Date: 2024-08-16 Page is: DBtxt003.php txt00017189
Corporate Behavior
Shareholder Primacy
Did the Business Roundtable just sound the death knell for shareholder primacy?
Peter Burgess
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Date: 2024-08-16 Page is: DBtxt003.php txt00017189 | |||||||||
Corporate Behavior | |||||||||
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Burgess COMMENTARY Peter Burgess | |||||||||
| Did the Business Roundtable just sound the death knell for shareholder primacy? 39 articles Follow The Business Roundtable, one of the most powerful pro-business lobbying groups in the United States, released a new policy statement today that demonstrates just how much business thinking has shifted in the last decade about how to measure the success of a company. In its August 2019 Statement on the Purpose of the Corporation, the Business Roundtable’s membership—more than 180 CEOs of companies that together employ over 10 million people—and its chairman, JPMorgan Chase CEO Jamie Dimon, closed the chapter that puts returns to shareholders at the center of the license to operate. The new statement acknowledges shareholders on a par with the critical contributions of, and responsibilities to, a company’s employees, suppliers, host communities, and the environment. This is not exactly an earth-shaking idea. The drumbeat of broader stewardship has been building for years now, whether through the actions of beloved, mission-driven B Corps like Ben & Jerry’s or Patagonia, the work of organizations and individuals like the influential law professor Lynn Stout, or through any number of global brands represented in the Business Roundtable that have been “on message,” like PepsiCo, where “performance with purpose” has been the mantra for over a decade. But the message today is meaningful. The Business Roundtable is the closest we come to the voice of Corporate America. When its member companies take a stand, it’s a close approximation of what an important segment of the entire US business community thinks—specifically the large, complex, globe-hopping, economically powerful businesses with deep supply chains. If the Business Roundtable weighs in on an issue, you can assume it has standing in the wider business community. Previous purpose-of-company statements from the Business Roundtable have explicitly endorsed the concept of shareholder primacy. The new language represents a much-needed modernization. A message from Dimon about the new statement takes us to the heart of the change: “The American dream is alive, but fraying,” he said in a press release introducing the policy change. “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 last time the Business Roundtable made a major pronouncement about business purpose, it was playing catchup with prevailing thinking in governance, just as it is today. Milton Friedman and his acolytes began the campaign for shareholder primacy, to place the shareholder at the center of business decision-making, in the early 1970s. The Business Roundtable waited until 1997 to reframe its own mission statement in tune with that idea. But today the pendulum has turned back to a more balanced view of the corporation, which the Business Roundtable embraced at its founding in 1972. The 1997 statement has now been deemed out-of-step with contemporary views. This shift has many authors—especially the leadership of big US companies like Costco, Southwest Airlines, and Panera Bread, whose strategies and track record are consistent with employee centric-thinking. But the work continues. While the rules have changed, the purpose of the corporation will continue to be best understood through actions and operations more than words. Data on how much of the recent tax cuts was paid out to shareholders, versus how much was invested in employees or infrastructure, demonstrates that the stock price still dominates the focus of board rooms and executive suites. And ultimately, pay packages loaded up with stock send a stronger signal to managers than any mission statement can. The Roosevelt Institute reports that “over the last decade-and-a-half, firms have sent 94% of corporate profits out to shareholders, in the form of buybacks, as well as dividends, leaving companies to argue that there is little available for employee compensation or investment (Lazonick 2014).” There remains much work to do. But this new statement from the Business Roundtable signals progress—it puts real points on the scoreboard for those of us who have long argued for reform in the way companies think