Investor payments and job cuts run counter to the social commitment of US companies

(Reuters) – When Randall Stephenson joined 180 of his colleagues at the helm of many of the wealthiest US companies in signing the Business Roundtable pledge on “purpose of a company” in August 2019, the then head of AT&T Inc has pledged to pay attention to the interests of all stakeholders of the wireless carrier, not just shareholders.

Two months later, the Dallas-based company outlined a cost-cutting plan that also prioritized dividends and share repurchases for shareholders, giving in to pressure. from $ 41 billion hedge fund Elliott Investment Management LP.

Activist investor Elliott said his proposals would provide “substantial benefits” for shareholders, consumers and employees, but not all of them came out ahead.

By the end of September 2020, AT&T had eliminated 23,000 positions, or about 9% of its workforce, many of them during the pandemic. Already one of the largest dividend payers in the world with $ 14.9 billion spent in 2019, AT&T increased its common dividend by 2% and repurchased $ 7.5 billion of its shares.

“We are the face of AT&T and do our best to help customers communicate with their families,” said Darren Miller, a 35-year-old technician whose work was halted last July. “But to them we’re a dime a dozen. If they can get someone cheaper to do the job, they will. “

Miller, who worked in Reseda, California, said he accepted a takeover offer after managers told him he could be fired later on less generous terms, something his local union representatives had told him. said it had happened to dozens of other employees in the state.

AT&T spokesman Jim Kimberly said most of the reductions in the workforce “were from offers of voluntary departure and attrition ”and declined to comment on individual cases. He added that the company has been engaging in “meaningful engagement with all stakeholders” for years through programs that include worker retraining and environmental and social justice efforts.

Elliott declined to comment.

Some advocates of socially minded stakeholder capitalism argue that the case of AT&T is representative of the obstacles they face in challenging the leverage that investors have on US companies.

The voluntary governance commitment signed by the CEOs did not include specific actions, but had the stated goal of moving away from “Shareholder primacy”. Here

However, as signatories subsequently cut shareholder payments as companies set aside cash to protect themselves from The financial fallout from the COVID-19 pandemic still gives investors a greater share than those companies that have not signed the pledge, according to a Reuters analysis of the data compiled by financial information provider Refinitiv.

The analysis found that the 171 publicly traded companies that signed the pledge returned a median of 60% of net income to shareholders during the first three quarters of 2020 through dividends and repurchases, compared with a 50% return between 355 S&P 500 companies that have not signed. the declaration.

By comparison, in the first three quarters of 2019, signatories returned a median of 73% of net profit to shareholders versus a return of 68% among companies that did not sign the pledge, according to the analysis.

Tim Gaumer, director of fundamental research at Refinitiv, said signatories to the pledge returned more to investors because they had the ability to do so. “It is easier to pay dividends and buybacks with confidence if the income stream is less volatile,” he added.

Business Roundtable spokeswoman Jessica Boulanger said the analysis did not take into account how companies spent money that was not returned to shareholders, nor did they take into account “industry differences, company size and longevity, and yield trends.” of shareholders over time “. He added that the signatories confirmed their commitment to work for all stakeholders.


CEOs signed the pledge without legally binding their companies and largely without approval from their tables. COVID-19 has tested their commitments as large swaths of the economy have been forced to close.

The lack of details of the promise gave the signatories wide discretion in deciding how the pain of the pandemic would be spread among shareholders, employees and other stakeholders.

“It’s a political reporting exercise that doesn’t mean much,” said Harvard Law School professor Jesse Fried, a member of the research advisory board at Glass, Lewis & Co, who advises investors on how to vote on corporate governance.

Defenders of corporate roundtable engagement say that many contributions to the company cannot be measured as easily as shareholder spending or layoffs. For example, JP Morgan Chase & Co has pledged $ 30 billion to address racial injustices and Apple Inc has launched a $ 100 million diversity promotion.

Indeed, some signatories have won praise from progressive organizations supporting employees during the pandemic.

Among them, Target Corp raised its minimum wage to $ 15 an hour in July from $ 13, which was already well above the national level of $ 7.25.

Some executives and investors argue that unless companies are attractive to shareholders and keep their shares highly valued, they won’t have the money to invest in their businesses for the benefit of all stakeholders.

“If you don’t have access to capital, you won’t be around long enough to tackle tough social issues like climate change,” said Todd Ahlsten, chief investment officer at Parnassus Investments, a San Francisco-based company with $ 40 billion in investment. management.


Less than two years after the signing of the promise, the main players of AT&T have moved on. Stephenson handed the reins to a successor and Elliott sold what was once a $ 3.2 billion stake in the company.

The layoffs of AT&T during the pandemic caught the attention of Democratic Senators Elizabeth Warren and Bernie Sanders, who wrote to the company last July objecting to “companies using the pandemic as justification for continuing to make anti-worker decisions aimed at increasing the share price “.

“The long-term interests of our communities and employees cannot be met without attracting investor capital,” AT&T Executive Vice President Timothy McKone responded in a letter.

BlackRock Inc and Vanguard Group Inc, whose CEOs have also signed the pledge, were among AT&T investors who last April voted against a proposal to have an employee representative on the company’s board of directors – a step that the its supporters claimed it would give stakeholders a voice. Both fund managers declined to comment.


Researchers at the University of Pennsylvania’s Wharton School found that among signatories, the greater the share of profits companies subsequently returned to investors, the more likely they were to announce layoffs and permits.

A study from the London School of Economics and Columbia University found that the petitioners violated environmental and labor regulations and paid their CEOs more than their colleagues of similar size.

Like AT&T, some companies that have made ongoing payments to shareholders even as they cut their jobs during the pandemic.

Cisco Systems Inc repurchased $ 800 million of its shares during the three months ending October 24, 2020. The network equipment maker announced a restructuring plan in August to cut $ 1 billion in costs per year, with the loss of approximately 3,500 jobs.

“Cisco believes in the Business Roundtable’s commitment to balancing the needs of all our stakeholders and fulfilling our company’s purpose of fueling a more inclusive future for all,” the company said in a statement.

Walgreens Boots Alliance Inc repurchased $ 522 million of its stock from From April to July. That month, the pharmacy operator cut 4,000 jobs, about 7% of its workforce, raised the dividend, and canceled the stock buyback program.

Walgreens did not respond to a request for comment.

Business Roundtable chairman Walmart Inc CEO Doug McMillon downplayed the importance of engagement in investor remarks last February. He said it “didn’t sound like news” because the companies were still trying to balance the interests of all stakeholders and that “obviously, our shareholders are our priority.”

Walmart declined to make McMillon available for an interview. A company spokesperson pointed out that McMillon’s previous comments on multi-stakeholder capitalism are “the answer to addressing our challenges holistically.”

Reportage by Jessica DiNapoli in New York, Ross Kerber in Boston and Noel Randewich in San Francisco; Editing by Greg Roumeliotis and Pravin Char