Restoring the market promise of shared opportunity

Read Part I here. Read Part II here.

Over the past several decades, we have seen our economy concentrate economic opportunities among the privileged. Nothing puts that in a starker light than the COVID-19 crisis, where the stock market reaches new heights while over 17 million Americans remain unemployed. We will likely be facing a K-shaped recovery in the next few years — where high-income Americans recover quickly from the pandemic, while low-income Americans and communities of color fare worse in employment and wage outcomes. President Biden’s American Rescue Plan, American Jobs Plan, and American Families Plan will address part of this problem, but we need to do more to reorient the economy toward shared prosperity.

We will see this recovery apply differently across geography. In the past decade, the American economy has increasingly divided opportunity between rural and urban neighborhoods in America. We know, for example, that between 2007 and 2010 — following the Great Recession — metro areas and non-metro areas in the United States lost employment opportunities at roughly the same rate.[1] After 2010, however, opportunities concentrated in metro areas. In 2013, metro areas saw the number of full- and part-time opportunities bounce back to pre-recession levels and, by 2017, experienced a 7% increase in employment opportunities. Meanwhile, in that same time period, non-metro areas had still not recovered fully from the recession.[2] In 2017, full and part-time job opportunities in non-metro areas were still down 2% compared to pre-recession figures.[3] A report by the Economic Innovation Group called this phenomenon a “deep ongoing recession” for rural America.[4]

We will also see this recovery apply differently across distinct types of workers — full-time employees as compared to the subcontracted or independent workforce. In the past several decades, the corporate shedding of responsibility for low-wage and vulnerable workers is another way that the economy concentrates opportunities for upward mobility. Facing increased pressure from short-term oriented shareholders and executives to cut costs and increase efficiency, researchers note that companies have — in some cases — responded by increasingly focusing on “core business” functions and outsourcing competencies perceived as less essential or valuable to subcontractors.[5] This type of arrangement is known as a “fissured workplace” — an environment where a primary employer outsources non-core business functions to subsidiary firms but still maintains tight control over the outcomes of those subsidiaries.[6] In practice, this has meant less pay, fewer benefits, and capped opportunities for advancement for the workers we now publicly call “essential” during a COVID-19 economy: janitorial, facilities maintenance, security, food preparation, and others.

One of the culprits behind the concentration of opportunity in America is the disregard for broad-based growth in our market-based system. We see this manifested in a number of ways. In 2017, U.S. startups collected more than $67 billion in venture capital funding,[7] yet 90% went to businesses started in just 10 cities across America (60% to San Francisco, New York, and Boston alone).[8] Less than 1% of that total is going to businesses started by African Americans. Meanwhile, growth at many of the top public companies is increasingly purchased through mergers and acquisitions, rather than built through smart long-term investments.[9] Only a few select companies offer workers the opportunity to participate in profit sharing and employee share ownership, and increasingly do so only for select full-time employees.[10]Simultaneously, equity-based executive corporate compensation packages often reinforce, rather than temper, incentives to return capital to shareholders via buybacks and short-term stock gains for personal gain.[11]

Another culprit is the focus on hyper efficiency over long-term resiliency. Each individual firm’s focus on increasing profit margins through a hyper focus on efficiency — by shedding diversification, redundancy, and business slack — has come at the expense of resiliency in the face of unexpected shocks like COVID-19. As the Wall Street Journal points out, by design, “efficiency comes through optimal adaptation to an existing environment, while resilience requires the capacity to adapt to disruptive changes in the environment.”[12] This translates to exactly the factors that have led our economy to be so highly vulnerable to a public health crisis at the scale of COVID-19: corporations have little savings, workers are living paycheck-to-paycheck, and supply chains are outsourced to the lowest bidder.[13] If we plan to continue to be the strongest economy into the 21st century, we need to also plan on being the most resilient in the face of potential disruption by increasing the standards by which we evaluate private sector success.

It’s fair to say that policymakers have offered the wrong solutions up until this point. In 2017, during debate over the Tax Cuts and Jobs Act (TCJA), companies promised that a lower corporate tax rate would lead to sustained investments in workers in the form of higher wages It’s fair to say that policymakers have offered the wrong solutions up until this point. In 2017, during debate over the Tax Cuts and Jobs Act (TCJA), companies promised that a lower corporate tax rate would lead to sustained investments in workers in the form of higher wages and long-term growth in innovation.[14] Instead, after the corporate tax rate was cut, JUST Capital found that almost 60% of profits went back to shareholders in the form of buybacks.[15] At a time when the top 10% wealthiest American households own 84% of all stocks in the U.S.,[16] S&P 500 share repurchases surged 50% to an all-time high of over $800 billion in 2018.[17] In other words, in over two years since the TCJA passed, the government lost tax revenue and, in exchange, corporations sent over $2 trillion to shareholders in the form of stock buybacks. This focus on returning profits to shareholders at the expense of investments in workers and growing the business has likely contributed directly to the underpaying of workers and decreased business investments.