about their purpose and their responsibilities to society. Two parts of the message stick out for me. One is the new statement’s prominent affirmation of the value of capitalism and of companies. “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,” the statement notes in its opening paragraphs. “Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services.” It’s an important reminder that we indeed need business. In our compulsion to understand how an institution like Boeing went off the rails—or in the shock of uncovering the commercial interests behind the opioid crisis—we forget that products and services we take for granted, from air travel to medicines, are the product of business ingenuity and investment. We won’t solve our most complex problems without business at the table. Nitin Nohria, when he was appointed dean of Harvard Business School in 2010, said it best: “None of the major problems confronting the globe today—sustainability, health care, poverty, financial-system repair—can be solved unless business plays a significant role.” Two, the Business Roundtable statement makes clear that executives’ natural interest in management can reassert its dominion over financial markets. Now finance classrooms need to catch up as well, to acknowledge how much our thinking about the purpose of the corporation has changed this decade. The Business Roundtable’s statement confirms common-sense management: of course the business needs to pay more than a poverty wage to command respect and loyalty and productivity; of course the lines of sight into your supply chain need to consider, as Google’s does, the working conditions and wages of the contract workers who work in your name, if not on your payroll. Your employees, and the shareholders who have had your back for decades—rather than days, or hours—agree. This article originally appeared on Quartz at Work. Author Judith Samuelson is founder and executive director of the Aspen Institute Business and Society Program. Find her on Twitter at @JudySamuelson or on email at JSamuelson@AspenInst.org. Report this Published by Judith Samuelson Judith Samuelson Business and Society Program at Aspen Institute Published • 1d 39 articles Follow What is the purpose of the corporation? The Business Roundtable just changed the answer it's given for decades. My take: Like Comment Share 76 11 Comments 19 Shares Reactions David Connor Richa Agarwal Steve Brant Marcello Palazzi Keith Darcy Ryan Turner Keith Schumann Irina Filippova +68 11 Comments Comments on Judith Samuelson’s article Peter Burgess Add a comment… Images 23m Ronee Marie Walsh Ronee Marie Walsh 2nd degree connection2nd Building purpose led brands A great summary of the announcements with references to what has shaped this journey. Thank you. It does seem that 'tipping point' from a business purpose perspective is becoming more holistic. Not so many years ago, in my roles at Business in the Community (a UK based organisation that mobilise the their membership to be a force for good in society) the conversation was focused on the 'why'. In more recent years it became more about the 'how'. Like Like Ronee Marie Walsh’s comment Reply 2h Kathy Miller Perkins Kathy Miller Perkins 2nd degree connection2nd I help companies build cultures, develop leaders and create change in support of purpose,impact and business success While not an earth shaking idea since the corporate winds have been blowing this direction for some time,still a good first step for the round table. I am encouraged to read in these comments that some business schools are acting as well. Much needed! Like Like Kathy Miller Perkins’ comment Reply Load more comments load_more_comment Judith Samuelson Judith Samuelson Business and Society Program at Aspen Institute Comments on Judith Samuelson’s article Peter Burgess Add a comment… Images 23m Ronee Marie Walsh Ronee Marie Walsh 2nd degree connection2nd Building purpose led brands A great summary of the announcements with references to what has shaped this journey. Thank you. It does seem that 'tipping point' from a business purpose perspective is becoming more holistic. Not so many years ago, in my roles at Business in the Community (a UK based organisation that mobilise the their membership to be a force for good in society) the conversation was focused on the 'why'. In more recent years it became more about the 'how'. Like Like Ronee Marie Walsh’s comment Reply 2h Kathy Miller Perkins Kathy Miller Perkins 2nd degree connection2nd I help companies build cultures, develop leaders and create change