Are Companies Serious About Putting Stakeholders First?

By DirectorCorps

October 8, 2019 All Industries Corporate Governance

The Business Roundtable’s blockbuster statement redefining the purpose of a corporation almost reads like an apologia for capitalism.

“We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all,” the nonprofit’s statement starts. Some 181 CEOs signed onto the August statement redefining the corporation’s purpose as not principally for the good of shareholders, but rather for the good of all stakeholders.

“CEOs work to generate profits and return value to shareholders, but the best-run companies do more,” wrote Tricia Griffith, president and CEO of insurer Progressive Corp. “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.”

This comes at a time when capitalism appears under attack. A recent poll by the libertarian Cato Institute found that 39% of Americans have an unfavorable view of capitalism, while 59% are favorable. A 2016 Harvard study found 51% of U.S. respondents between the ages of 18 and 29 did not support capitalism. The word “socialism” is bandied about by the Vermont Democratic presidential hopeful, Senator Bernie Sanders.

In that context, it makes sense that the titans of corporate power felt compelled to put forth an argument in favor of capitalism. One big question now is whether the statement will mean anything.

Alan Murray of Fortune magazine writes in a newsletter that he believes CEOs are serious about this. Employees are demanding change, customers are beginning to value it and the political environment looks very threatening to business these days.

But business consultant, writer and speaker Andrew Winston questions whether the Business Roundtable statement will lead to the kind of radical change needed on global problems, especially climate change.

“In my experience, some of these CEOs really mean what they say and do want to find purpose and build their legacy,” he writes. “But it’s really hard to take some of these signatures seriously, which somewhat undermines the whole effort. ExxonMobil has spent decades questioning climate science and slowing global action (check out the powerful podcast Drilled for the whole sorry tale). How much could a company like that care about ‘stakeholders’?”

Winston notes that in “Saving Capitalism from Short-Termism,” economist and author Alfred Rappaport writes that the real problem is short-termism and how business and investment managers think about value. When we think about value as this quarter’s profits, then we don’t invest and we certainly don’t prioritize climate change, Winston said.

There will always be tension between short-term profits and long-term sustainability of the corporation and the planet. The true legacy of CEOs will be how they answer this challenge.