If investments in new businesses are increasingly going to the major cities in America and public companies are returning most excess profits back to wealthy investors instead of workers and business growth — who is investing in broad-based inclusive growth in America?

As a first step to tackling this problem, policymakers should reform aspects of the current corporate governance structure that discourage investment in a broader set of business stakeholders. In the absence of reforms to keep pace with changing technology and market forces, workers have accrued a smaller and smaller piece of the economic pie. Congress should promote a true stakeholder model, and companies and investors should complement this through their own behavior. [18];[19]

There has been some interest in this, most notably through the Business Roundtable’s recent Statement on the Purpose of a Corporation and the World Economic Forum’s 2020 Manifesto. Signed by 181 CEOs, the Business Roundtable suggests companies should be led for the benefits of all stakeholders — customers, employers, suppliers, communities, and shareholders.[20] Other organizations, like JUST Capital[21] and the Coalition for Inclusive Capitalism[22] and B Lab, have been working to tangibly shift company incentives in this direction through disclosure transparency, changes in norms, and advocacy for changes to corporate charters. Investor voice has also notably been an important driver of improved business practices. Now, as the present crisis has made so unfortunately clear, policymakers should offer legislative solutions to allow companies to follow through on commitments to all stakeholders.

Capitalism can continue to work in America; but, to be sustainable in the long-term, growth and profits must be more broadly shared so we can, once again, build a growing middle class. Investments in the sustainable long-term growth of a business benefit not just current employees but also the economy as a whole. In order to accomplish this, we must not perpetuate the perception that companies will be penalized for investing in workers, communities, and consumers on par with shareholders.[23]

A. A Federal Commitment to Employment and Job Quality

Throughout specific stages of American history, policymakers have pursued the goal of full employment — that is, the elimination of unemployment for anyone who wants to work and is looking for work. With the Employment Act of 1946 and the Full Employment and Balanced Growth Act of 1978, the federal government has previously established full employment as a national goal in law.[24] As the Center on Budget and Policy Priorities notes, the 1978 law established “an interim five-year target of three-percent unemployment for individuals 20 years of age and older, and four percent for individuals age 16 and over within five years, with full employment to be achieved “as soon as practicable” thereafter.”[25] Advocates brought about these federal laws after having long understood that full employment was necessary for addressing inequality and racial inequality, in particular. Historically, civil rights leaders made full employment one of the cornerstones of the 1963 March on Washington and advocated for economic rights in tandem with civil rights.[26]

While full employment has often been pursued as a “goal,” it has never been pursued as a commitment. In over 40 years since the passage of the 1978 law, the United States has not met the targets laid out in the legislation and has not enforced them. Today, “full employment” tends to be associated with a four-to-six percent unemployment rate, but researchers note that even an unemployment rate close to 4% still leaves 6.7 million workers unemployed, an additional 5 million working part-time when they would prefer full-time work, and job seekers still substantially outnumbering job openings. [27]

Proposal: Change the language of the Full Employment and Balanced Growth Act of 1978 to a commitment with a renewed five-year target. The federal government would be tasked with investing in opportunities for national public service and partner with non-profits and the private sector to meet the new targets. Full employment targets could also be revised to consider equitable and quality employment, by targeting lower unemployment rates and job quality metrics for workers of color and workers without a college degree.

B. Global Aligning of Environmental, Social, and Governance Reporting

One additional way to shift corporate behavior toward sustainability is to expand the information companies disclose to investors and the public. In an effort to protect public investors, the federal government requires public companies to disclose information on business practices that are financially material to company performance. This allows investors to establish benchmark metrics and make comparisons across companies. The current disclosure requirements, however, do not ask companies to report on a broad set of impact issues, generally considered Environmental, Social, and Governance (ESG). ESG issues cover a broad range of topics, including impact on climate change, transparency in corporate governance practices, workforce management, human rights, diversity, political spending, as well as human capital management. Some companies voluntarily report this kind of information, but they are not currently required to nor do standardized metrics exist, which makes it difficult for investors to compare across companies.

