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S.3348 - Accountable Capitalism Act

To establish the obligations of certain large business entities in the United States, and for other purposes.

You might favor this bill if:
►  You believe large American corporations, with annual revenues higher than $1 billion, should have an obligation to consider the interests of all corporate stakeholders, including their workers. These companies should have 40% of their boards elected by their workers, should restrict the sales of company shares by their directors, and should be prohibited from making political contributions without a 75% approval of their stakeholders.

You might oppose this bill if:
►  You believe that dictating companies and added regulatory power can translate to a stagnant economy. Creating a new set of rules can take a toll, not only on the corporation, but on the overall American economy.

The Accountable Capitalism Act would reverse a number of market incentive measures that have, mostly for over 30 years, benefitted the American corporation.

According to Senator Warren's statement, the bill "aims to reverse the harmful trends over the last thirty years that have led to record corporate profits and rising worker productivity but stagnant wages.

Specifically the bill would:
• Require large American corporations with an annual revenue of $1 billion or higher to obtain a federal charter as a "United States corporation," which obligates company directors to consider the interests of all corporate stakeholders;
• Empower workers of "U.S corporations" to elect at least 40% of Board members;
• Restrict the sales of company shares by the directors and officers of "U.S. corporations";
• Prohibit "U.S. corporations" from making any political expenditures without the approval of 75% of its directors and shareholders; and
• Permit the federal government to revoke the charter of a "U.S corporation" if the company has engaged in repeated and egregious illegal conduct.

In an op-ed piece in the Wall Street Journal, Warren asks herself, "what are the obligations of corporate citizenship in the U.S.?," stating that prior to the last 30 years, American corporations had a duty to not only shareholders, but to employees, bondholders, suppliers, and the community.

"As recently as 1981, the Business Roundtable—which represents large U.S. companies—stated that corporations “have a responsibility, first of all, to make available to the public quality goods and services at fair prices, thereby earning a profit that attracts investment to continue and enhance the enterprise, provide jobs, and build the economy.” This approach worked. American companies and workers thrived," said Warren.

According to Warren, this shifted in the 1980's.

Late in the 20th century, the dynamic changed. Building on work by conservative economist Milton Friedman, a new theory emerged that corporate directors had only one obligation: to maximize shareholder returns. By 1997 the Business Roundtable declared that the “principal objective of a business enterprise is to generate economic returns to its owners,” said Warren in her op-ed.

"In the early 1980s, large American companies sent less than half their earnings to shareholders, spending the rest on their employees and other priorities. But between 2007 and 2016, large American companies dedicated 93% of their earnings to shareholders. Because the wealthiest 10% of U.S. households own 84% of American-held shares, the obsession with maximizing shareholder returns effectively means America’s biggest companies have dedicated themselves to making the rich even richer," Warren added.

Warren's aim with the legislation is to cut some financial incentives CEOs have that entice them to invest their company's profits only to the benefit of shareholders, therefore having them reinvest a portion of that to the business itself. Warren believes this can have a harmful effect on the U.S. economy.

“Companies also are setting themselves up to fail. Retained earnings were once the foundation for long-term investments. But from 1990 to 2015, non-financial U.S. companies invested trillions less than projected, funneling earnings to shareholders instead. This underinvestment handcuffs U.S. enterprise and bestows an advantage on foreign competitors," said Senator Warren.

As noted by vox, a study by the Institute for New Economic Thinking stated that “since the mid-1980s net equity issues for non- financial corporations have been generally negative, and since the mid-2000s massively negative," or in other words "owners take more money out of the corporate sector in the form of buybacks and dividends than they put in via new investments."

Those who oppose the legislation argue the economy has been doing well despite wage stagnation. Having that much regulatory power over market decisions can translate to stagnation. Enacting such legislation could take a toll on the American economy.

“Profits measure whether businesses are making good decisions and adding value to society,” said Chris Edwards, director of tax policy studies at the Cato Institute to FOX Business. “If American businesses weren’t earning profits, we’d all be in big trouble and our standard of living would fall.”

“I don’t want her … dictating what you can and cannot do, because that’s stagnation,” said Steve Forbes, chairman and editor-in-chief of Forbes Media.

Warren's proposal "will create a whole set of new rules that the federal government will enforce. Those rules will not be clean, explicit or simple. They'll be messy, they'll be complicated. [It will create a] huge ability for companies to evade and avoid," said Harvard University economics professor Jeffrey Miron in a CNBC Report.


Sponsored by: Sen. Warren, Elizabeth [D-MA].

See list of cosponsors.

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