Tuesday, January 21, 2020

Airbnb statement contemplates diverse group of stakeholders

By Mark S. Nelson, J.D.

Airbnb, Inc. announced it will pursue a renewed focus on a wider group of stakeholders in its business and measure its progress in working with those stakeholders though a set of principles and metrics. "We believe that building an enduringly successful business goes hand-in-hand with making a positive contribution to society," said Airbnb via press release. The announcement comes as many companies begin to grapple with Business Roundtable’s statement last year on the guiding principles it views as necessary for companies to keep pace with an evolving corporate governance landscape.

The Airbnb statement also comes as markets anticipate the 2020 crop of IPOs and whether Airbnb might be one of them. That decision may depend not only Airbnb’s finances and general economic factors, but also on the attractiveness of a traditional IPO or the availability of an alternative type of listing, the impact of WeWork’s failed IPO, and potentially the outcome of a Delaware Supreme Court case that will examine the use of forum selection clauses that purport to require Securities Act claims to be heard in federal courts (oral argument in Salzberg v. Sciabacucchi was held January 8, 2020). Airbnb’s stakeholder statement also places a heavy emphasis on safety, a topic that has received media attention because of issues at Airbnb "party houses," which the company banned last year.

Focus on stakeholder outreach. Airbnb’s broader vision of its stakeholders has been in progress for several years and pre-dates Business Roundtable’s 2019 statement urging companies to take a wider and longer view of their stakeholders. In 2018, Brian Chesky, an Airbnb Co-Founder and its CEO and Head of Community, told Airbnb’s community: "It’s clear that our responsibility isn’t just to our employees, our shareholders, or even to our community—it’s also to the next generation. Companies have a responsibility to improve society, and the problems Airbnb can have a role in solving are so vast that we need to operate on a longer time horizon."

Chesky explained at the time that many businesses continue to adhere to a 20th century business model that too often focuses on short-term gains. As a result, Chesky's vision for Airbnb would emphasize an infinite time horizon for the business and service to all of Airbnb's stakeholders. Part of that vision requires the company to achieve "harmony" among three main groups of stakeholders: (1) Airbnb's employees and shareholders; (2) Airbnb's community of hosts and guests; and (3) "the world outside of Airbnb."

The latest statement from Airbnb attempts to add substance and measurability to these goals. As a result, Airbnb has identified a set of five stakeholders in its business and aligned these stakeholders with principles and metrics (listed below from left to right: stakeholder—principle—metrics) that the company believes will measure its progress in promoting stakeholder interests:
  • Guests—safety—safety and property damage reports.
  • Hosts—partnerships—seek new hosts, support longer tenures, and facilitate earnings.
  • Communities—diversity and sustainable travel—manage local/global carbon footprint.
  • Shareholders—maintain value of business for the long term—use GAAP and other financial measures.
  • Employees—gender, racial and ethnic diversity—focus on data and transparency.
With respect to the last group, employees, Airbnb said that, as of 2018, its workforce was just under 50 percent female and that underrepresented minorities accounted for just over 12 percent of its employees.

Airbnb also said it will revise its corporate governance structure to better serve its stakeholders. For example, the company will create a board committee on stakeholders along with a similarly focused management team. The company statement on employee pay is somewhat vague but appears to emphasize achievement of stakeholder and guest safety goals. Moreover, the company plans to host a "Stakeholder Day" to announce progress on its stakeholder goals and it will promote the communities it serves though a grant program.

BRT, Leo Strine push firms on governance. The Airbnb statement would appear to be broadly consistent with BRT’s "all" stakeholder approach and with the risk approach taken by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Business Roundtable’s 2019 statement urged companies to promote the interests of "all" stakeholders. To this end, BRT said companies should focus on customers, employees, suppliers, and local communities while pursuing shareholder value over the long term.

COSO, whose governance framework is widely used by public companies, has stated principles for environmental, social and governance (ESG) issues. The COSO principles are couched in terms of risk and urge companies to identify ESG issues, review and remediate them, and to report on their progress. For COSO, citing multiple sources, the "E" in ESG means "environmental," which to a large extent focuses on reducing companies’ carbon footprints. The "S" means "social" and includes human capital (an issue noted by SEC Chairman Jay Clayton and an SEC rulemaking petition), compliance with labor and supply chain laws, and integration with local communities. The "G" stands for "governance" and can impact stakeholders: "A well-defined corporate governance system can be used to balance or align interests between stakeholders and can work as a tool to support a company’s long-term strategy."

Moreover, retired Delaware Supreme Court Chief Justice Leo E. Strine, Jr. has pushed firms to do more on a number of governance fronts. Several of Strine’s recent extra-judicial writings focused on the influence (or sometimes lack of influence) of the big four fund complexes on corporate governance and how those funds’ decisions impact ordinary investors. Some of Strine’s ideas also can be found in aspects of proposed federal legislation, for example, the Accountable Capitalism Act (H.R. 7294; S. 3348), originally sponsored in the last Congress by Sen. Elizabeth Warren (D-Mass), and the Shareholders United Act (H.R. 936), sponsored by Rep. Jamie Raskin (D-Md), which was included in the For The People Act (H.R. 1), which passed the House in March 2019 by a vote of 234-193.

Congress also has begun to address ESG disclosure issues. For example, the House Financial Services Committee reported the ESG Disclosure Simplification Act (H.R. 4329), sponsored by Rep. Juan Vargas (D-Calif), by a vote of 31-22 in September of 2019. The bill would emphasize sustainability, disclosure, and the use by public companies of SEC-defined ESG metrics.