US Corporations: Not Just for Shareholders Any More

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One of the country’s most influential business organizations on Monday turned the world, if not upside down, at least 90 degrees. The Business Roundtable, comprised of chief executives of U.S. companies with more than 16 million employees and more than $7 trillion in annual revenues, issued a statement signed by 181 CEOs who have committed to “lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.”

It has been an article of faith among corporations for at least the past 50 years that companies’ sole job was to increase shareholder value. Just ask Carl Icahn or any other activist investor or leveraged buyout (now politely called private equity) firm. If some of the country’s largest companies are now saying that customers, employees, suppliers and the communities they live and work in are also stakeholders with a claim on a company’s performance, well, what’s next, a guaranteed basic income, student debt forgiveness and a federal minimum wage of $15 an hour?

The Business Roundtable’s chair, Jamie Dimon, who is board chair and CEO of JPMorgan, said in a statement:

The American Dream is alive, but fraying. 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.

Nobel Prize-winning economist Milton Friedman is often cited as the godfather of the shareholder-value ideology. In his book “Capitalism and Freedom,” published in 1962, Friedman called the idea of “social responsibility” a “fundamentally subversive doctrine” in a free society and that in such a society, “there is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

That sentiment does not square up with the Business Roundtable’s new direction, as Alex Gorsky, chair and CEO of Johnson & Johnson and chair of the group’s corporate governance committee, summarized it: “This new statement better reflects the way corporations can and should operate today. It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”

That’s a far cry from the Roundtable’s 1997 statement on corporate governance: “The paramount duty of management and of boards of directors is to the corporation’s stockholders. The interests of other stakeholders are relevant as a derivative of the duty to stockholders.”

The statement itself is just 300 words. Here are a few samples:

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.

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.

The Roundtable’s statement concludes: “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.”

What can they deliver? Perhaps something similar to a bill that Senator and Democratic presidential hopeful Elizabeth Warren introduced last year called the Accountable Capitalism Act. As she wrote in an opinion piece for The Wall Street Journal at the time the bill was introduced:

The Accountable Capitalism Act restores the idea that giant American corporations should look out for American interests. Corporations with more than $1 billion in annual revenue would be required to get a federal corporate charter. The new charter requires corporate directors to consider the interests of all major corporate stakeholders—not only shareholders—in company decisions. Shareholders could sue if they believed directors weren’t fulfilling those obligations.

Warren’s bill, of course, went nowhere. And the Business Roundtable’s new statement is aspirational, not mandatory as a federal law would be. While CEOs have come a long way in less than a quarter of a century, would they genuinely support something like Warren’s plan?

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