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From Board Rooms To The Oval Office: Stakeholder Capitalism Policy Based On Inclusive Economic Growth

From Board Rooms To The Oval Office: Stakeholder Capitalism Policy Based On Inclusive Economic Growth

by ESG Business Institute -
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Given the current formation of the United States economy, most businesses that operate with a consideration for people and the planet do so voluntarily. Current rules, regulations, and policies do not require companies or shareholders to consider their broader impact on society or the planet, and the goal of maximizing profits remains the sole priority for most businesses and investors. 

However, with recent elections seeing more reform-minded candidates elected to office, organizations within the impact economy are seizing on the opportunity to pursue structural legislative and policy changes. Two such groups are B Lab, the nonprofit that certifies B Corporations, and the U.S. Impact Investing Alliance, a nonprofit pushing to grow the impact investing sector. 

Recently, the two groups teamed up to draft a proposal to the Biden Administration calling for the creation of a White House Initiative on Inclusive Economic Growth. The proposal has received support from 50 other impact organizations, and the coalition is now in active talks with the Administration. 

“A lot of my history involves asking investors or other organizations to embrace the idea of the benefit corporation,” says Holly Ensign-Barstow, B Lab’s Director of Stakeholder Governance and Policy. “I've experienced pushback and sometimes an unwillingness to collaborate. But I think that we are now in a new era when organizations like us are much more willing to collaborate and are open to new ideas. 

I spoke with Ensign-Barstow as part of my research on purpose-driven businesses to learn more about the proposed initiative, its goals, and what the coalition is doing to actualize it. 

Christopher Marquis: How did the idea for this White House Initiative come about? 

Holly Ensign-Barstow: In the run up to the election, we had actually been engaging with people who ended up on the Biden-Harris Transition Team as expert advisors  in the development of B Lab’s policy whitepaper. Post-election, when they took their formal positions were on the Transition Team, they came to us looking for personnel ideas for the incoming Administration and asked questions like, “Who would you like to see at the Department of Labor or the Securities and Exchange Commission?”  

We had a conversation internally and with Rick Alexander of The Shareholder Commons, who's our close partner on the whitepaper, as well as with Fran Seegull, President of the U.S. Impact Investing Alliance, who were both grappling with similar questions of how best to advance our policy goals. 

As a result, we ended up working collaboratively to draft that the initial White House Initiative memo that we took to organizations in late fall for input and support.  

Working together we realized our society was grappling with monumental crises and that solving them would require a fundamentally different approach to rebuilding our economy so that it 1) works for all of us, 2) incentivizes business to account for its impact on workers, communities and the environment, and 3) creates inclusive economic growth from the bottom up, supporting small businesses, entrepreneurs and local economic development ecosystems. We honed in on the idea of an initiative housed at the National Economic Council, as the NEC plays a central coordinating role in promoting economic policies across the Administration and Congress. The proposed Initiative would build on this core function of the NEC in elevating the importance of these policy priorities and creating an efficient channel to interface with private and civil sector experts. 

B Lab and the USIIA bring complementary sets of expertise and relationships. The Alliance works to mobilize investors for impact, while B Lab promotes stakeholder governance across the business community. And they both agree that transformational change comes at the intersection of community revitalization and the transition to stakeholder capitalism.  Together, we gathered together a group of signatories for the proposed White House Initiative to reflect these two focal points. As we built and continue to build that collaborative group, other organizations have been proactively reaching out to us wanting to sign on and work together.  

This has truly been a deep, collaborative partnership with the Alliance and the broader coalition of 50+ organizations in a way that I have not often experienced in this ecosystem to date. A lot of my history involves asking investors or other organizations to embrace the idea of the benefit corporation. And I've experienced pushback and sometimes an unwillingness to collaborate. I think that we are now in a new era when organizations are much more willing to collaborate and open to new ideas. 

Marquis: What specific policies would the initiative advance? 

Ensign-Barstow: To be clear, there is a difference between B Lab’s policy agenda and what could be advanced by a White House Initiative. The proposed White House Initiative focuses on stakeholder capitalism and community investing, which we believe is a powerful combination for transformational change – top-down structural reform paired with bottom-up revitalization.  We think these policy frames resonate with a wide group of organizations – evidenced by the growing coalition of over 50 groups -  it also leaves room for the White House Initiative itself to come to fruition and set its own agenda. 

The initiative proposal talks about stakeholder capitalism, including governance, disclosure, and investing, but really it doesn't get into what that means on a tactical level. B Lab has a specific policy agenda that focuses on fiduciary duty change for investors and directors and the disclosure requirements for both of those groups, as well as other supportive policies. 

Marquis: What role do you think the government should play in setting policies to advance stakeholder capitalism? And what role is there for voluntary business action? 

Ensign-Barstow: When I joined B Lab, I worked specifically on passing benefit corporation legislation around the world. As we built up the number of statutes that we had passed, and as the number of companies using those statutes increased dramatically over the years, we realized there were diminishing returns with proactively pursing benefit corporation legislation. So we pivoted away from policy advocacy and toward culture change strategies. Basically, we began educating the market ecosystem, talking to lawyers, investors, and regulators to ensure that the world was safe for benefit corporations. And I think we've seen a lot of the success of those strategies over the course of the last 18 months with IPOs and public company conversions. The tipping point is here. 

But through all of that ecosystem work, we learned a few lessons, one of which is that this kind of voluntary change is not moving fast enough to solve the problems that we face as a society. The other is that we were asking these companies, benefit corporations, to lead with a model of stakeholder governance in a system with misaligned incentives. We were asking them to value stakeholders when their investors currently have contradictory fiduciary duties. Those investors are still maximizing profit at that individual company. It’s difficult to create true value for all stakeholders if your owners aren’t aligned with that idea.  

It was those two realizations that brought us to a place of considering a policy strategy that would align the rules that govern decision-making for both investors and companies . That also led us to look at whether we needed to move beyond just voluntary buy-in to mandatory policy change. 

Marquis: What are the next steps toward realizing this initiative? 

Ensign-Barstow: The Administration has been very interested. We've had conversations across multiple agencies with folks who are really knowledgeable about these policy ideas.  It's incredibly uplifting to see people with aligned ideas in a position to affect real change.  

What the coalition  continues to hear from the Administration is that there is interest, but that right now infrastructure is the priority. One of the things that we've been trying to do is continue the cadence of communication — both with the Administration and with the support of our allies in Congress — to highlight that this is a continued need while they focus on other issues and also highlight that some of the coalition’s ideas could be pushed forward in the context of those other packages. There is also a genuine desire to engage with members of the broad 50+ coalition and learn from their valuable expertise.