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“After reviewing Richards, Layton & Finger’s report on the potential conversion of JPMorgan Chase to a Delaware public benefit corporation and considering, among other things, the factors and issues outlined in the Report, the Board of Directors, acting through its Corporate Governance & Nominating Committee, determined that it would not be in JPMC’s best interests to convert to a Delaware public benefit corporation.”
These were the words of JPMorgan’s board of directors in response to a shareholder proposal from Harrington Investments requesting it to commission the report in question. On January 11, the company asked the Securities and Exchange Commission for permission to exclude the proposal on the basis of it being substantially implemented – in other words, the report had already been commissioned and received – and that it had to do with the ‘ordinary business’ of the company (a favourite argument of companies negotiating with the SEC under the Trump administration).
But hold on a minute.
As we said earlier, certified B-Corp companies (public benefit corporations) have a legal obligation to consider the fortunes of all stakeholders: shareholders, workers, community, customers and the environment.
And wasn’t JPMorgan one of the earliest signatories to the US Business Roundtable’s Statement on the Purpose of a Corporation? A statement purporting to allow companies to move away from shareholder primacy to give equal weight to other stakeholders, such as employees, communities, suppliers and customers. Hmmm… sounds like a B-Corp.
Except, of course, as a B-Corp, you actually have to do it.
JPMorgan’s arguments for excluding the proposal are exactly the same ones it used last year to exclude another proposal from Harrington Investments, which asked the board to consider how it would implement certain parts of the Statement on the Purpose of a Corporation. The board responded that it had already done so, that it was already considering these other stakeholders, and therefore didn’t need to do anything.
‘This memo should end the discussion. I understand why they emphasise stakeholders in their communications, but don’t tell me you’re a company that prioritises them’ – Frederick Alexander, Shareholder Commons
The report requested in the latest proposal, and commissioned by JPMorgan, was produced by Delaware’s largest law firm, Richards, Layton & Finger. It considers a range of potential risk factors related to becoming a B-Corp, including “a lack of precedent for converting conventional corporations to public benefit corporations and regarding the governance of publicly-traded public benefit corporations, regulatory uncertainty, market uncertainty, uncertainty on the Company’s ability to attract and retain employees, uncertainty on the impact of the Company’s international operations and costs of implementation”.
(On lack of precedent, the report says: “To our knowledge, no US publicly traded corporation has converted to a public benefit corporation”. Well, it took me about five minutes of research to find two publicly-traded companies that have converted to B-Corps, so that’s a non-starter.)
But, most importantly, the report recognises that, whether a company or its CEO has signed on to the new Purpose, shareholders retain primacy.
Here’s what it says: “If the interests of the stockholders and the other constituencies conflict, however, the board’s fiduciary duties require it to act in a manner that furthers the interests of the stockholders.”
In other words, when push comes to shove, to coin a phrase, forget the customers, forget the communities, forget the employees and forget the suppliers. And forget the new Purpose.
In stark contrast, the report notes “directors of a public benefit corporation are required to consider the interests of constituencies other than stockholders in making business decisions, and where the pecuniary interests of stockholders and one or more of the corporation’s other constituencies conflict, the directors are obligated to balance the competing interests”.
The resolution at JPMorgan is, of course, not the only one – though others take different forms. A resolution at US energy company Chevron (another signatory to the ‘purpose’ statement) filed by shareholder Arjuna Capital, calls for a change to the company’s certificate of incorporation to become a B-Corp; “to establish a public purpose, such as promoting a sustainable global economy, consistent with our CEO’s statement to commit our company to all stakeholders”.
Interestingly, Chevron has not challenged this shareholder proposal and asked the SEC if it can exclude it, though that may be because it is so recent. It has challenged the other four resolutions that shareholders submitted last year.
Frederick Alexander, CEO of US non-profit The Shareholder Commons, notes that other, similar resolutions – like those at farm equipment supply company Tractor Supply and conglomerate 3M – are being challenged at the SEC.
"It’ll be interesting to see how those work out and if they go to a vote," he says. While companies can fend off proposals that ask for reports by simply commissioning the report early, and arguing the resolution has therefore been sustantially implemented, it's harder to do the same for proposals asking for a vote on conversion.
3M’s objection claims that the proposal relates to ordinary business, while Tractor Supply thinks it has been substantially implemented, and says: “The Company’s Mission and Values… was updated in 2020 to explicitly convey the Company’s commitment to each of the stakeholders set forth in the Statement: customers, employees, suppliers, communities and shareholders.”
Alexander notes that, while the JPMorgan proposal will likely be excluded, the study it produced was worth it anyway.
“The stakeholder question is only interesting when the interests of the shareholders and other stakeholders diverge,” he says, but points to statements by the BRT that suggest this doesn’t happen. In an FAQ published shortly after the Statement on the Purpose of a Corporation, the group says: “While we acknowledge that different stakeholders may have competing interests in the short term, it is important to recognize that the interests of all stakeholders are inseparable in the long term.”
Alexander says this is an unrealistic and oversimplified observation. “Of course they diverge sometimes – just think about a simple dividend. And the Richards, Layton & Fingers report says that – they cut right through it and they are the Delaware experts. And the JPMorgan board responded with, ‘we’re going to stick with the shareholders’. This memo should end the discussion. I understand why they emphasise stakeholders in their communications, but don’t tell me you’re a company that prioritises them.”
So, should JPMorgan’s CEO unsign the Statement?
“At least just admit that the Statement of Purpose is stating the obvious,” suggests Alexander. “That sometimes the interests of different constituents are aligned, and they are going to be thoughtful about that.”
“I doubt it [that they’ll unsign], they’ll just continue to do this two-step because they want to avoid the difficult question about what they do when the lending practices that maximise returns for JPM shareholders create social and environmental costs that others bear.”