A number of you kindly forwarded variations of the article in the url below to me:
"Nearly 200 chief executives, including the leaders of Apple, Pepsi and Walmart, tried on Monday to redefine the role of business in society — and how companies are perceived by an increasingly skeptical public."
Specifically, it is the Business Roundtable making this announcement on behalf of its members:
"Breaking with decades of long-held corporate orthodoxy, the Business Roundtable issued a statement on 'the purpose of a corporation,' arguing that companies should no longer advance only the interests of shareholders. Instead, the group said, they must also invest in their employees, protect the environment and deal fairly and ethically with their suppliers."
My immediate reaction is incredulity – do they mean that they do not understand their firms are already doing this? The stakeholder version of CSR is not either/or so much as it is more/less. In other words, all firms are already doing it; sure, they could be doing more of it, but they are already doing it to some extent. The fact that the Business Roundtable was not able to express itself in this way is shocking and demonstrates the amount of thought they put into the statement ahead of time. As The Wall Street Journal put it in its editorial response to the statement (August 20, 2019, pA14):
"At a practical level this is largely symbolic. … To be successful, any company must serve its customers, adequately reward its employees, cultivate the loyalty of suppliers, and maintain good relations with the communities where it operates. At the Business Roundtable's level of high-toned generality, who could disagree?"
At a deeper level and on reflection, I have a number of reactions to the statement that, in essence, add up to the reason that I wrote my book. In short, I think it is interesting that the Business Roundtable is announcing this change, but it is not very clear that they mean much by it. For a start, the framing is very mainstream. That is, while they pay lip service to the idea of value creation for stakeholders, they fail to demonstrate that they understand how that process actually occurs and that it encompasses 100% of what the firm does.
They also, of course, do not recognize that shareholder primacy is a theory (rather than a legal obligation), yet this is implicit in the statement and central to what they are saying. By announcing they are able to unilaterally shift the purpose of the firm to serving all stakeholders, the Business Roundtable is recognizing that there is currently no legal obligation to maximize shareholder value. If there was a legal obligation, then they couldn't just change it with a white paper policy statement. It would have been helpful if they had explicitly stated this (and it is concerning that they do not appear to make the connection), but the outcome is the same.
Related to this point, one group whose purpose is undermined by this decision is B-lab, which advocates for Benefit Corporations (hence, B-Lab's somewhat desperate full-page ad response in Sunday's New York Times, https://images.app.goo.gl/vAPqG491URyzFykn8). As I have long argued, Benefit Corporations are premised on a misunderstanding of the legal relationship between shareholders and the firm. If, according to the Business Roundtable's new announcement, all firms can do what Benefit Corporations can do, why do we need Benefit Corporations?
Overall, therefore, this looks like business as usual to me. It seems as though the Business Roundtable felt like it needed to say this, but it is not quite sure why it is saying it and, by extension, what implications it will/should have for its members. In other words, it is an exercise in impression management, largely driven by growing societal criticism of CEOs/firms/capitalism (take your pick):
"The shift comes at a moment of increasing distress in corporate America, as big companies face mounting global discontent over income inequality, harmful products and poor working conditions."
Rather than take on the (valid) criticisms with an intellectual defense of the value creation process (with a commitment to elevate all stakeholders and demote shareholders because their legal standing is no different), they instead engage in what one of you phrased to me as "all words," with little prospect for substantive action. It is notable, for example, that the Council of Institutional Investors (whose membership overlaps significantly with the Business Roundtable) issued its own response, criticizing the announcement because it "undercuts notions of managerial accountability to shareholders."
Take care
David
David Chandler
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Shareholder Value is no Longer Everything, Top C.E.O.s Say
Shareholder Value is no Longer Everything, Top C.E.O.s Say
By David Gelles and David Yaffe-Bellany
August 19, 2019
The New York Times
Late Edition – Final
A1, A15
