A corporation’s job is to maximize value for shareholders — so said the CEOs of several major companies for over two decades.
That changed Monday, with the issuance of a statement by the Business Roundtable, a group of CEOs including the executives for companies such as Apple, Amazon and JPMorgan and Chase.
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Together, 181 CEOs overturned decades of thinking about how corporations work, and said that while they still need to serve shareholders, they must also do more — like pay their employees well, give them good benefits, and adopt sustainable practices to help protect the environment.
“The American dream is alive, but fraying,” Jamie Dimon, CEO of JPMorgan and Chase and chair of the Business Roundtable, said in the statement.
“Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.
“These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”
The statement marked a “significant turning point for business,” said Jeffrey Yip, assistant professor of management and organization studies at Simon Fraser University.
“Investing in employees and communities is good business,” he told Global News.
“It creates a virtuous cycle that benefits people, communities, and the bottom line.”
In its “Statement on the Purpose of a Corporation,” the roundtable listed four commitments in addition to generating value for shareholders.
They included “investing in our employees.”
“This starts with compensating them fairly and providing important benefits,” the statement said.
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“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.”
The roundtable also committed to “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,” the statement said.
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Other commitments included “dealing fairly and ethically with our suppliers” and “delivering value to our customers.”
The Business Roundtable noted that it has periodically issued Principles of Corporate Governance, and that every statement since 1997 has endorsed “shareholder primacy.”
That’s changing now because people are struggling, the roundtable said.
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“Too often hard work is not rewarded, and not enough is being done for workers to adjust to the rapid pace of change in the economy,” it said.
“If companies fail to recognize that the success of our system is dependent on inclusive, long-term growth, many will raise legitimate questions about the role of large employers in our society.”
The idea of “shareholder primacy” is popularly attributed to Milton Friedman, an influential University of Chicago economist who once wrote that the “social responsibility of business is to increase its profits.”
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“What does it mean to say that ‘business’ has responsibilities?” Friedman wrote in the New York Times Magazine, in 1970.
“Only people have responsibilities. A corporation is an artificial person and in this sense may have artificial responsibilities, but ‘business’ as a whole cannot be said to have responsibilities, even in this vague sense.”
Corporate thinking didn’t always work this way, Gervase Bushe, a professor who focuses on leadership and organization development at SFU’s Beedie School of Business, told Global News.
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“The original barons of U.S. industry were builders of society,” he said.
“It was Henry Ford who insisted on paying his employees far more than the going rate, for example, and exhorting his peers to do similarly. The Carnegies, Mellons, Rockefellers etc. made huge contributions to the communities they operated in.”
Criticism of shareholder primacy has persisted over the years amid issues such as income inequality and the climate crisis.
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But the Business Roundtable is far from the first group of executives to push for values beyond making money for their shareholders.
The UN Global Compact is an initiative that has seen companies join in an effort to promote values such as human rights, labour and environmental responsibility.
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Signatories to that compact include companies such as Bank of America, Accenture and Dow.
The Business Roundtable’s statement nevertheless did not surprise Bushe, nor did he expect it would for anyone who has worked with senior corporate executives.
“Some are sociopaths but most are actually highly intelligent, good people who want to do well by doing good,” he said.
“The real problem, to my mind, are finance type and venture capitalists on Wall Street and elsewhere who don’t create any real value but make billions buying and selling companies.
“They are generally the ones who have demanded that corporations focus only on shareholder value.”
Yip has carried out research showing that people “pay forward” the benefits they obtain from corporations.
“Their employees are more likely to reciprocate the investments made in them,” he said.
However, the roundable’s statement also met with trepidation in some circles.
Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World, wants to see how the signatories next act on these values, he told the New York Times.
“If the Business Roundtable is serious, it should tomorrow throw its weight behind legislative proposals that would put the teeth of the law into these boardroom platitudes,” he said.
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