Investors are increasingly demanding comprehensive and comparable information on ESG issues in order to better understand risks to the financial performance of companies in which they may invest, long-term systemic risks to the economy, and the impact of businesses on their communities. For example, the Chartered Financial Analyst Institute — a global association of investment professionals — found in 2015 that 73% of institutional investors take ESG issues into consideration when assessing their investment decisions and managing investment risks.[28] According to data from Ernst & Young and As You Sow, the percentage of shareholder proposals filed with SEC-registered firms related to ESG issues increased from 40 percent in 2011 to 67 percent of all proposals filed in 2016.[29] Further, the US SIF: The Forum for Sustainable and Responsible Investment notes that professionally-managed investments using sustainable investing strategies grew from $12.0 trillion at the start of 2018 to $17.1 trillion at the start of 2020, an increase of 42 percent and 1 in 3 dollars of the total US assets under professional management.[30]

There is some movement toward standardization of these ESG metrics for better disclosure among companies, most notably by the World Economic Forum, the Embankment Project for Inclusive Capitalism (EPIC), the United Nations-backed PRI, the Task Force on Climate-related Financial Disclosures (TCFD), and the non-profit Sustainability Accounting Standards Board (SASB). Recent independent research from Harvard Business School found SASB’s metrics to be correlated with company performance.[31] But to truly aid investors, the federal government should not only be at the front lines of better understanding ESG metrics and their material relevance to company performance, it should be actively working to reach a global convergence of these metrics.

Proposal: The SEC should require more broad based ESG disclosures by companies and, where possible, align them with emerging global ESG disclosure standards. The SEC should consider establishing an ESG task force to ensure that the American market is not disadvantaged by lagging on global ESG disclosure. The task force should evaluate the materiality of systemic matters that are relevant to universal, diversified, and long-term investors, and separate out the standardization of workforce-related issues into its own category. Additionally, it could consider the idea of double materiality, by requiring companies to disclose their effects on society and the environment, and how to ensure that companies cannot avoid disclosure obligations by going or remaining private. These efforts will likely have to be done in conjunction with changes to accounting principles to take impacts on society into consideration.

In July of 2018, Senator Warner asked the Government Accountability Office to conduct a study of the most financially material ESG metrics. The study was released on July 6, 2020. Senator Warner released a statement calling for the SEC to set up a task force on ESG issues.

C. Capital Gains Tax Reform

According to research from the Tax Policy Center, the vast majority of people living in the United States make their livings almost entirely from labor income, such as wages and salaries. The exception is the highest one percent of earners, who receive around a third of their income through investments in capital, such as stocks and bonds.[32] Over the past several decades the United States has seen a shift in tax incentives that favor these owners of capital at the expense of workers, as both capital gains and corporate tax rates have been slashed, while ordinary tax rates have remained largely stable. And thanks to the great diminution of the estate tax and the ability to avoid capital gains through step-up in basis, our tax system has allowed these advantages for the wealthiest Americans to be carried over through generations, promoting dynastic wealth and exacerbating inequality.

When current capital gains taxation policy was combined with the reforms in the corporate tax rate from the TCJA, the federal government largely subsidized more than a trillion in investments to the wealthiest without achieving tangible long-term gains for American workers. Instead of subsidizing investments in American workers, TCJA has exacerbated offshoring and shareholder value maximization, with over $2 trillion going to share buybacks between 2018 and 2020.

Proposal: In order to help equalize the treatment of labor and capital income, and address the alarming increase in inequality within American capitalism, we must substantially reduce the tax advantage of capital gains relative to labor income. This could take the form of higher rates, particularly for short-term holds, or lengthening the time horizon for capital gains. This proposal could also consider reforms to the taxation of inherited wealth and carried interest, with adequate protections for small businesses and family farms, in order to ensure that the very highest income Americans pay their fair share.

D. Allowing Fiduciaries to Consider Sustainability

In addition to reforming the tax code to equalize its approach to workers, lawmakers could promote shifting company fiduciary responsibilities back to all stakeholders, including workers. The U.S. Department of Labor (DOL) defines investment fiduciaries as “persons or entities who exercise discretionary control or authority over [investment] plan management or plan assets, anyone with discretionary authority or responsibility for the administration of a plan, or anyone who provides investment advice to a plan for compensation or has any authority or responsibility to do so.”[33] In 2015, DOL issued guidance suggesting that fiduciaries of retirement plans could consider environmental, social and governance (ESG) factors as part of their investment portfolio without violating their fiduciary duty.[34] In 2020, however, DOL released a bulletin rolling back the interpretation of ESG considerations in portfolios. While the Biden administration’s DOL has already indicated that they plan to retract this rule on ESG considerations, there is more the federal government can do to provide stability and clarity in the long-term.

Companies operate not in a vacuum, but in the context of a broader society; and, investment fiduciaries should have the ability to consider sustainability of the broader community without running afoul of their fiduciary responsibly to shareholders.

Proposal: The federal government should explicitly amend ERISA to require consideration of ESG factors as part of fiduciary duty. The Department of Labor and the SEC should jointly appoint advisory committees on the establishment of reporting and standards for ERISA fiduciaries, and submit reports to Congress containing recommendations on the establishment of sustainable accounting and auditing standards for ERISA plan reporting. When considering metrics on sustainability for workers, diversity, mobility, and quality of employment should be taken into consideration.

