A series of recent developments suggest that corporate governance could become a political issue in the 2018 election, for the first time since 2002 and the Enron/Sarbanes environment.
The most significant of these developments is Senator Elizabeth Warren’s introduction of The Accountable Capitalism Act. This controversial new legislative proposal is intended to address concerns that corporations have become overly focused on maximizing return to shareholders. A key element of the proposal is the requirement that corporations with more than $1 billion in annual revenue obtain a federal charter. In the Act’s current proposed form, there is no exemption for nonprofit corporations with more than $1 billion in revenue, even though the proposal seems styled for publicly traded companies.
The terms of this charter would require directors of chartered companies to consider not just the interests of shareholders, but those of employees, customers and the communities in which those corporations operate. Specifically, a US corporation must have the purpose of creating a “general public benefit,” meaning a material positive impact on society resulting from the company’s business and operations, taken as a whole. The proposal also provides that at least 40 percent of the corporation’s directors must be selected by employees, under rules to be established by the US Securities and Exchange Commission (SEC). Notably, state attorneys general would be authorized to submit petitions to the new Office of United States Corporations to revoke a charter based on a history of egregious and repeated illegal conduct and a failure to take meaningful corrective action. Senator Warren comments that this proposal is based in part on concepts reflected in the benefit corporation model that 33 states have adopted.
The Warren proposal should be viewed together with the corporate social responsibility initiatives in the for-profit sector, statutory diversity quota proposals, and the possible influence of provisions of the new UK governance code. All appear to be possible topics for public discourse in the upcoming 2020 presidential campaign. Health system boards should also anticipate increased public discourse on themes relating to “general public benefit” and a broader corporate constituency, and how those issues affect governance.