at a stark disadvantage, facing a federal tax rate that is more than double what their foreign competitors pay.
Investing in CEOs. The CEO Pledge says they will “invest in their employees. According to the Economic Policy Institute, compensation for CEOs increased by 940% from 1978 to 2018, while pay for the average worker rose by a miserable 12% over the same 40-year period.
A paper on “The Persistence of the China Shock,” by David Autor and David Dorn, says that of 722 U.S. regions analyzed, 223—or 32.8%--suffered absolute declines in real per capita income from 2001 to 2019. This means that “the open door for Chinese imports reduced the incomes of one third of the U.S. public”.
Fighting unions. In the last 50 years, private unions in the U.S. have declined from 35% to 7%. Recent victories by the Teamsters at UPS and the UAW at the Detroit 3 automakers have energized organizers, but U.S. corporations are still muscling out unions. Starbucks and Amazon continue to quash the new wave of union organizing with practices such as firing workers in retaliation for organizing that the National Labor Relations Board (NLRB) has called out as illegal.
Corporate boards without worker representation. If CEO Pledge-signers are serious about delivering value to their employees, they should consider giving workers a voice in board-level decisions like corporations in Japan and Germany.
Since the pledge was made, not a single corporate signatory has proposed to add employee representatives to its board of directors. Worker representation on corporate boards is not likely because worker representatives would challenge executive compensation and stock buybacks.
Subpar supply-chain ethics. The CEO Pledge promised to “deal fairly and ethically with suppliers.” Amazon signed the commitment but continues to exploit suppliers. A Wall Street Journal investigation revealed how the company was using data from its sellers to help them develop private-label merchandise that often competed with the sellers’ products. Amazon also has restrictions on supplier margins, unexpected fees and chargebacks, tight shipping requirements, and copycat products.
Share buybacks. Share buybacks direct corporate revenue to shareholders instead investment back into the company in R&D, wages and plant and equipment. In 2022, the SP 500 set an annual record of $922.7 billion in stock buybacks, up from 2021’s $881.7 billion. Research from the Roosevelt Institute showed that productive corporate domestic investment disappeared between 1985 and 2015 and has been replaced by shareholder payouts.
In 2019, Sen. Elizabeth Warren said that in the past decade, American corporations “dedicated 93% of earnings to shareholders, redirecting trillions of dollars that could have gone to workers or long-term investments.
“If there is one strategy that could prove that corporations were changing their ways,” she added. “it would be reducing share buybacks However, it appears that the real driving force of executives and shareholders is still to get as rich as possible fast as possible.”
Pharmaceutical monopolies. The strategy of many drugmakers is to buy up patents to create a monopoly position that allows price-gouging. Bristol-Meyers, AbbVie and Bayer signed the pledge to benefit workers, consumers and communities, but use the patent-buying strategy to eliminate competition and raise prices. An example is AbbVie’s rheumatoid arthritis drug Humira, with over $12 billion in U.S. sales in 2022.
The pharmaceutical industry has also offshored most of its medications, causing serious shortages for hospitals and clinics of medications such as lidocaine, steroids, chemotherapy agents, antibiotics and many more. In fact, according to the Alliance for American Manufacturing, in 2019 China manufactured nearly 80% of the active pharmaceutical ingredients (API) that are used to make pharmaceuticals in the U.S.
Between buying up patents to create monopolies and offshoring drugs to China and India, Americans are faced with drug shortages of critical medicines and drug prices two or three times as high as Europe. Most pharmaceutical companies are doing almost nothing that would benefit their stakeholders, even though many signed the pledge.
Climate apathy. Exxon/Mobil’s lobbying reports says “ExxonMobil acknowledges the risks of climate change and has long expressed support for the goals of the Paris Agreement. Our policy principles, outlined in this report, and associated lobbying are consistent with helping society achieve its ambition for a net-zero future.” Despite this lofty goal, Exxon, Chevron, Conoco Phillips and Shell have forecast $191 billion in new oil and gas exploration by 2030.
Lack of ownership. The Wall Street Journal’s op-ed page said that for the CEO Pledge to be legally binding, it would have to be a reformulation of corporate purpose approved by that corporation’s board of directors. The Harvard Law School’s Program on Corporate Governance did a survey of the CEOs and found that of the 48 who answered their query, 47 had not consulted their boards and had gone ahead and signed pledge. “The most plausible explanation for the lack of board approval,” the authors noted, “is that CEOs didn’t regard the statement as a commitment to make a major change in how their companies treat stakeholders,” the article stated.
The strategies of America’s multinational corporations have been a disaster for working people. Globalization and offshoring crushed domestic manufacturing and employment, leaving collapsed communities in its wake. Financialization shifted the economy from Main Street to Wall Street by promoting share buybacks and executive compensation over domestic investment, communities, and worker’s wages.
I give corporations credit for realizing that they have neglected stakeholders, and that the sky is the limit for potential changes that could help stakeholders. The key word is “Profit.” If the real motive is to maintain profits and stock prices above all else, then there will probably be little measurable benefits for stakeholders. Without any financial sacrifices, the pledge is nothing more than a PR initiative.
Michael Collins is the author of “Dismantling the American Dream: How Multinational Corporations Undermine American Prosperity.” He can be reached at mpcmgt.net.