E. Requiring Institutional Investor Disclosure on Systemic Health

Another approach might include incentivizing institutional investors to encourage companies to invest in long-term goals. In a Harvard Law School Forum on Corporate Governance and Financial Regulation piece, Martin Lipton — founding partner of the law firm Wachtell, Lipton, Rosen & Katz — offers a perspective and proposal aimed at institutional investors. He notes that the vast majority of the S&P 500 corporations are majority- or near-majority-owned by roughly 20 investors, with approximately 10% to 15% of the shares held by the three asset managers. In his analysis, he considers that almost all of the significant investors in the S&P 500 and other major public corporations are subject to filing and disclosure requirements pursuant to theInvestment Company Act, the Investment Advisers Act, and Section 13(f) [Form 13-F report] of the 1934 Exchange Act.”[35] This provides a set of potential tools for policymakers to incentivize institutional investors to refocus on long-term growth and systemic health, in line with what the Council of Institutional Investors already asks of its members.

Proposal: Require each large investor subject to any one of the Investment Company Act, the Investment Advisers Act, or the Exchange Act to (1) disclose its policy with respect to ensuring long-term economic performance, including stewardship of investees with respect to their positive and negative impacts on critical economic, social, and environmental systems (“Stewardship”), and (2) explain each vote or voting policy as a matter of Stewardship. These disclosures can be made as part of an investment company’s prospectus to investors and be updated through annual shareholder reports. The disclosures can also help form the basis for proxy voting decisions on behalf of investors.

F. Long-term Performance-based Board Compensation

Today, more can be done to re-orient the incentives in corporate governance structure to focus on long-term investments. We know, for example, that the revenue of long-term value focused companies grew on average 47% more than revenue at other firms. [36] Between 2001 and 2014, long-term value focused companies also spent almost 50% more on R&D than their peers.[37] In roughly the same time period, long-term companies created 12,000 more jobs on average than other companies. [38] McKinsey analysis on this data suggests that if every company in the market had been long-term value focused, US companies would have added another 5 million jobs in the United States during that time. [39]

Unfortunately, we also know that, in 2017, 87% of executives or directors of companies felt pressure to deliver strong financial performance in two years or less.[40] A broad survey of the research suggests that equity compensation tied to share price may be partially responsible and that elongating the vesting period of stock may help address this problem.[41]

Given that the average tenure on a public board is longer on average than CEO tenure, board compensation should be tied to longer-term investment.[42] Currently, director compensation typically consists of a cash component, smaller cash amounts paid for attendance at board and committee meetings, and incentive compensation in the form of stock and stock option grants which vest over a period of a few years.[43]

Proposal: Make all equity-based corporate board compensation, including for the CEO if the CEO sits on the corporate board, consist exclusively of restricted equity. This means that the vesting periods of equity-based compensation would lengthen to two years after their departure from the board. To address concerns about early director departures, directors could be allowed to liquidate 10–15% of their awarded incentive restricted shares and options each year. This proposal could include additional reforms focused on the broad adoption of executive compensation principles, such as those outlined by the Aspen Institute’s Business & Society Program.[44]

G. Reform Bankruptcy Code to Prioritize Workers

In addition to reining in corporate excess, lawmakers should limit opportunities for companies to discharge benefit responsibilities owed to their workers in bankruptcy court. Unfortunately, under current law, when companies declare bankruptcy, they are able to request that severances and pensions be modified in bankruptcy court.[45] This effectively prioritizes creditors over workers. As companies file for bankruptcy in the face of COVID-19, this needs to be amended more than ever.

For companies hoping to reorganize in bankruptcy court, a top priority should be their workers. Once their workers are protected, pensions need to be safeguarded. Under the current Chapter 11 and Chapter 7 bankruptcy law, severance payments and other types of payments to workers are defined as fourth-level priority claims, which are entitled to less favorable treatment than administrative expenses back to creditors.[46] Senator Manchin and others have introduced a few proposals[47] to combat unpaid pensions by forcing unpaid vested benefits in pension plans to be granted more favorable treatment by characterizing them as administrative expenses. None of the present proposals, however, cover severance payments, back wages, or making the protection of workers a top priority.

