CEOs’ Endorsements of Stakeholder Values: Cheap Talk or Meaningful Signal? An Empirical Analysis

Abstract

In 2019, 181 CEOs of major companies rocked the world of corporate governance when they signed the Business Roundtable Statement, endorsing the idea that corporations are meant to serve all their constituencies and not just their shareholders.Reactions were sharply divided. Some applauded the Statement and viewed it as evidence that U.S. businesses are moving towards greater emphasis of stakeholder values. Others denounced the Statement as cheap talk and even voiced concerns that it might allow CEOs to benefit themselves under the guise of protecting stakeholders.We contribute to that debate by analyzing the Roundtable Statement empirically, using a combination of commercial datasets and hand-collected data. Our analysis yields three key insights:First, we demonstrate that when the Statement was originally published on August 19, 2019, corporations whose CEOs had signed the Statement experienced statistically significant positive abnormal stock market returns relative to other corporations. This result demonstrates that investors did not view the Statement as cheap talk, let alone as a pretext for harming shareholders.Second, we examine whether signing the Roundtable Statement predicts corporations’ current and future treatment of their stakeholders. Using Refinitiv ESG scores, we find that the 2019 signatories of the Statement were, at the time, more committed to employees, communities, human rights, a responsible use of resources, and low emissions than other corporations. We also show that signing the Statement is associated with high future ESG scores in most of these fields. That is particularly true for community- and employee-related conduct, where signing the Statement predicted improvements in already high ESG scores in subsequent years.Third, we show that firms that signed the Roundtable Statement in 2019 were more likely to terminate their business activities in Russia following Russia’s 2022 invasion of Ukraine.Our findings have profound implications for corporate governance and financial markets. In the area of corporate governance, they demonstrate the practical importance of the much-maligned concept of enlightened shareholder value. Concerning financial markets, our results show that managers’ declarations like the Roundtable Statement can contribute to solving a key challenge for ESG investing: the problem of how to signal a firms’ current and future commitment to stakeholder values without subjecting the company to cumbersome and inflexible legal constraints.