As You Talk: Favoring Profits Over Values Requires Corporations to Behave like Sociopaths

In the premiere of As You Sow’s weekly interview series As You Talk on Clubhouse, Andrew Behar, CEO of As You Sow and retired corporate attorney James Gamble lead a lively conversation about corporate governance, and how the law of fiduciary duty requires corporations to put profits before other values and obligates institutions to behave only in their own self-interest.

Behar and Gamble connected after Behar read an article published in the New York Times  titled, "Ex-Corporate Lawyer's Idea: Rein In 'Sociopaths' in the Boardroom,” in which Gamble discussed an essay he wrote about his experience with corporate America.

“The corporate entity is legally obligated to care only about itself and to define what is good as what makes it more money,” he wrote.

The article got Behar thinking about this idea of corporate boards, corporate governance and board oversight. Is it real or is it a myth? Who better to weigh in than an ex-corporate lawyer who spent more than a decade focused on crisis counseling: when big companies run into big problems and need a good lawyer to fix it.  

Corporate boards, corporate governance and board oversight

As a former litigation partner at a major New York law firm, Gamble spent more than a decade focusing on corporate governance and investigating matters that pose significant risks to corporate clients.

 Part of Gamble’s job required understanding how corporate governance laws affect the management and control of a corporation.

“What are the structures inside the corporation that allow the board and the senior management of the company to actually know what's going on so that they can manage it?” asked Gamble in the first episode of As You Talk.

About a decade ago, Gamble retired.  During retirement, he found himself thinking a lot about how companies work and the reasons for the unsustainable nature of capitalism, as it’s practiced today.

He concluded that the problem isn’t the people who run corporate America, it’s the system. 

“In my experience, business leaders are pretty much like any other group of people.  There are some people who are great, some people who are bad. Most people, generally speaking, want to do their jobs well. They want to take care of their families. They want to feel pride in how they conduct their lives,” said Gamble. “And if they can, they’d like to leave the world a little bit better than they found it. And I think that's as true of corporate board members as it is of most other groups of people that you find.”

Encouraging companies to adopt practices that are good for people and the planet

Gamble told As You Sow in an email that his argument is that we should “change a legal structure that constrains business leaders to focus on profits and share price.” Creating this sort of “new structure will encourage and empower leaders to reflect in their decisions the full human values of the people who create and sustain the company — employees, customers, communities and shareholders,” said Gamble.  

During his talk with Andrew, Gamble explained that, “We have created these entities that are the ‘most powerful persons on the planet’ given the amount of resources they control. And we've legally obligated them to act like sociopaths. And when you look at the world that way and think about it, it shouldn't be all that surprising that we get some of the really terrible outcomes that we get.”

In his essay profiled in the NYT article, Gamble argued that we need to adopt new legal rules and fiduciary duties that empower business leaders to make people just as important as profits.  Companies should “adopt a binding set of ethical rules, approved by stockholders and addressing the key ethical dimensions of corporate life” including their relationships with employees, relationships with the communities where they produce and sell, relationships with customers, environmental effects and any effects on future generations.

Redefining the purpose of a corporation

The good news is that change may be on the horizon.

In August 2019, the Business Roundtable redefined the purpose of a corporation. The revised statement, signed by 181 major CEOs, shifts its commitment from maximizing profits for shareholders to valuing customers, investing in employees, and dealing fairly with suppliers and support communities.

Behar questions whether this recent move by the Business Roundtable indicates what could be – if implemented – the shift of the century in terms of corporate ideology and their philosophical values.

“Yes, it’s a genuine philosophical shift,” said Gamble. “I think the language is very much a philosophical shift. If it's executed on, it will be a really fundamental change in the way we approach things.”

Whether or not real change will materialize is yet to be determined. But what’s certain is that the pressure for companies to change is mounting, which is also why they’re fighting back. For example, the rise in shareholder resolutions, particularly those related to social equity, corporate governance and climate change, are undeniable.

A shift in corporate ideology

In January 2019, CNN reported shareholder resolutions increased from 407 in 2010 to 464 in 2018 – a 12% increase. Furthermore, the average percentage of shareholders voting for environmental, social and governance resolutions rose to an all-time high of 25.7% in 2018, up from about 19% in 2010, and clearly 2021 will exceed all prior years for majority votes and shareholder power.

Danielle Fugere, president of As You Sow, commented on the trend, telling CNN that “the fact that shareholders are feeling empowered is I think uncomfortable for corporations, and that's why you're seeing them fight back.”

Corporations and their commitment to be better and do better is a step in the right direction. But if it’s not accompanied by real changes in the structure of how companies manage themselves internally, their information flow, their compensation and their incentives, it's unlikely to make significant changes in corporate behavior, Gamble said.

As You Talk, airs Thursdays at noon Pacific on the ESG Investing Club on Clubhouse. We will soon be posting blogs inspired by these episodes, covering topics such as plastic pollution in the world’s oceans, Net Zero Asset Managers Initiative, and how banks can limit climate finance.