Proposal: We can restore balance to the bankruptcy proceedings in part by making sure that retirees and workers have a real seat at the table during every stage of the bankruptcy process. This includes a designated seat for workers as part of the unsecured creditors’ committee and providing an ombudsman to oversee the rights of retirees who may not otherwise be able to represent their collective interests. We need to increase the priority of wages, so that claims for executive bonuses and attorney fees are not considered ahead of workers’ pay. We need to also include additional safeguards for hard earned health care and pension benefits, so that companiesProposal: We can restore balance to the bankruptcy proceedings in part by making sure that retirees and workers have a real seat at the table during every stage of the bankruptcy process. This includes a designated seat for workers as part of the unsecured creditors’ committee and providing an ombudsman to oversee the rights of retirees who may not otherwise be able to represent their collective interests. We need to increase the priority of wages, so that claims for executive bonuses and attorney fees are not considered ahead of workers’ pay. We need to also include additional safeguards for hard earned health care and pension benefits, so that companies can’t use the bankruptcy process to claw back promises to workers and their families. In the event a company refuses to honor wages for work already performed, we also need to grant workers new rights that provide them an opportunity to lay claim to companies’ assets. Finally, we should consider instituting a mandate for an employee reskilling allowance for displaced workers as a shielded obligation to assist displaced workers in finding new employment and ease the re-training burden on government agencies.

H. Government Contracts for B Corps and Profit Sharing

Federal lawmakers should promote the growth of companies that intend to share profits with employees and consider a wider range of stakeholders. Among privately held companies, several studies have found that profit sharing and employee-share ownership generally leads to sales growth, employment growth, and productivity growth, and an overall positive effect on company performance.[48] Meanwhile, in terms of benefits for employees, research from Joseph Blasi at Rutgers University shows that certain employee-share ownership models lead to higher wages, higher household wealth, lower incidence of layoffs during recessions, and lower likelihood of their company going out of business.[49] There is evidence of improved economic security for many employees of companies with profit sharing and that such firms perform as well as conventionally owned companies.[50]

When the federal government considers subsidies, it should also look to corporate models like B Corporations that are integrating a fiduciary duty to a broader set of stakeholders into its corporate charter. We have seen a rapid growth in B Corporations — there were 82 in 2007 and over 3,400 in 71 countries in 2020. The federal government should do more to invest in this kind of corporate model that attempts to build value creation for more than just shareholders into its charter.

Proposal: Currently, through the Small Business Administration, the federal government sets aside a certain percentage of federal contracts to 8(a) small disadvantaged businesses, HUBZone-certified small businesses, women-owned small businesses, and service-disabled veteran-owned small businesses. This proposal would add “Stakeholder Value” companies that share profits with all workers or integrate a fiduciary duty to a broader set of stakeholders into its corporate charter. This would promote the growth of employee-share ownership and B Corps by granting preferential treatment for government contracts to companies with profit-sharing or employee-share ownership, including worker cooperatives.

I. Executive Salary Deductions in Exchange for Profit-Sharing and Performance

While executive compensation has far outpaced typical worker pay, the United States still allows companies to claim a salary deduction of up to $1 million for their top executives.[51],[52]

In an effort to make the current tax code more equitable for workers, this tax deduction for executive salaries should reflect a behavior that Americans would like to encourage.

Unfortunately, despite receiving a generous tax deduction for executive compensation packages, most companies still don’t share profits broadly with employees. Instead, companies often concentrate profit-sharing or equity participation plans among their top executives. Meanwhile, in 2017, researchers found that CEOs made on average 321 times more than their employees. [53] In 1989, the ratio of CEO compensation to worker pay was 58–1, and in 1965, it was 20-to-1.[54]Steadily over time, executive compensation has ballooned, profit-sharing has been concentrated at the top, and American taxpayers are still subsidizing these compensation packages.

Meanwhile, research on broad-based equity participation and profit-sharing plans suggests positive returns for public companies. Several studies indicate that public companies with broad-based profit-sharing plans saw increases in productivity above comparable firms, slight increases in return on assets, steep reductions in voluntary turnover, and increased return on equity.[55]

Proposal: Salary deductions under $1 million of compensation for named executive officers should only be permissible if there is a comprehensive, broad-based profit-sharing or employee ownership plan in place at the company. Deductions for employee-ownership could also take into consideration the context of broader metrics on diversity, mobility, and quality of employment to guard against the use of employee ownership plans as a replacement for other worker benefits.

J. Linking Stock Buybacks to Investments in Workers

Since the passage of TCJA in 2017, companies have bought back over $2 trillion in their own stock, and for the first time since 2008, buybacks have topped total fortune 500 capital expenditures.[56] Studies suggest a sizable portion of those stock repurchases have gone to foreign investors, who are estimated to hold over 35% of current U.S. corporate equity.[57]

Experts argue that excessive stock buybacks can come at the expense of long-term corporate health, capital investment, and employment. [58];[59] In fact, this focus on short-term returns has likely contributed to the hardships workers are facing today as companies have been less able to weather the economic shock caused by COVID-19. Moreover, research has uncovered a troubling trend — the percentage of insiders selling stock has more than doubled immediately after buyback announcements — suggesting some executives may be using buybacks partly to boost their compensation rather than ways to increase that of their entire workforce.[60] While buybacks may be appropriate in some instances, companies should ensure that they’re not being used to increase executive salaries, and that gains are shared with workers as well.

