Holder value not end-all, be-all, top CEOS say
Roundtable espouses broader outlook
THEY’RE RESPONDING TO SOMETHING IN THE ZEITGEIST. THEY PERCEIVE THAT BUSINESS AS USUAL IS NO LONGER ACCEPTABLE. IT’S AN OPEN QUESTION WHETHER ANY OF THEE COMPANIES WILL CHANGE THE WAY THEY DO BUSINESS. — NANCY KOEHN, HARVARD BUSINESS SCHOOL
• Nearly 200 chief executives, including the leaders of Apple, Pepsi and Walmart, tried this week to redefine the role of business in society — and how they are perceived by an increasingly skeptical public.
The Business Roundtable, which represents many of America’s largest companies, issued a statement Monday on “the purpose of a corporation.” Breaking with decades of long-held corporate orthodoxy, the group said businesses should no longer advance only the interests of shareholders. Instead, companies must also invest in their employees, protect the environment and deal fairly and ethically with their suppliers.
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the group said in a statement. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
The shift reflected a moment of soul- searching in corporate America, as big companies face mounting global discontent over income inequality, harmful products and poor working conditions.
On the presidential campaign trail, Democratic Sens. Bernie Sanders and Elizabeth Warren have led the national conversation about the role of big business in perpetuating problems with economic mobility and climate change. Lawmakers are looking into the dominance of technology companies like Amazon and Facebook. And hardly a week goes by without a major company getting drawn into a contentious political debate about guns, immigration or President Donald Trump.
“They’re responding to something in the zeitgeist,” said Nancy Koehn, a historian at Harvard Business School. “They perceive that business as usual is no longer acceptable. It’s an open question whether any of these companies will change the way they do business.”
The Business Roundtable did not provide specifics on how it would carry out its newly stated ideals, offering more of a mission statement than a plan of action. But the companies pledged to compensate employees fairly and provide “important benefits,” as well as training and education. They also vowed to “protect the environment by embracing sustainable practices across our businesses” and “foster diversity and inclusion, dignity and respect.”
It was an explicit rebuke of the notion that the role of the corporation is to maximize profits at all costs — the philosophy that has held sway on Wall Street and in the boardroom for 50 years. Milton Friedman, the University of Chicago economist who is the doctrine’s most revered figure, famously wrote in The New York Times in 1970 that “the social responsibility of business is to increase its profits.”
This mindset informed the corporate raiders of the 1980s and contributed to an unswerving focus on quarterly earnings reports. It found its way into pop culture, when in the 1987 movie Wall Street, Gordon Gekko declared, “Greed is good.” More recently, it inspired a new generation of activist investors who pushed companies to slash jobs as a way to enrich themselves.
“The ideology of shareholder primacy has contributed to the economic inequality we see today in America,” Darren Walker, president of the Ford Foundation and a Pepsi board member, said. “The Chicago school of economics is so embedded in the psyche of investors and legal theory and the CEO mindset. Overcoming that won’t be easy.”
The Business Roundtable included its own articulation of the theory in an official doctrine in 1997, writing that “the paramount duty of management and of boards of directors is to the corporation’s stockholders.” Each version of its principles published over the past 20 years has stated that corporations exist principally to serve their shareholders.
But by last year, the Business Roundtable’s language was out of step with the times. Many chief executives, including Blackrock’s Larry Fink, had begun calling on companies to be more responsible. Businesses were pledging to fight climate change, reduce income inequality and improve public health. And at gatherings like the World Economic Forum in Davos, Switzerland, the discussions often centered on how businesses could help solve thorny global problems.
“The threshold has moved substantially for what people expect from a company,” Klaus Schwab, chairman of the World Economic Forum, said in an interview. “It’s more than just producing profits for the shareholders.”
Last year, Jamie Dimon, chief executive of Jpmorgan Chase and chairman of the Business Roundtable, began an effort to update its principles. “We looked at this thing that was written in 1997 and we didn’t agree with it,” Dimon said. “It didn’t fairly describe what we think our jobs are.”
Dimon proposed making a formal revision to the annual statement at a Business Roundtable board meeting in Washington this spring. It then fell to Alex Gorsky, chief executive of Johnson & Johnson, who runs the group’s governance committee, to create the language.
“There were times when I felt like Thomas Jefferson,” Gorsky said.
While the group cast the change in language as an embrace of new corporate ideals, it was also a tacit acknowledgment of the heightened pressures facing companies across the country — including many that signed the document.
In 2017, after the president’s initially tepid response to the violent white supremacist protests in Charlottesville, Va., the chief executives of several major companies disbanded White House business advisory groups in protest. Walmart, the nation’s largest gun seller, is under pressure after a series of mass shootings, including the recent massacre at its store in El Paso, Texas. Amazon, the giant online retailer, is facing scrutiny from lawmakers who say it avoids paying taxes and uses its dominance to hurt competitors.
Nowhere has the new scrutiny been more pronounced than on the presidential campaign trail. On Monday, Sanders said that the Business Roundtable was “feeling the pressure from working families all over the country.”
“I don’ t believe what they’re saying for a moment,” he said. “If they were sincere, they would talk about raising the minimum wage in this country to a living wage, the need for the rich and powerful to pay their fair share of taxes.”
In a statement Monday, Warren called the announcement “a welcome change” but cautioned that “without real action, it’s meaningless.
Monday’ s statement represented an even broader shift, signalling companies’ willingness to engage on issues of pay, diversity and environmental protection. Several of the executives who signed the letter said the group would soon offer more detailed proposals on how corporations can live up to the ideals it outlined, rather than focusing purely on economic policies.
“It’s a real divergence considering everything we’ve done in the past has been around policy,” said Chuck Robbins, chief executive of Cisco, who is on the group’s board, adding, “This is just the first piece.”
THERE WERE TIMES WHEN I FELT LIKE THOMAS JEFFERSON.