There’s no U.S. law that explicitly backs that up. Several court cases have broached the matter, including in Delaware, where many companies are incorporated. Some legal scholars and governance experts interpret the court opinions as prohibiting actions that promote environmental or social goals at the expense of profits, but there’s no consensus.
“The most frustrating thing I ever hear is when someone says that a board of directors can’t do things that are attuned to sustainability under the current legal system,” said Larry Hamermesh, executive director of the Institute for Law and Economics at the University of Pennsylvania Law School. “They can. There is nothing in the law that precludes this.”
Official Scorecard
Many companies vow to do good things but often resist releasing data to let others independently verify such promises, or cherry-pick the data they do disclose. Many refuse to release the gender and racial figures they provide to the U.S. government.
It’s also unclear to what extent the pledge will weaken the role of the stock price as a CEO’s official scorecard. A shifting of resources could affect a company’s policy on measures often seen as taken to give short-term share price boosts, such as corporate buybacks.
Activist investors have for years grown in size and shown willingness to take on also the biggest global companies with lagging stock prices, including Procter & Gamble Co. and GE. Still, the breadth of signatories may empower CEOs to dial down their adherence to short-term results.
“People treat it as a trade off -- as a zero-sum game,” said Martin Whittaker, CEO of Just Capital, a non-profit that studies how companies perform on a variety of metrics such as worker well-being and environmental impact. “In the short term, raising wages may suppress the stock price, but if you look over time, you see these companies do better.”
This story provided by Bloomberg News.