Research / BFI Working PaperMar 27, 2023

What Purpose Do Corporations Purport? Evidence from Letters to Shareholders

Raghuram Rajan, Pietro Ramella, Luigi Zingales

Using natural language processing, we identify corporate goals stated in the shareholder letters of the 150 largest companies in the United States from 1955 to 2020. Corporate goals have proliferated, from less than one on average in 1955 to more than 7 in 2020. While in 1955, profit maximization, market share growth, and customer service were dominant goals, today almost all companies proclaim social and environmental goals as well. We examine why firms announce goals and when. We find goal announcements are associated with management’s responses to the firm’s (possibly changed) circumstances, with the changing power and preferences of key constituencies, as well as from management’s attempts to deflect scrutiny. While executive compensation is still overwhelmingly based on financial performance, we do observe a rise in bonus payments contingent on meeting social and environmental objectives. Firms that announce environmental and social goals tend to implement programs intended to achieve those goals, although their impact on outcomes is unclear. The evidence is consistent with firms focusing on shareholder interests while incorporating stakeholder interests as interim goals. Goals also do seem to be announced opportunistically to deflect attention and alleviate pressure on management. 

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