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Stakeholder Capitalism Gets a Report Card. It’s Not Good.

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Marc Benioff, chief executive of the technology giant Salesforce, presents himself as an evangelist for stakeholder capitalism: the idea that companies must elevate the interests of workers, the environment and local communities alongside shareholders.

He has written books and opinion pieces arguing that profits are not sufficient; companies must do good. He attends the World Economic Forum in Davos, Switzerland, a hotbed for such thinking. And his company was among the 181 members of the Business Roundtable, a club of C.E.O.s, that last year promised to broaden its traditional obsession with the bottom line to include societal concerns.

In late August, as Salesforce celebrated more than $5 billion in quarterly sales, Mr. Benioff proclaimed validation. “This is a victory for stakeholder capitalism,” he said in a television interview. The next day, in the midst of the pandemic, Salesforce informed 1,000 employees that their jobs were no longer needed.

The coronavirus, its attendant economic devastation and the ongoing movement against racial injustice have collectively posed the first test of the lofty words proclaiming a kinder form of capitalism. The results have fallen short of the promise, according to a study to be released on Tuesday and obtained by The New York Times.

The Business Roundtable’s statement of a purpose of a corporation, released last year, was touted by prominent executives as a landmark in the evolution of corporate governance. But its signatories have done no better than other companies in protecting jobs, labor rights and workplace safety during the pandemic, while failing to distinguish themselves in pursuit of racial and gender equality, according to the study.

Financed by the Ford Foundation, the study is the work of KKS Advisors, a consultancy that counsels companies on environmental policy, and The Test of Corporate Purpose, a group of researchers convened to assess how corporations have responded to the pandemic and the movement against racial injustice. Its advisory board includes a professor of management at the University of Oxford, and senior executives from financial firms including Morgan Stanley and Liberty Mutual.

ImageMarc Benioff, founder of Salesforce, has fervently embraced the tenets of stakeholder capitalism. He described the objectives of the Business Roundtable statement as a long-term project.
Credit…Matt Edge for The New York Times

“Since the pandemic’s inception,” the study concludes, the Business Roundtable statement “has failed to deliver fundamental shifts in corporate purpose in a moment of grave crisis when enlightened purpose should be paramount.”

The study enhances doubts that corporations can be depended upon to moderate their quest for profits to pursue solutions to challenges like climate change, racial injustice and economic inequality. Skeptics argue that a single stakeholder will always retain primacy: the shareholder.

The Business Roundtable presents its mission statement as a reflection of the belief that C.E.O.s face extraordinary pressures to protect workers, the environment and community interests or suffer punishment in the marketplace.

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“It was not a demotion of the long-term shareholders, because, in our view, the interests of all the stakeholders align in the long-run success of the enterprise,” said the president of the Business Roundtable, Joshua Bolten. “But it is a rejection of short-term shareholder interests.”

Companies can trigger immediate gains in their stock prices by cutting costs through layoffs or slashing benefits. “But in the long term that’s not going to serve the enterprise well if you haven’t properly taken care of all of your other stakeholders,” Mr. Bolten added. “You cannot take care of any one of them without taking care of them all.”

Yet the recent history of American capitalism is the story of wages stagnating for ordinary workers even as shareholders reap extraordinary gains. The divide has proved especially stark during the pandemic: Shareholders suffered initial plunges in asset values but then recovered; tens of millions of wage-earners remain jobless, massing at food banks.

Mr. Bolten said that picture masks how Business Roundtable members have aided employees during the pandemic, providing help with child care and flexibility to work from home, while boosting philanthropic efforts.

“I think they have done exceptionally well,” he said.

The new study says otherwise. Researchers explored the workings of 800 companies — those whose shares are included in the S&P 500 and the FTSEurofirst 300, an index of European stocks — and narrowed the survey to 619 for which they were able to amass at least three years of data.

They mined trade publications, news reports and other industry sources to determine the degree to which companies were operating in accordance with the Sustainability Accounting Standards Board, a nonprofit that promotes corporate standards on social and environmental issues. They examined how the companies performed between June and July on a range of indicators relevant to the pandemic, such as workplace safety, and to racial inclusivity, including the diversity of governing boards.

The report notes that very few companies that signed the Business Roundtable statement submitted it to their governing boards for approval, a fact cited in a law review article as evidence that the pledge is an exercise in public relations.

Mr. Bolten said board passage was not required, because member companies have already embraced the statement’s principles. “It did not arise from nowhere,” he said. “The statement has to be viewed as both capturing an evolution and expressing an aspiration.”