Proposal: There should be a fresh look at how stock buybacks are impacting workers and long-term corporate investments. As an initial matter, we should ensure that executives can’t use buybacks as a chance to opportunistically sell shares and increase their own compensation. If a stock buyback plan is truly in the long-term interest of the company, then executives should be prohibited from selling shares in the company for a period of time after the buyback is completed.

Accordingly, updates to the SEC Rule 10b-18 — which provides companies with a safe harbor when they repurchase their shares — should be adopted to ensure that executives cannot sell shares in the immediate aftermath of a stock repurchase plan. Additionally, the SEC should develop a more comprehensive framework for approving stock repurchase plans so that the decision is transparent and accountable to the long-term interests of the company. A good start would be to adopt recommendations made by Commissioner Rob Jackson to require a company’s compensation committee to carefully review the degree to which the buyback will be used as a chance for executives to turn long-term performance incentives into cash. If executives will use the buyback to cash out, the compensation committee should be required to approve that decision and disclose to investors the reasons why it is in the company’s long-term interests.

For those companies that choose to move forward with a stock buyback plan, we should make sure that workers are getting a fair share of the company’s excess profits. Options could include:

Option 1: Companies that buy back stock should commit at least 23.8% (approximately the amount of the long-term capital gains tax) of the aggregate amount of the buyback towards long-term investments in their workforce. The investments should be disclosed in the company’s SEC filings and be directed towards identifiable investments such as: student loan repayment, increased wages, worker training and education, expansion of childcare or parental leave policies, and others.

Option 2: Same as Option 1 above, but provide an additional safe harbor from the 23.8% allocation for any company that meets certain “gold standard” metrics within their industry for purposes of long-term investments.

Option 3: Impose a 23.8% excise tax on the aggregate stock buybacks each year and require those funds to be held in escrow for the benefit of the company’s workers. The workers could be authorized to form a committee with the ability to make distributions from the escrow fund on behalf of the workforce.

Option 4: Consider phasing in prohibitions against significant buybacks. If a company has excess cash, it could pay a special cash dividend to its shareholders.


Our American capitalist system has always operated within a structure of policy-level incentives and disincentives, shaped by circumstances specific to our history and our societal values. Over time, government has shaped and reshaped those incentives to better reflect changes in those values: protecting the vulnerable, limiting excess, and incentivizing growth in areas that promote the greater good. Now, in the face of a global pandemic that has upended daily life, led to dramatic loss of life, and caused the worst economic contraction we’ve seen in over 70 years of records, it has never been more important to plan for a future that is inclusive and resilient.

While one list of policy proposals cannot hope to cover every issue that would alter these incentives, this series hopes to jumpstart a bipartisan dialogue about federal solutions for a more responsible form of American capitalism. The hope is to begin to re-align Americans’ free enterprise system toward more resilient and inclusive growth. The proposals aim to be both diverse and of varying impact — from potentially large-scale changes to small technical adjustments for specific sets of individuals. They should serve as a starting point for reform aimed squarely at changing lives for the better.

To make American economic opportunity available to everyone following this pandemic, this paper makes the case that the United States will need to start doing three core things: prioritizing investments in human beings, broadening our social safety net, and reorienting business back to focus on sustainable stakeholder long-term value creation.

First, we need to start prioritizing investments in workers. Historically, everything in our tax code, company disclosure requirements, and accounting principles has prioritized investments in robots over investments in labor. Through these three lenses, workers are seen as costs instead of assets. That needs to change in a 21st century economy where our ability to compete will be directly correlated with the investments we make in our human capital. We need to introduce a federal worker training tax credit, similar to the R&D tax credit that companies already enjoy, to spur investments in worker training. And, we need to create worker-owned lifelong learning and training accounts with a generous government match to encourage workers to become lifelong learners.

Second, we need to experiment with portable benefits systems to support a new type of economy. In this era, workers are no longer working for one employer over the course of their lives, more likely to be subcontracted, and looking for a support system for entrepreneurial work. As the Pandemic Unemployment Assistance program has shown us, we need a portable benefits system that moves with workers from job to job and provides a basic safety net in the face of an economic shock.

Finally, we need to reorient our economy toward a more sustainable, resilient form of capitalism. The evolving conversation on how to create a more sustainable business sector by looking at a wider range of stakeholders is an important step in the right direction. But, we need to make sure it is not all talk and hold companies accountable by requiring that they disclose who their stakeholders are and how they measure responsiveness to them. We should also make sure that we curb the pressure for short-term earnings performance by reforming the SEC rules that encourage and facilitate activist shareholders to pressure companies for short-term performance.

