Shareholder primacy has been the subject of vigorous recent debate. In recent years, asset managers have launched hundreds of ‘socially responsible’ or ‘ESG’ funds that take into account how portfolio firms treat non-shareholder stakeholders (although, as we argue in a related paper, ESG funds may not actually be meeting their stated goals). A salient example is the case of BlackRock CEO Larry Fink who, in his recent annual letters to CEOs, has repeatedly warned portfolio firms that they must deliver performance and contribute to society or risk losing BlackRock’s support.

Perhaps in response to pressure from asset managers, in recent years several firms have claimed to be socially responsible. In our paper, Do Socially Responsible Firms Walk the Talk?, we confront such claims with the data using the most notable such proclamation in recent years, the August 2019 Statement on the Purpose of a Corporation  by the Business Roundtable (BRT). The BRT is a large, deeply influential business group containing many of America’s largest and most well-known firms. The 2019 Statement, which received a substantial amount of press coverage, proclaimed that a corporation’s purpose is to deliver value to all stakeholders; prior to this, the BRT had explicitly endorsed a model of shareholder primacy.

Because the Statement explicitly referred to firms’ commitments to the environment and to employees as key stakeholders, we first empirically test whether signatory firms do in fact exhibit superior treatment of employees or the environment. To do so, we make use of Good Jobs First’s Violation Tracker and assess signatory firms’ track records relative to a control group of similarly-sized, within-industry peer firms that did not sign the Statement. Our results are sobering. Relative to within-industry peer firms, we find that signatories of the Statement on the Purpose of a Corporation have higher rates of environmental and labor violations (and pay more in compliance penalties to the Environmental Protection Agency, Occupational Safety & Health Administration, and Wage & Hour Division of the Department of Labor as a result). Moreover, when we turn to carbon emissions—used by many in the asset management industry as the most important measure of firms’ environmental performance—we find that signatory firms have higher levels of emissions, again relative to similarly-sized within-industry peers.

Turning to other dimensions of corporate conduct, we continue to find similar results. Notably, we find that BRT signatories incorporate regulatory support into their business models to a greater degree, potentially shifting their costs onto taxpayers: signatory firms receive larger and more frequent taxpayer-funded government subsidies and (perhaps in order to obtain these subsidies) spend more on lobbying policymakers.

Overall, our results suggest that signatory firms have not historically ‘walked the talk’ with respect to stakeholder orientation. Our findings beg the question: why did the signatories sign the BRT statement in the first place? We propose three explanations. First, signatory firms may intend to improve on their poor compliance records in the future. Second, measurement of a firm’s ESG orientation is hard and investors have traditionally used commercial ESG scores to evaluate firms’ track records; recent literature, including some of our own work, finds that ESG scores rely on the existence of disclosure about stakeholder treatment but not on the content of such disclosures. Third, signing the BRT statement is an attempt to divert regulators’ and stakeholders’ attention from the signatories’ true track records with respect to stakeholders.

To comprehensively test the first explanation, we would need a long-term series of ex-post behavior after the BRT pledge was signed. While the recency of the BRT Statement precludes longer-term ex-post analyses, we conduct preliminary analyses using available data for the short post-signing time period. We find no evidence that signatory firms changed their behavior after signing the Statement, ie, that signatory firms continue to commit more labor and environmental violations and have higher CO2 emissions relative to size- and industry-matched non-signatory firms.

With respect to the second explanation, we show that ESG scores rank BRT Statement signatory firms as more stakeholder oriented relative to the control sample.  However, upon a closer examination of the data, we observe that these ESG scores are not correlated with federal compliance records or carbon emissions metrics but are correlated with the presence of voluntary disclosure about ESG, consistent with Drempetic et al (2017) and Lopez de Silanes et al (2019). The correlations documented in these papers between ESG scores and voluntary proclamations of social responsibility, but not between ESG scores and actual performance with respect to social responsibility, suggest that this may have been a reason for signatory firms to sign the Statement.

We cannot actively test the third explanation that proposes signing the BRT Statement was a way to distract regulators. However, the evidence we document—that BRT signatories, relative to a control sample, systematically (i) lobby lawmakers more; (ii) receive more state aid via targeted government subsidies; and (iii) recommend voting against proxy resolutions suggested by minority shareholders—is suggestive of an effort made by BRT signatories to divert attention away from their true track records related to stakeholder (mis)treatment.

Collectively, our results suggest that firms’ proclamations of stakeholder-centric behavior are not backed up by any hard data on these firms’ operations. Our work complements recent studies on greenwashing in the asset management industry. Our findings also suggest an important takeaway: as a broader set of investors than ever before begins to incorporate non-financial criteria into investment decisions, due diligence—and understanding how firms actually treat their stakeholders, not simply how they claim to treat them—is critical with respect to firms’ proclamations of social responsibility.

Aneesh Raghunandan is an assistant professor of accounting at the London School of Economics and Political Science.

Shivaram Rajgopal is the Roy Bernard Kester and T.W. Byrnes Professor of Accounting and Auditing at Columbia Business School.