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The Business Roundtable Has A Change Of Heart? I Think Not

In this July 31, 2019, file photo workers clean the outside facade of State Farm Stadium in Glendale, Ariz. The shareholder comes first has for years been the mantra of the Business Roundtable, a group representing the most powerful CEOs in America. The group on Monday, Aug. 19, released a new mission statement that implies a foundational shift; a step back from shareholder primacy. (Ross D. Franklin/AP)
In this July 31, 2019, file photo workers clean the outside facade of State Farm Stadium in Glendale, Ariz. The shareholder comes first has for years been the mantra of the Business Roundtable, a group representing the most powerful CEOs in America. The group on Monday, Aug. 19, released a new mission statement that implies a foundational shift; a step back from shareholder primacy. (Ross D. Franklin/AP)

On their 1998 album, “Give me Immortality or Give me Death,” satirical comedy group Firesign Theatre introduced an-all-too plausible fictional company, US Plus, whose motto was “We own the idea of America.”

Last week, the Business Roundtable — a group of 200 CEOs of some of the country’s largest companies, including Apple, Amazon, General Motors, Coca-Cola, Walmart, JPMorgan Chase, and Bank of America — issued a new Statement on the Purpose of a Corporation that proposes a revised corporate idea of America, one in which the purpose of public companies has expanded to consider stakeholders beyond shareholders. In doing so, they’ve broken with a view that has prevailed since 1970, when Nobel Prize-winning economist Milton Friedman wrote an article whose title clearly summarized its premise: “The Social Responsibility of Business is to Increase its Profits.”

Since then, the notion of “shareholder primacy” has been the guiding principle governing corporate behavior. It argues that shareholders are essentially the principals of large public companies, that they hire corporate boards and executives to act as their agents whose mandate is to serve their interests and only their interests, not those of employees, customers, or the communities in which corporations operate.

But the Business Roundtable may have upended that conventional wisdom within the business community with their new stance, one that contradicts its own 1997 doctrine that “the paramount duty of management and of boards of directors is to the corporation’s stockholders.” In their new position, they assert that besides generating healthy returns for shareholders, corporations must deliver value to customers, deal fairly with employees and ethically with suppliers, and support the communities in which they work — in short, serve all their stakeholders.

...responsibility to consumers and communities is not just socially responsible, but financially savvy.

This stance is, to quote Yogi Berra, “déjà vu all over again.” For most of the 20th Century, the prevailing view was that public companies were different enough from privately held ones that they had to serve a different purpose. Harvard Law professor Merrick Dodd argued in 1932 that “The business corporation is an economic institution which has a social service as well as a profit-making function.”

So what’s behind The Business Roundtable’s apparent change of heart? Developments on multiple business, political, and cultural fronts suggest that it may be driven as much by their bottom lines as by their higher angels.

As income inequality rises, faith in capitalism declines --  a frightening prospect for the Fortune 500. But surely that’s to be expected when, between 1979 and 2007, household income increased 275% for the wealthiest 1%. Meanwhile, nearly 14% of Americans live below the ridiculously low poverty line of roughly $25,000 per year for a family of four. It’s no wonder that during an overlapping timeframe, a survey by The Economist showed that “In 2002, 80% of Americans agreed that the world's best bet was the free-market system. By 2010 that support had fallen to 59%.”

Consumer boycotts from the left and the right — of Amazon for their labor practices, of Nike for signing Colin Kaepernick as an endorser, of Chick-Fil-A for its support of anti-gay organizations, of Walmart for its ongoing gun sales and of Dick’s Sporting Goods for its decision not to sell semi-automatic weapons — are increasingly commonplace. A 2018 study by the Global Strategy Group indicates that while in 2013, only 44% of respondents thought that corporations should stand up for their political beliefs, by 2018 that percentage had jumped to 81%.

But change is driven by carrots as well as sticks, and the businesses that take political and civic engagement seriously are thriving.

While earning the wrath of the NRA, Dick’s Sporting Goods has seen its earnings strengthen. Nike’s sales surged in response to the conservative boycott, and Chick-Fil-A is doing just fine despite the opposition from LGBTQ groups. Outdoors supply retailer Patagonia is the poster child for corporate activism. They’ve organized other companies to close their operations on election days so that employees can vote, sued the Trump administration in order to protect Utah’s national monuments, and the company is now donating the estimated $10 million in unexpected profit it gleaned from the Trump tax cuts to grassroots organizations combatting climate change (on top of the 1% of annual sales that the company already gives to such groups). And as all this has transpired during the past five years, the company’s revenues and profits have quadrupled.

The recent decision by four major automakers to defy Trump’s rollback of auto mileage standards and instead partner with the state of California to improve them illustrates how responsibility to consumers and communities is not just socially responsible, but financially savvy. As Jeff Alson, an Obama-era EPA official explained in a recent article, “If you want to maintain a positive branding reputation with the future generations, do you want to be siding with the person that most of us think is the biggest climate denier in the world, President Trump?”

At the same time, the cost of being monomaniacally focused exclusively on shareholders’ short-term earnings is becoming more apparent. As professor of Corporate and Business Law Lynn Stout illustrates in "The Shareholder Value Myth," BP’s Deepwater Horizon oil spill in the Gulf of Mexico exemplifies the dangers of such myopia. “In trying to save $1 million a day by skimping on safety procedures at the Macondo well,” she notes, “BP cost its shareholders alone a hundred thousand times more, nearly $100 billion.”

All of these examples demonstrate that being good corporate citizens and committing to providing value to all stakeholders need not be bad for business. But it may be bad for the CEOs whose average salary is 271 times more than the average American worker’s salary, for the politically connected top 1% of earners took home 20% of all American income, and the top 10%, who took home 50%. And that’s why we cannot rely on lofty words from the Business Roundtable or its signatories (some of whom lead companies like Duke Energy or Exxon Mobil, corporations that care for the planet about as much as spiders care for their prey), not even on the empirical evidence that companies can do well by doing good.

Public corporations are just that — public — and must be subject to the same sorts of monitoring and controls as other public assets. Elizabeth Warren’s legislation, the Accountable Capitalism Act, would require that corporations with more than $1 billion in revenue be federally chartered as benefit corporations (or b-corps) — companies that recognize that their duties extend beyond maximizing profits for shareholders.

Call me cynical, but I suspect that this is precisely what the Business Roundtable is trying to prevent with its laudable but vague pronouncement. Call me hopeful, but this is precisely the kind of governmental intervention that we need. After all, even Milton Friedman acknowledged that business has a social responsibility.

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Julie Wittes Schlack Twitter Cognoscenti contributor
Julie Wittes Schlack writes essays, short stories and book reviews for various publications, including WBUR's Cognoscenti and The ARTery, and is the author of “This All-at-Onceness” (Pact Press, 2019).

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