Why CEOs are talking about stakeholder capitalism

getting the message.

They criticized not the goals, but the lack of a proposal for how stakeholders can hold CEOs directly accountable. More skeptical observers said that the statement differed little from previous Business Roundtable pronouncements on corporate purpose: Boards and executives need, or at least want, discretion to balance the interests of various stakeholders other than the company’s owners.

For these critics, this latest declaration offered nothing new, but was a restated manifesto of CEO and board discretion and power to run their companies as they see fit.

The third strand of reaction came from business realists, who pointed out that successful firms cannot run roughshod over their customers, employees, suppliers and communities. Even a company that is laserfocused on shareholder value must gain the loyalty of other stakeholders and avoid making enemies of them. Suppliers will not rush a delivery if they fear they won’t be paid, sullen employees will not produce a quality product, and irate customers will buy elsewhere.

There’s much to be said for these views. But two deeper forces help to explain why the Business Roundtable felt that it needed to say something now.

First, activist shareholders are making life uncomfortable for the boards and senior executives of America’s largest corporations. The Business Roundtable’s statement is thus in part a plea from CEOs for more autonomy vis-à-vis shareholders. In effect, the Roundtable’s statement does constitute a “declaration of independence” — one seeking to liberate CEOs and boards from the influence of activist investors. Thus interpreted, US corporate leaders are building a coalition against activist shareholders, and want employees, customers and those demanding more ethical sourcing to support them. Freeing boards and executives from shareholder influence, the statement implies, will enable corporate America to treat employees, the environment and communities better.

Anti-corporate ideas

Second, as politics and public opinion shift beneath corporate America, CEOs are trying to maintain their balance. US Senators Bernie Sanders and Elizabeth Warren, two of the leading contenders for the 2020 Democratic presidential nomination, have called for major changes in the way large corporations are run.

It’s plausible to wonder, therefore, whether the Business Roundtable is recalibrating their statement of corporate purpose to help put big business lower on populist target lists. True, Warren and Sanders won’t change their own views simply because powerful CEOs have stated a recalibrated view of the aims of US corporations. Yet it’s the underlying shift in public opinion that should, and seems to, concern the Roundtable. Anti-corporate ideas are in the air, and they do not originate from the political leaders who are expressing them. They will persist regardless of how any leader fared.

The relevance of such political considerations is even more pronounced in the United Kingdom, which began reexamining the purpose of large companies several years before America did. In particular, the British Academy is funding a deep and serious rethink of corporate purpose, led by mainstream academics and business leaders.

Yet, perhaps we should not be overly cynical. Surely not all the US CEOs who backed the Business Roundtable’s statement regarded it purely as a matter of political calculation, or as an opportunity to angle for advantage. Some, perhaps even many, have absorbed some of the values reflected in the new criticism.

Mark Roe is a professor at Harvard Law School. Copyright: Project Syndicate, 2019. www.projectsyndicate.org