Without these three major reforms, Americans will consistently struggle with financial insecurity well into the 21stcentury. And, we cannot afford to continue on this path of record levels of economic and place-based inequality into the 21st century. It will only worsen if we do not face it head on in the aftermath of COVID-19. American economic opportunity — with all of the standard benefits for workers and broad access to upward mobility — was not designed for modern changes in the nature of work, global shifts in technology and outsourcing, and a corporate system premised on creating shareholder value at the expense of all other stakeholders. The American public needs federal policymakers to put some tangible solutions on the table that move us past partisan differences toward a more resilient future.

[1] United States Department of Agriculture. Economic Research Service using data from Bureau of Economic Analysis. Retrieved:

[2] Ibid

[3] Ibid

[4] Lowrey, Annie. December 1, 2017. “The Great Recession is Still With Us.” The Atlantic. Retrieved:

[5] Weil, David. 2019. “Understanding the Present and Future of Work in the Fissured Workplace.” RSF: Russell Sage Foundation Journal of the Social Sciences 5(5):147–65.

[6] Ibid.

[7] Meisler, Laurie and Christopher Cannon. January 25, 2018. “U.S. Venture Capital Swells and Spreads.” Bloomberg. Retrieved:

[8] Florida, Richard. March 27, 2018. “The Extreme Geographic Inequality of High-Tech Venture Capital.” City Lab. Retrieved:

[9] Lazonick, Bill. September 2014. “Profits Without Prosperity.” Harvard Business Review.

[10] Blasi, Joseph, Freeman, Richard, Kruse, Douglas. (2014) The Citizen’s Share: Reducing Inequality in the 21st Century. New Haven: Yale University Press.

[11] Lazonick, Bill. September 2014. “Profits Without Prosperity.” Harvard Business Review.

[12] Galston, William A. March 10, 2020. “Efficiency Isn’t the Only Economic Virtue.” Op-Ed in the Wall Street Journal. Retrieved:

[13] Alexander, Frederick. 2020. “How a 3,000-Year-Old Lesson Can Shape a More Resilient Future.” The Shareholder Commons. Retrieved:

[14] Heath, Thomas. December 14, 2018. “A year after their tax cuts, how have corporations spent the windfall?” The Washington Post. Retrieved:

[15] JUST Capital. “The JUST Capital Rankings on Corporate Tax Reform.” Retrieved:

[16] Wolff, Edward N. 2017. “Household Wealth Trends in the United States, 1962 to 2016: Has Middle Class Wealth Recovered?” NBER Working Paper №24085

[17] Goldman Sachs. April 11, 2019. “Buyback Realities.” Goldman Sachs Global Macro Research. Issue 77. Retrieved:

[18] Ibid.

[19] Lipton, Martin. February 11, 2019. “It’s Time to Adopt a New Paradigm.” Harvard Law School Forum on Corporate Governance and Financial Regulation.

[20] Business Roundtable. August 19, 2019. “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans.’ Retrieved:

[21] Just Capital and Forbes. 2018. “The Just 100.” Retrieved:

[22] EY. 2018. “Embankment Project for Inclusive Capitalism releases report to drive sustainable and inclusive growth.” Retrieved:

[23] Lipton, Martin. February 11, 2019. “It’s Time to Adopt a New Paradigm.” Harvard Law School Forum on Corporate Governance and Financial Regulation.

[24] Paul, Mark, William Darity, and Darrick Hamilton. March 9, 2018. “A Federal Jobs Guarantee — a Policy to Achieve Full Employment.” The Center on Budget and Policy Priorities.

[25] Ibid

[26] Ibid

[27] Ibid

[28] CFA Institute (2015, June). Environmental, Social & Governance (ESG) Survey. CFA Institute. Retrieved from

[29] Gnanarajah, Raj (2017, July 19) Accounting and Auditing Regulatory Structure: U.S. and International. Congressional Research Services. Retrieved from

[30] US SIF: The Forum for Sustainable and Responsible Investment. “US SIF 2020 Trends Report.” US SIF Foundation. Retrieved from

[31] Khan, Mozaffar and Serafeim, George and Yoon, Aaron, Corporate Sustainability: First Evidence on Materiality (November 9, 2016). The Accounting Review, Vol. 91, №6, pp. 1697–1724. Available at SSRN: or

[32] Stallworth, Philip. March 18, 2019. “Let Me Tell You About the Very Rich. They are Different From You and Me.” TaxVox, Tax Policy Center. Retrieved:

[33] Department of Labor. Fiduciary Responsibilities.

