By Jessica DiNapoli, Ross Kerber and Noel Randewich
(Reuters) - When Randall Stephenson joined 180 of his peers leading many of the richest U.S. companies in signing the Business Roundtable pledge on the "purpose of a corporation" in August 2019, the then-chief of AT&T Inc (NYSE:T) promised to look out for the interests of all the wireless carrier's stakeholders, not just shareholders.
Two months later, the Dallas-based company outlined a plan for cost reductions that also prioritized dividends and stock buybacks for shareholders, succumbing to pressure from $41 billion hedge fund Elliott Investment Management LP.
Activist investor Elliott had said its proposals would deliver "substantial benefits" for shareholders, consumers and employees, but not everybody 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 corporate world's top dividend payers with $14.9 billion spent in 2019, AT&T had raised its common dividend by 2% and bought back $7.5 billion of its stock.
"We are the face of AT&T and we go out of our way to help customers communicate with their families," said Darren Miller, a 35-year-old technician whose job was cut last July. "But we are a dime a dozen to them. If they can get someone cheaper to do the job, they will do it."
Miller, who worked in Reseda, California, said he accepted a buyout offer after managers told him he might be laid off later on less generous terms, something he said his local union representatives told him happened to dozens of other employees in the state.
AT&T spokesman Jim Kimberly said most of the workforce reductions "were from voluntary departure offers and attrition" and declined to comment on individual cases. He added the company had for years practiced a "meaningful commitment to all stakeholders" through programs that include worker retraining and environmental and social justice efforts. AT&T also ended share buybacks once the pandemic hit, and has not increased its dividend since, Kimberly said.
Elliott declined to comment.
Some advocates of a socially-minded stakeholder capitalism say AT&T's case is representative of the hurdles they face in challenging the leverage investors have over U.S. companies.
The voluntary governance pledge signed by the CEOs didn't spell out specific actions, but had the stated aim of moving away from "shareholder primacy". https://s3.amazonaws.com/brt.org/BRT-StatementonthePurposeofaCorporationOctober2020.pdf
Yet while signatories subsequently reduced payouts to shareholders as companies put away cash to shield themselves from the financial fallout of the COVID-19 pandemic, they still give a greater share to investors than those companies that did not sign the pledge, according to a Reuters analysis of data compiled by financial information provider Refinitiv.
The analysis found that the 171 publicly traded companies that signed the pledge returned a median 60% of net income to shareholders during the first three quarters of 2020 through dividends and buybacks, versus a 50% return among the 355 S&P 500 firms that did not sign the statement.
By comparison, in the first three quarters of 2019, the signatories returned a median 73% of net income to shareholders versus a 68% return among the firms that did not sign the pledge, the analysis found.
Tim Gaumer, Refinitiv's director of fundamental research, said pledge signatories returned more to investors because they had the ability to do so. "It is easier to pay out dividends and buybacks with confidence if your income stream is less volatile," he added.
Business Roundtable spokeswoman Jessica Boulanger said the analysis didn't account for how companies spent money they did not return to shareholders, nor for "industry differences, company size and longevity and trends in shareholder returns over time." She added that signatories had upheld their commitment to work for all stakeholders.
(Graphic: Roundtable signatory companies slash buybacks : https://graphics.reuters.com/USA-CORPORATIONS/STAKEHOLDERS/qmyvmymqnvr/chart.png)
(Graphic: Roundtable signatory dividends hold up Roundtable signatory dividends hold up: https://graphics.reuters.com/USA-CORPORATIONS/STAKEHOLDERS/qzjpqmqaxpx/chart.png)
'SIGNALING EXERCISE'
The CEOs signed the pledge without legally binding their companies and largely without approval from their boards. COVID-19 stress-tested their commitments, as large swathes of the economy were forced to shut down.
The pledge's lack of detail gave signatories wide discretion in deciding how the pandemic pain would be spread among shareholders, employees and other stakeholders.
"It's a political signaling exercise that doesn't mean very much," said Harvard Law School professor Jesse Fried, who is on the research advisory council of Glass, Lewis & Co which advises investors over how to vote on corporate governance.
Defenders of the Business Roundtable pledge say many contributions to society cannot be measured as easily as shareholder spending or layoffs. For example, JP Morgan Chase (NYSE:JPM) & Co pledged $30 billion to address racial injustices, and Apple Inc (NASDAQ:AAPL) launched a $100 million diversity drive.
Indeed, some signatories have won praise from progressive-leaning organizations for standing by employees during the pandemic.
Among them, Target Corp (NYSE:TGT) raised its minimum wage to $15 an hour in July from $13, which was already well above the $7.25 national level.
Some executives and investors argue that unless companies are attractive to shareholders and keep their stock 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, then you're not going to be around long enough to face tough societal issues like climate change," said Todd Ahlsten, chief investment officer for Parnassus Investments, a San Francisco-based firm with $40 billion under management.
EMPLOYEE REPRESENTATION
Less than two years after the signing of the pledge, key protagonists at AT&T moved on. Stephenson passed the reins to a successor, and Elliott sold what was once a $3.2 billion stake in the company.
AT&T's layoffs during the pandemic attracted the attention of Democratic senators Elizabeth Warren and Bernie Sanders, who wrote to the company last July objecting to "corporations using the pandemic as justification for continuing to make anti-worker decisions that are aimed at boosting 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 (NYSE:BLK) and Vanguard Group Inc, whose CEOs also signed up to the pledge, were among the AT&T investors who voted down a proposal last April to have an employee representative on the company's board - a step its advocates argued would give stakeholders a voice. Both fund managers declined to comment.
SPENDING ON SHAREHOLDERS
Wharton School of the University of Pennsylvania researchers found that among signatories, the bigger share of profits companies subsequently returned to investors, the more likely they were to announce layoffs and furloughs.
A study from the London School of Economics and Columbia University found signatories violated environmental and labor-related rules and paid their CEOs more than similarly-sized peers.
Like AT&T, some companies that signed up continued payouts to shareholders even as they cut jobs during the pandemic.
Cisco Systems Inc (NASDAQ:CSCO) bought back $800 million of its shares during the three months ended Oct. 24, 2020. The network equipment maker had announced a restructuring plan in August to cut $1 billion in costs annually, with the loss of about 3,500 jobs.
"Cisco believes in the Business Roundtable pledge balancing the needs of all of our stakeholders and fulfilling our own company's purpose of powering a more inclusive future for all," the company said in a statement.
Walgreens Boots Alliance (NASDAQ:WBA) Inc repurchased $522 million of its shares from April through July. That month, the pharmacy operator cut 4,000 jobs, some 7% of its headcount, bumped up its dividend and nixed its stock buyback program.
Walgreens did not respond to a request for comment.
The chairman of the Business Roundtable, Walmart (NYSE:WMT) Inc CEO Doug McMillon, downplayed the significance of the pledge in remarks to investors last February. He said "it didn't feel like news" because companies sought to balance the interests of all stakeholders anyway, and that "of course, our shareholders are our priority."
Walmart declined to make McMillon available for an interview. A company spokeswoman pointed to McMillon's previous comments on multi-stakeholder capitalism being "the answer to addressing our challenges holistically."