Are America’s most powerful corporations starting to embrace Triple Bottom Line concepts? Well, maybe. They are taking a step in the right direction at least. The Business Roundtable recently published a new definition of the purpose of a corporation, and it includes more than padding the pockets of shareholders.
The Business Roundtable is made up of approximately 200 CEOs from influential corporations across the country. Typically, these corporations have over 15 million employees and at least $7 trillion in annual revenue. Over the last four decades, the Business Roundtable has come together to research, advocate, and promote policy. The group has issued perspectives on policy affecting all aspects of business from corporate governance and tax policy to education.
This latest statement on the “Purpose of a Corporation” is meant to correct the outdated view that corporations exist to first serve their shareholders. Instead, acknowledging that in order to truly thrive, corporations need to recognize that shareholders are only one piece of the pie. Corporations also need to serve their other stakeholders: customers, employees, suppliers, and communities.
According to the statement from the Business Roundtable, “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.”
As such, the signatories 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.
A full list of signatories can be found here. A few Michigan companies include BorgWarner, Dow, Ford, and General Motors.
However, critics remain divided on the effectiveness of the effort. Richard Shinder, a contributor to the Wall Street Journal, pointedly comments “No one can serve two masters,” and continues to argue, “things aren’t likely to end well for any business that opts to please stakeholders over shareholders.” While others like Michael Spence, a writer for Project Syndicate, notes some of the positive attributes of the effort, explaining that this “shift toward socially conscious corporate governance…opens the door for new, more creative business models.”
As Alan Murray, President and CEO of Fortune, notes in his recent interview, there is a “trust gap” that has emerged between communities and corporations. While this statement on the purpose of a corporation is a step in the right direction, businesses need to do more; this statement of purpose needs to be backed up by action.
John Kotter, a contributor to MarketWatch, explains that business mantras, including the now outdated primacy of shareholders, become embedded in our culture over time, not overnight. Indeed, the “maximize shareholder value” model has taken decades to evolve to where it is today. We shouldn’t expect the change anticipated by this latest Business Roundtable statement to take any less time.
Click here to read the opinion of SMSBF’s Executive Director Mike Shesterkin.
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