[34] Employee Benefits Security Administration, Labor (2015, October 26). Interpretive Bulletin 2015–01. Federal Register. Retrieved from

[35] Lipton, Martin (2018, August 23). Further to the Warren Bill, The new Paradigm and a Better Way. Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved from

[36] Barton, Dominic, James Manyika, Timothy Koller, Robert Palter, Jonathan Godsall, and Joshua Zoffer. 2017. “Where Companies with a Long-Term View Outperform their Peers.” Discussion Paper: McKinsey Global Institute.

[37] Ibid.

[38] Ibid.

[39] Ibid.

[40] Ibid.

[41] Edmans, A., Gabaix, X., Jenter, D., 2017b. “Executive compensation: a survey of theory and evidence.” In: Hermalin, B.E., Weisbach, M.S. (Eds.), Handbook of the Economics of Corporate Governance.

[42] Lukomnik, Jon (2017, February 9). Board Refreshment Trends at S&P 1500 Firms. Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved from

[43] Bhagat, Sanjai (2017, May 3). Board Directors Should be Paid Only in Equity. Harvard Business Review. Retrieved from

[44] Aspen Institute Business & Society Program. 2020. “Beyond Total Shareholder Return: New Principles from The Aspen Institute and Korn Ferry Identify New Levers to Determine Executive Pay.” Retrieved:

[45] Lewis, Kevin (2019, April 16). Making it a Priority: What Happens to Employee Claims When a Business Declares Bankruptcy? Congressional Research Service. Retrieved from

[46] Ibid.

[47] Manchin, Joe (2017, October 16). S.1963 Prioritizing Our Workers Act.

[48] Blasi, Joseph, Freeman, Richard, Kruse, Douglas. (2014) The Citizen’s Share: Reducing Inequality in the 21st Century. New Haven: Yale University Press. O’Boyle, Ernest H., Pankaj C. Patel, and Erik Gonzalez-Mule. (2016) “Employee Ownership and Firm Performance: a Meta-analysis.” Human Resource Management Journal, Volume 26, Issue 4, 425–448. Doucouliagos, Hristos, Patrice Laroche, Douglas L. Kruse, and T.D. Stanley. (Forthcoming 2019.) “Is Profit Sharing Productive? A Meta-Regression Analysis.” British Journal of Industrial Relations. Rosen, C. & Quarrey, M. (1987, September). How well is Employee Ownership Working? Harvard Business Review. Retrieved from

[49] Blasi, J., Kruse, D., & Freeman, R. (2017, February 1). Having a Stake: Evidence and Implications for Broad-based Employee Stock Ownership and Profit Sharing. Thirdway. Retrieved from

[50] Kim, E.H. and Ouimet, P. (2014). “Broad-based employee stock ownership: motives and outcomes.” The Journal of Finance, 69: 3, 1273–1319.

[51] Mishel, Lawrence & Schieder, Jessica (2018, August 16). CEO Compensation surged in 2017. Economic Policy Institute. Retrieved from

[52] Bachelder, Joseph (2018, April 9). Executive Pay at Public Corporations after Code §162(m) Changes. Harvard Law School Forum on Corporate Governance and Financial Regulation. Retrieved from

[53] Mishel, Lawrence & Schieder, Jessica (2018, August 16). CEO Compensation surged in 2017. Economic Policy Institute. Retrieved from

[54] Ibid.

[55] Blasi, Joseph, Richard Freeman and Douglas Kruse, “Do Broad-based Employee Ownership, Profit Sharing, and Stock Options Help the Best Firms Do Even Better?” British Journal of Industrial Relations, Volume 54, Issue 1 March 2016, 1–28.

[56] Wang, Lu. March 3, 2019. “Stock Buybacks Top Capex for First Time Since 2008, Citi Says.” Bloomberg Markets. Retrieved:

[57] Rosenthal, Steven M. October 31, 2017. “Foreign Investors Win Big, Tax-Free.” TaxVox: Tax Policy Center.

[58] Palladino, L. & Abdela, A. (2018, June 13). Stock Buybacks, Corporate Executive Cashouts, and the End of the ‘Safe Harbor’ Rule?. Roosevelt Institute. Retrieved from

[59] Lazonick, Bill. September 2014. “Profits Without Prosperity.” Harvard Business Review.

[60] Jackson Jr., Robert (2018, June 11). Stock Buybacks and Corporate Cashouts. Securities and Exchange Commission. Retrieved from

Mark Warner, U.S. Senator from Virginia, served as Governor of Virginia from 2002 to 2006 and is a former technology investor & entrepreneur.

Mark Warner, U.S. Senator from Virginia, served as Governor of Virginia from 2002 to 2006 and is a former technology investor & entrepreneur.