The Business Roundtable, an association of American CEOs, issued a statement to end the focus on shareholder primacy and reignite the American Dream by including a focus on all stakeholders – customers, employees, suppliers, communities, and shareholders. What the statement signifies is a shift from the 1970s promoted primary goal of maximizing shareholder value.
- What further actions can the Business Roundtable leaders take to add substance to the statement? Be specific.
- If you were (or are) a CEO, what initiatives would you take to embrace a stakeholder approach? How would your leadership practices change? More specifically, what would you tell investors when profits are being redirected to support communities or employees?
- As an employee or citizen, what are your expectations of the impact of this shift? What substantive change would you like to see first?
- In the 1970s, Milton Friedman, a University of Chicago economist, stated that the primary purpose of a corporation is to maximize shareholder value and limit government involvement.
- In 2017, the University of Chicago published a new paper to shift away from the narrow shareholder value concept. Two professors introduced the need for maximizing shareholder welfare since shareholders are concerned not just about money but also for the quality of society.
- The Public Benefit Corporation movement (promoted by B Labs) and the Conscious Capitalism movement have espoused principles of a triple bottom line – people, planet, and profit, focusing on a more comprehensive and purpose-led mission of companies.
- In 2008, Bill Gates described how capitalism needs to have a “twin mission: making profits and also improving lives for those who don’t fully benefit from market forces.” Marc Benioff, CEO of Salesforce, has been an advocate for change, stating the current shareholder only model is “wrong. The business of business isn’t just about creating profits for shareholders — it’s also about improving the state of the world and driving stakeholder value.”
The Business Roundtable is an association of America’s top 200 companies, represented by their CEOs. For years, the focus of the group was on shareholders, and with a 300-word statement, it now shifts to encompass all stakeholders.
Although a stakeholder approach has been promoted by the Total Quality, Conscious Capitalism, and Public Benefit Corporation movements, some will view the Business Roundtable statement as making a purpose-led company more mainstream (or, at least, headed in this direction).
The Business Roundtable effort was chaired by Johnson & Johnson CEO Alex Gorsky, who stated, “It has been a journey.” He went on to say how it was necessary because “people are asking fundamental questions about how well capitalism is serving society.” Some may say the statement comes about now because of the current presidential election and various proposals to make capitalism better. Others may see it as a natural evolution.
Capitalism is a key part of the storyline. Capitalism has always been an evolving model. Adam Smith designed capitalism to address an outdated economic system and prevent the ethical concerns of mercantilism. While Milton Friedman focused on a few principles to promote a shareholder view of capitalism, several decades later, two University of Chicago professors introduced an expanded model to include the social concerns of shareholders. Addressing current economic disparities and ethical faults require an openness to refinements. Without policy changes, economic freedom may continue to be limited, and the moral foundations of capitalism may continue to erode. The Business Roundtable statement can only be the beginning to address the economic inequities and unethical business decisions.