I was a bit agog and aghast at the recent announcement from 192 US CEOs, who said that stakeholders are now more important than shareholders. This focus upon stakeholders has been an emerging trend for over the past quarter century and here’s what these great US leaders said:
Statement on the Purpose of a Corporation
Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. 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.
Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth.
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.
The statement was received with interest by global media:
“Corporate leaders scrap shareholder-first ideology” leads on BBC business
“Shareholder Value Is No Longer Everything, Top C.E.O.s Say” is the lead story in the New York Times.
“CEO group says maximizing shareholder profits can’t be main goal” is the top story in the Washington Post.
“Group of US corporate leaders ditches shareholder-ﬁrst mantra” declares the front page of The Financial Times.
“Move Over, Shareholders: Top CEOs Say Companies Have Obligations to Society” states the front page of the Wall Street Journal.
And the statement was signed by CEOs of many great American companies such as Amazon, American Airlines, IBM and America's biggest bank, JPMorgan Chase, whose esteemed leader Jamie Dimon chairs the Business Roundtable.
Personally, I read this whilst coughing up my coffee laughing. Really? Employees and customers above profits and shareholders. In the US of frickin’ A. I don’t think so. Having worked for American companies most of my adult life, before finding my proper calling of being an independent troublemaker, their singular focus was greed and profit. Sure, they would talk about employees, customers and stakeholders, but this was never a balanced scorecard. The score always goes to the investors as greed is good, and the greediest are the most powerful.
It did lead to lots of questions after the announcement, with my favourite being from MarketWatch:
CEOs can’t fix the world and do their jobs at the same time - Business Roundtable’s new definition of corporate responsibility is pious bunk
But maybe the more balanced review came from Fortune magazine’s Alan Murray. Here’s an abridged version of that coverage:
For Milton Friedman, it was simple. “There is one and only one social responsibility of business,” the Nobel economist wrote in 1970: to “engage in activities designed to increase its profits.” Companies must obey the law. But beyond that, their job is to make money for shareholders.
And Friedman’s view prevailed, at least in the United States. Over the following decades, “shareholder primacy” became conventional business wisdom. In 1997, the influential Business Roundtable (BRT), an association of the chief executive officers of nearly 200 of America’s most prominent companies, enshrined the philosophy in a formal statement of corporate purpose. “The paramount duty of management and of boards of directors is to the corporation’s stockholders,” the group declared. “The interests of other stakeholders are relevant as a derivative of the duty to stockholders.”
On Aug. 19, the BRT announced a new purpose for the corporation and tossed the old one into the dustbin. Friedman must be turning in his grave.
The new statement is the result of a yearlong re-examination that began with a testy dinner attended by a group of journalistic critics and involving a comprehensive survey of CEOs, academics, NGOs, and political leaders. “It has been a journey,” says Johnson & Johnson CEO Alex Gorsky, who chaired the effort. But it was a necessary journey because “people are asking fundamental questions about how well capitalism is serving society.”
JPMorgan Chase CEO Jamie Dimon, who chairs the Roundtable, said the statement “is an acknowledgment that business can do more to help the average American.”
I’ve covered business as a journalist for four decades and, over that time, have conducted hundreds of interviews with CEOs of the largest corporations in the U.S. and across the globe. In the past few years, it has become clear to me that something fundamental and profound has changed in the way they approach their jobs.
If you were to trace the history of that change, you might start with the speech Bill Gates gave in Davos in 2008, in his last year of full-time service at Microsoft, calling for a new “creative capitalism.” As Gates told the World Economic Forum, “the genius of capitalism” lies in its ability to “[harness] self-interest in helpful and sustainable ways.” But its benefits inevitably skew to those who can pay. “To provide rapid improvement for the poor,” he said, “we need a system that draws in innovators and businesses in a far better way … Such a system would have a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces.”
Over the next few years, Harvard Business School professor Michael Porter began pushing what he called “shared value” capitalism, and Whole Foods cofounder John Mackey propounded “conscious capitalism.” Salesforce CEO Marc Benioff wrote a book on “compassionate capitalism”; Lynn Forester de Rothschild, CEO of family investment company E.L. Rothschild, started organizing for “inclusive capitalism”; and the free-enterprise-championing Conference Board research group sounded a call for “sustaining capitalism.”
Capitalism, it seemed, was desperately in need of a modifier.
Read the rest on Fortune’s website (it’s worth it). Trouble is, I don’t agree with it. I am a believer that we will move to a new world over the next decade of sustainable finance and conscientious business, driven by investor activists who tell banks and businesses that acting with wild abandonment focused upon shareholder only will be punished.
However, until activist investors start to truly punish such behaviours, which they don’t today (note Blackrock), all this Business Roundtable CEO BS will continue as shareholders will always rise above stakeholders. In fact, it already has:
Jeff Bezos, a signatory to the statement by the Business Roundtable, and chief executive of Amazon and its subsidiary Whole Foods, has shown how we’ll know when companies are reneging. One signal would be cutting benefits for part-time employees. That’s exactly what Whole Foods just did.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...