How building coalitions can drive financial regulatory reforms

Globe with icons representing corporations and capital markets

This is the first blog in this series. Read part 2 “How investors can work with stakeholders to reimagine capitalism” here and part 3 “How to shift private markets to better serve the public interest” here.

By Chris Jurgens, Senior Director, Reimagining Capitalism

At Omidyar Network, we believe that business can be a powerful force for good, harnessing human ingenuity to solve big problems while providing good jobs and economic security for families and communities. But we also know that America’s corporations and capital markets too often exacerbate societal challenges like climate change, wealth inequality, and racial injustice, rather than move us towards solutions.

We launched our “Corporations, Capital Markets, and the Common Good” focus area two years ago with the goals of reshaping the rules that govern markets to better serve the public interest; curbing the pressures that drive businesses to pursue profits in ways that harm workers, communities, and the planet; and empowering stakeholders to hold companies accountable for their impacts on society.

This work is rooted in the belief that, for markets to truly serve the common good, we must preserve and build upon the vitality of the private sector, while preventing and repairing the harms created by unchecked corporate power and the pursuit of profit without regard for societal costs.

Omidyar Network has particularly centered our work on corporate governance, or the system that drives how companies are directed and controlled, as the forum for many of the most consequential decisions that investors and companies make: where to allocate capital, how to balance short-term pressures and long-term goals, and how to prioritize the often competing demands of workers, customers, communities, and shareholders.

We’ve then focused on specific opportunities to shift the rules, incentives, power structures, and norms that shape how corporate governance works: such as advocating for financial regulatory reforms, advancing responsible investing practices among institutional investors, and bringing greater transparency to the private equity industry. In this three-part series, we’ll share key learnings and takeaways in each of those areas.

The importance of coalitions in shifting rules

Many of the policies and norms driving corporate governance today incentivize corporate decision-making to serve a narrow and flawed definition of shareholders’ short-term financial interests. Our team advocates for a fundamental shift in the rules governing corporations to emphasize their social contract, holding them accountable — financially and socially — for their impacts on a broader range of stakeholders.

We have pursued this work by partnering with a diverse group of actors, who are both advocating for specific policy changes and defending against pushback. We believe strengthening this coalition is critical to advancing further positive policy change.

First, we’ve seen the importance of advocacy organizations dedicated to representing the public interest in the corporate and financial regulatory arena. For example, Better Markets serves an important role as a financial sector watchdog. They provide critical policy expertise and political energy to high profile legislation and rulemakings and also cover many lower-profile, but important regulatory fights that might otherwise fall through the cracks.

Second, these specialized policy advocacy groups need to be complemented by diverse coalitions representing the many constituencies who have a stake in how corporations make decisions and operate, including state-based grassroots networks, civil rights organizations, labor unions, and consumer protection and climate advocacy groups. Americans for Financial Reformserve as hubs for these groups, advocating in Washington and mobilizing constituencies across the country. Liberation in a Generation has also done valuable coalitional work, engaging BIPOC-led grassroots organizations to address the impact of concentrated corporate power on communities of color and build consensus on policy solutions.

Finally, the involvement of investor and business voices within a broad-based coalition has proven essential. For instance, B Lab connects individual B Corp leaders with Congress and State Houses to advocate for policies that enable businesses to look after the interests of all of their stakeholders, not just their shareholders. And responsible investing networks like the US Impact Investing Alliance, the US Sustainable Investing Forum, and Cereswork to link investors with policymakers, showcasing how sustainable investment practices yield competitive returns, mitigate risks, and generate positive community impact nationwide.

This coalition has made great strides already. In the past two years, we have witnessed notable progress in reshaping the policies that govern corporate and investor decision-making. For instance, the Securities and Exchange Commission introduced new rules to protect shareholder rights, enhance transparency in the private funds market, and standardize reporting on climate and human capital. The Department of Labor, with White House support, reaffirmed that investors have the right to consider how acompany’s environmental and social impact will impact its long-run success.

However, significant opposition to this trend has arisen, particularly from the “anti-ESG movement,” which has garnered attention in the political arena.

Despite political and industry pushback, we believe that the coalition advocating for responsible and accountable corporations and capital markets will continue to expand. We know that the vast majority of Americans support rules that make corporations and Wall Street more transparent and accountable.

Driving regulatory reforms in the face of concerted industry opposition is hard. But when this coalition comes together to represent the public interest, we have seen that meaningful policy change is possible — from the climate finance and responsible investing reforms enacted during the current Administration, to the passage and continued defense of landmark achievements like the Dodd Frank Act and the creation of the Consumer Finance Protection Bureau.

We have been heartened to see more funders support different elements of this coalition in the last two years. But we need more actors from across the funding community engaged. This policy agenda is hugely consequential not only for shaping how corporations make decisions, but also for the impacts that investors and corporations have on racial equity, workers’ rights, and climate change. Given what’s at stake in the current political moment, now is the time for funders to come together and invest in further strengthening this field.