The new report singles out Wells Fargo for rejecting a shareholder proposal that sought to implement the Business Roundtable pledge by exploring the possibility of converting the bank’s legal structure into a benefit corporation, which would allow it to subordinate shareholder interests to other concerns.

Credit…Zack Wittman for The New York Times

A Wells Fargo spokeswoman said the bank has responded to the economic shock by turning branches into food banks and deferring loan payments.

The report trains special attention on Amazon. Though its founder and C.E.O., Jeff Bezos, signed the Business Roundtable statement, Amazon has emerged as a conspicuous example of a company that has profited from the pandemic — selling more than $164 billion worth of goods this year — while drawing accusations that it has failed to protect workers.

In March, Christian Smalls, an employee at an Amazon warehouse in New York, was fired after leading a walkout, protesting what he said was the company’s failure to provide protective equipment even as several workers became ill.

Amazon said he was fired for violating a quarantine policy. Mr. Smalls said he was placed on quarantine only after demanding that the company provide paid sick leave to others.

In a written statement, Amazon dismissed the study as “flawed research” that relied on “the meaningless measure of ‘sentiment about company actions’ and fails to evaluate the actual response — which in the case of Amazon was proactive, swift and effective.”

Credit…Gabriela Bhaskar for The New York Times

The company said it has invested more than $800 million on safety improvements, outfitting workers with masks, hand sanitizers and other protective gear, while preventing the spread of the virus at its facilities.

The study does not assess the extent to which signatories of the Business Roundtable statement have continued to pay dividends to shareholders while laying off workers. But some did just that.

Arne M. Sorenson, president and C.E.O. of Marriott International, the world’s largest hotel chain, is co-chairman of a Business Roundtable task force assembled to address Covid-19. In March, he announced that he was furloughing tens of thousands of employees, asserting that his hand had been forced by the swift deterioration of the business. Less than two weeks later, Marriott paid out $160 million in dividends to shareholders.

Marriott lands in the bottom half of companies in its response to the pandemic and demands for racial inclusivity, according to the study.

A Marriott spokeswoman, Connie Kim, noted that Marriott suspended further dividend payments.

The report highlights examples of Business Roundtable signatories that have performed better than most, including Baxter International Inc., an Illinois-based manufacturer of medical devices; SAP, a German software firm; and Willis Towers Watson PLC, a British insurance company. All three have made progress on racial inclusivity, the study finds.

The report praises BlackRock, the world’s largest asset management company, for taking early action to alleviate the threat of Covid-19. The company donated $50 million for emergency services, including the delivery of vital medical equipment to hospitals. It notes the leading role played by BlackRock chief executive Laurence Fink in steering investments toward companies that limit climate change.

Credit…Doug Mills/The New York Times

No one has embraced the tenets of stakeholder capitalism more fervently than Mr. Benioff.

From its founding in 1999, Salesforce — which makes software used by companies to track interactions with their customers — has donated 1 percent of its equity, 1 percent of its products and 1 percent of its employees’ time to a range of philanthropic undertakings.

Salesforce workers volunteer at homeless shelters and nonprofits that aid refugees. A company foundation has directed hundreds of millions of dollars to local schools and hospitals.

During the worst of the pandemic in the United States, Mr. Benioff tapped contacts in China to procure more than 50 million pieces of protective gear.

“There are very few examples of companies doing this at scale,” Mr. Benioff said in a telephone interview.

With more than 54,000 employees worldwide, Salesforce has provided Mr. Benioff a huge platform to advance the tenets of stakeholder capitalism. Overall, the company has performed far better than most in responding to the pandemic and the drive for racial justice, the study finds.

Its principles are not undermined, Mr. Benioff says, by his company’s decision to phase out 1,000 workers the day after celebrating a tremendous earnings report, and shortly after the expiration of a widely touted 90-day pledge to avoid layoffs.

Salesforce is continuing to hire in other parts of its business, he said. Some of the affected employees will be rehired in other areas, while those who depart will leave with severance.

“We have to be able to grow and make change, or we cannot achieve our goals, which is to become a larger, much more successful company for our customers, our shareholders and also, yes, our stakeholders,” Mr. Benioff said.

He described the objectives of the Business Roundtable statement as a long-term project.

“I’ve seen from my own viewpoint a systemic change in how C.E.O.s behave over the last 20 years,” he said. “I never said it’s a revolution, but I said it’s an improvement.”

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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