Stakeholder Capitalism vs. Job Cuts

Andy Tannen

Salesforce is eliminating 8,000 employees; Google 12,000; Amazon 18,000; Goldman Sachs up to 3,200. Capital One is eliminating 1,100 people and asset manager/ESG leader BlackRock is cutting 500 jobs. Most economy and investment experts are predicting some level of recession later this year. For employees, 2023 may be a tense year, despite very low unemployment overall.

Where does stakeholder capitalism align with job cuts? In 2019, the Business Roundtable released its seminal Statement on the Purpose of a Corporation, which argued that key stakeholder groups including employees, customers, suppliers and communities were as important as shareholders and that the long-term interests of all stakeholders are inseparable.

Early last year, a study conducted by academics at Harvard Law School and Tel Aviv University seemed to contest that the stakeholder approach has truly been adopted by many companies. Called Stakeholder Capitalism in the Time of Covid, the study reviewed 100 public company acquisitions with $700 billion in value during the pandemic’s first 20 months. The study found that these deals “provided large gains for target shareholders and corporate leaders themselves. However, even though the pandemic heightened risks for stakeholders, corporate leaders negotiated little or no stakeholder protections.”

In conducting the study, the professors reviewed press releases, conference call transcripts, investor and analyst presentations and media coverage of the deals and found that the acquisitions “were often expected to be followed by cost-cutting, closing or relocations of facilities and offices, and risks to continued employment of some employees.” Despite that, the study found that “corporate leaders generally didn’t bargain for employee protections, including any compensation to employees that would be fired after the acquisition. And corporate leaders also didn’t negotiate for any protections to customers, suppliers, communities, the environment or other stakeholders.”

In summarizing their study, the professors wrote: “Those who are concerned about the effect of corporations on, say, climate change or employees should not harbor illusory hopes that corporate leaders will address such effects on their own; they should instead focus on obtaining government interventions (such as a carbon tax or employee-protecting policies.)”

From my perspective working with CEOs, that conclusion is too harsh. Many CEOs are doing everything they can to improve their company’s sustainability performance in the wake of climate change, and they are working with their boards and C-suites to improve their company cultures, including providing more flexibility, more paid time off for employee maternity/paternity leaves and other benefits. And many corporate leaders are working to ensure that diversity, equity and inclusion is “built in” as an ongoing critical company priority.

But at the end of the day (well, year), public company CEO jobs and compensation depend on delivering earnings and share price growth. And while the stakeholder capitalism “movement” arguably provides benefits to multiple stakeholders and the broader society, shareholders, especially in tough economic times, take priority over the other stakeholders. As CEO Satya Nadella wrote to Microsoft employees when announcing that 10,000 employees were losing their jobs, this action was needed “to align our cost structure with our revenue and where we see customer demand.”

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Andy Tannen is president of Tannen Corporate Communications, a corporate reputation consultancy. Previously, he worked in corporate communications at Publicis Groupe's MSL for 28 years, with clients such as IBM, United Technologies, Roche, Honeywell, BP and many other companies.