Top CEOs shift on cor­po­rate val­ues

State­ment endorses broader ac­count­abil­ity over nar­row fo­cus on share­hold­ers’ prof­its

The Morning Call - - NATION & WORLD - By Jena Mc­Gre­gor

WASH­ING­TON — A group rep­re­sent­ing the na­tion’s most pow­er­ful CEOs on Mon­day aban­doned the idea that companies must max­i­mize prof­its for share­hold­ers above all else, a long-held be­lief that advocates said boosted the re­turns of cap­i­tal­ism but de­trac­tors blamed for ris­ing in­equal­ity and other so­cial ills.

In a new state­ment about the pur­pose of the cor­po­ra­tion, the Busi­ness Round­table, which rep­re­sents the chief ex­ec­u­tives of 129 large companies, said busi­ness lead­ers should now com­mit to bal­anc­ing the needs of share­hold­ers with cus­tomers, em­ploy­ees, sup­pli­ers and lo­cal com­mu­ni­ties.

“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. “We com­mit to de­liver value to all of them, for the fu­ture suc­cess of our companies, our com­mu­ni­ties and our coun­try.”

The state­ment comes amid a growing na­tional de­bate about the re­spon­si­bil­i­ties of cor­po­ra­tions at a time of stark eco­nomic in­equal­ity.

Pres­i­dent Don­ald Trump and the can­di­dates vy­ing for the Demo­cratic pres­i­den­tial nom­i­na­tion have taken aim at companies for putting prof­its be­fore the needs of work­ers and cus­tomers on is­sues as var­ied as drug pric­ing, out­sourc­ing and data pri­vacy. And for decades, wages have climbed mod­er­ately as the pay of top ex­ec­u­tives at pub­lic companies has soared.

A range of law­mak­ers have been try­ing to force companies to con­sider so­ci­ety’s larger goals when they do busi­ness or be pe­nal­ized.

Pres­i­den­tial can­di­date Sen. El­iz­a­beth War­ren, D-Mass., has pro­posed a plan that would re­quire U.S. cor­po­ra­tions to turn over part of their board of di­rec­tors to mem­bers cho­sen by em­ploy­ees.

Sen. Bernie San­ders, the Ver­mont in­de­pen­dent run­ning for the Demo­cratic nom­i­na­tion, 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.

Trump, even as he has taken many pro-cor­po­rate ac­tions in­clud­ing a tax cut in 2017 and dereg­u­la­tion, has pub­licly shamed companies for mov­ing jobs over­seas and threat­ened to take more aggressive ac­tion against phar­ma­ceu­ti­cal companies.

By mak­ing the state­ment, said Judith Sa­muel­son, ex­ec­u­tive di­rec­tor of the As­pen In­sti­tute’s Busi­ness and So­ci­ety Pro­gram, “the voice of cor­po­rate Amer­ica — the Busi­ness Round­table — has now sig­naled how much things have al­ready changed.”

The or­ga­ni­za­tion “is re­ally play­ing catch-up with any num­ber of mem­bers of their or­ga­ni­za­tion that have been work­ing to dam­pen short-term pres­sures and make in­vest­ments” in em­ploy­ees, com­mu­ni­ties and broader so­ci­ety.

She be­lieves the new state­ment will “stiffen (CEOs’) re­solve to make the kind of long-term in­vest­ments that benefits the long-term health of the enterprise.”

But the firms also opened themselves up to a range of crit­i­cisms, rais­ing questions about how much the new state­ment would lead to real change. Some schol­ars and prom­i­nent politi­cians said the new state­ment may be too vague to cor­rect for cor­po­rate fail­ures.

A Round­table spokes­woman said the group wel­comed the feed­back from law­mak­ers.

Mean­while, share­holder groups raised con­cerns that their interests would no longer be the core con­cern of cor­po­ra­tions, un­der­scor­ing that the ar­gu­ment that it is the job of government — not companies — to make de­ci­sions that are in the best interests of so­ci­ety.

The Coun­cil of In­sti­tu­tional Investors, an as­so­ci­a­tion of pen­sion funds, en­dow­ments and foun­da­tions, said it “re­spect­fully” dis­agrees with the state­ment, ad­ding that it “un­der­cuts no­tions of man­age­rial ac­count­abil­ity to share­hold­ers.”

But CEOs who fa­vored the move said it would ben­e­fit share­hold­ers in the long run as well.

“CEOs work to gen­er­ate prof­its and re­turn value to share­hold­ers, but the best-run companies do more. They put the cus­tomer first and in­vest in their em­ploy­ees and com­mu­ni­ties. In the end, it’s the most promis­ing way to build long-term value,” said Tricia Grif­fith, pres­i­dent and CEO of Pro­gres­sive Corp.

The new state­ment in­cludes 181 sig­na­tures of the 192 cur­rent mem­bers of the Busi­ness Round­table. Some companies that did not sign were not el­i­gi­ble to do so be­cause an in­terim chief ex­ec­u­tive is in place or the com­pany is tran­si­tion­ing be­tween lead­ers.

There were seven other CEOs who did not sign for var­i­ous rea­sons: Roy Har­vey at Al­coa, Stephen Sch­warz­man at Black­stone, Larry Culp at Gen­eral Elec­tric, Bernard Tyson at Kaiser Per­ma­nente, James Robo at Nex­tEra Energy, Thomas Williams at Parker Han­nifin and Michael Tip­sord at State Farm.

A Busi­ness Round­table rep­re­sen­ta­tive noted that the ab­sence of a sig­na­ture does not nec­es­sar­ily mean the CEO does not sup­port the state­ment.

Some gov­er­nance ex­perts were crit­i­cal of the an­nounce­ment, point­ing out that share price is a clear in­di­ca­tor of a com­pany’s suc­cess and that companies could now use the wider ar­ray of interests they’re serv­ing as a dodge.

“It lim­its ac­count­abil­ity for these peo­ple to any­one,” said Charles El­son, who di­rects the John L. 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(holder) will ben­e­fit.”

RICHARD VO­GEL/AP

The Busi­ness Round­table said its new mis­sion state­ment em­pha­sizes the im­por­tance of all stake­hold­ers, which in­clude work­ers, sup­pli­ers, cus­tomers and lo­cal com­mu­ni­ties.

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