Corporate Responsibility

When corporations acquire too much power and influence, it threatens the air we breathe, the water we drink, and the health of our democracy. Amid the rising power and political muscle of major corporations in recent decades, the need to counter greedy and harmful corporate practices has grown exponentially.

The Rise of CEO Pay
Executives of corporations receive financial compensation often as a mixture of salary, bonuses, shares of the company stock, etc. Over the past 60 years, executive pay has increased astronomically. In fact, CEO pay in 2009 had more than doubled the CEO pay average for the decade of the 1990s, more than quadrupled the CEO pay average for the 1980s, and ran approximately eight times the CEO average for all the decades of the mid-20th century.  (link: Institute for Policy Studies)

The contrast between executive pay and average worker pay is stunning.  In 2009, CEOs of major US companies averaged 263 times the pay of typical American workers. Back in the 1970s, CEOs made 30 times average worker pay.  To make matters even more galling, taxpayers subsidize these outlandish executive salaries to the tune of more than $20 billion a year through tax and accounting loopholes.

In 2010, Congress passed major health care and financial reform bills, both of which contained small executive compensation related policies. The health care reform bill capped the tax deductibility of health insurance executive pay, and the financial reform bill required that all firms report CEO-worker pay ratios. Much more needs to be done and there’s no shortage of good ideas to reign in outsized executive compensation.

Shareholder Activism
One of the key tools for speaking out against rising CEO pay and harmful corporate practices is shareholder activism. In addition to legislation, it is one of the most powerful tools for advancing corporate reforms.

Corporations are owned by shareholders, who can be individuals or institutions (such as mutual funds). If certain legal and regulatory requirements are met, shareholders are permitted to offer resolutions that get voted on at a corporation’s annual meeting. Shareholder resolution issues can be financial – e.g., executive compensation, predatory lending practices – or non-financial – e.g., board diversity, divestment from particular countries.

Shareholder resolutions are only advisory, meaning that even if a resolution passes, it is not required to be implemented by the corporation. However, resolutions often put unwanted public attention and pressure on corporate leaders and, thus, are used as leverage to win shareholder demands. Read more about shareholder activism here.

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