CORPORATE CHANGES
Top U.S. companies sideline profit for stakeholder-driver approach to business,
The organization representing the country’s most powerful chief executives is rewriting how it views the purpose of a corporation, updating its decades-old endorsement of the theory that shareholders’ interests should come above all else.
The new statement, released Monday by the Business Roundtable, suggests balancing the needs of a company’s various constituencies and comes at a time of widening income inequality, rising expectations from the public for corporate behaviour and proposals from Democratic lawmakers that aim to revamp or even restructure American capitalism.
“Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity,” reads the statement from the organization, which is chaired by JPMorgan Chase CEO Jamie Dimon.
The group says its members “share a fundamental commitment to all of our stakeholders,” and commit to doing well by their customers, employees, suppliers and local communities. “Each of our stakeholders is essential,” the group adds. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
The new statement includes 181 signatures of the 192 current members of the Business Roundtable, which represents many of the biggest companies in the United States. While the statement represents at the very least a symbolic change, it was not clear how companies would change their practices nor how any changes in behaviour would be assessed.
The statement comes amid a growing debate about the responsibilities of corporations at a time of stark economic inequality. A range of lawmakers have been trying to force companies to consider society’s larger goals when they do business or be penalized. Democratic presidential candidate Sen. Elizabeth Warren of Massachusetts has proposed a plan that would require U.S. corporations to turn over part of their board of directors to members chosen by employees.
Democratic Sen. Bernie Sanders would prohibit corporations from buying back their own stock — a move that drives up share prices — unless they offer a certain level of pay and benefits for workers.
Other efforts include bills to penalize companies for data breaches or improve the diversity of corporate boards. Some governance experts were critical of the new statement. “It limits accountability for these people to anyone, because if you have multiple stakes with whom you’re accountable, you’re always going to get it right on someone,” said Charles Elson, who directs the John Weinberg Center for Corporate Governance at the University of Delaware. “You can always make an argument that no matter what you’ve done, some stake will benefit. If your watch stops, it still gets the time right twice a day.”
Elson added that “to suggest that creating long-term shareholder value is somehow at odds with employee satisfaction and customer satisfaction is a completely flawed argument. Implicit in creating value for your investor is that the other stakes are comfortable with you. Every board knows that. Every CEO knows that.”
Others suggested that while it’s unclear what impact the statement will have, it’s notable coming from a group that has traditionally been cautious. “It really is quite significant,” said Peter Cappelli, a professor who studies labour economic at the University of Pennsylvania. While “the entire Wall Street community is not going to roll over because of this,” he called it a “marker for change” and a “corrective.” “It sounds like what they’re describing is what was the standard view was before the mid-1980s — before the shareholder value idea really started to spread.”
The statement comes as the gap between the compensation growth of corporate executives and American workers has grown at staggering rates. An analysis released Aug. 14 by the Economic Policy Institute, found chief executive compensation had grown 940 per cent since 1978, while typical worker compensation had risen just 12 per cent over the same period. Meanwhile, corporations are facing increasing pressure — whether from customers, employees or public groups — to take stands on issues that impact society at large.
While it’s unclear what impact the statement will have, it’s notable coming from a group that has traditionally been cautious