in support of purpose,impact and business success While not an earth shaking idea since the corporate winds have been blowing this direction for some time,still a good first step for the round table. I am encouraged to read in these comments that some business schools are acting as well. Much needed! Like Like Kathy Miller Perkins’ comment Reply 14h Peter Rooney Peter Rooney 2nd degree connection2nd Author, Communications Leader, Content Creator, Writer It must be gratifying to witness this important evolution in the Business Roundtable's thinking about the purpose of the corporation, and should be commended for your advocacy and efforts in helping to bring this attitudinal change about. But, as you note, much work remains to be done. Nevertheless, Congrats are in order! Like Like Peter Rooney’s comment Reply 1 Like 1 Like on Peter Rooney’s comment 15h Howard Green, MD Howard Green, MD 2nd degree connection2nd Dermatology & Dermatology Mobile Apps HA! Will Dimon’s new corporate ethos on the populous instead of the boardroom apply to his new HEALTHCARE VENTURE with Bezos and Buffet? Death and dying exchanged for Revenue and EBIDTA. Nataline Could Have Been 28 Today If Not For A Health Insurance Decision https://tarbell.org/2018/07/nataline-could-have-been-28-today-if-not-for-health-insurance-industry-death-panels/?ref=feed Nataline Could Have Been 28 Today If Not For A Health Insurance Decision Nataline Could Have Been 28 Today If Not For A Health Insurance Decisi… tarbell.org Like Like Howard Green, MD’S comment Reply 1 Like 1 Like on Howard Green, MD’S comment 19h Frank Scarpaci Frank Scarpaci 2nd degree connection2nd Social Impact & Strategic Planning Consultant ★ Meeting & Retreat Facilitator ★ Trainer ★ 619.446.6780 - VIANOVA, Inc. Let’s hope so. B Lab and the B Corp community have been leading this effort for over 12 years now. Like Like Frank Scarpaci’s comment Reply 3 Likes 3 Likes on Frank Scarpaci’s comment 20h Sanjay Kapoor Sanjay Kapoor 1st degree connection1st shift your THINKING This is good news, especially to folks who have been pushing for this awareness for a long time - I am thinking of Raj Sisodia and Conscious Capitalism, Inc. I hope that this is the first step towards clearer and systemic thinking on the part of the Business Roundtable. That said, a couple of thoughts: 1. BR's statement does not mention the environment as one of the stakeholders, which is a significant miss in the statement. Why? There is not a single supply chain that does not originate in the earth. According to the Stockholm Resilience Centre, four of nine planetary boundaries have been crossed. As David Brower said 'You can't do business on a dead planet.' 2. Will this statement despite its seeming incrementalism match the speed and scale of change science is telling us is needed?…see more Like Like Sanjay Kapoor’s comment Reply 22h Nell Minow Nell Minow 2nd degree connection2nd Vice Chair at ValueEdge Advisors LLC We are skeptical. Let's see if they put their money where this statement is. https://valueedgeadvisors.com/2019/08/19/ceos-adopt-stakeholder-goals-business-roundtable/ (edited) Like Like Nell Minow’s comment Reply 2 Likes 2 Likes on Nell Minow’s comment 1d Erik van der KooijStatus is online Erik van der Kooij 2nd degree connection2nd Founding director Feeling EUROPE Foundation | founder @C21fellow Cultivating capitalism and business, I fully support it. Like Like Erik van der Kooij’s comment Reply 1 Like 1 Like on Erik van der Kooij’s comment 1d Peter Laughter Peter Laughter 2nd degree connection2nd Founder and CEO at Spartoi Group, Storyteller and TEDx Speaker It is good to see these ideas going mainstream. As Raj Sisodia pointed out in his work with the Conscious Capitalism, Inc. community - the multi shareholder approach makes for dramatically higher rates of return. Like Like Peter Laughter’s comment Reply 5 Likes 5 Likes on Peter Laughter’s comment 1d Michael Bzdak Michael Bzdak 2nd degree connection2nd Global Community Impact Johnson & Johnson I agree that this is not exactly an earth-shaking idea and also agree that is is meaningful. We are in a new place- when are universities going to shift in how they talk to students about business? Like Like Michael Bzdak’s comment Reply 3 Likes 3 Likes on Michael Bzdak’s comment · 1 Reply 1 Comment on Michael Bzdak’s comment 3h Peter Sobel Peter Sobel 2nd degree connection2nd Director, Strategic Initiatives, Partnerships & Market Development Hi Michael, it is starting. Rutgers recently established an Institute for Corporate Social Innovation in their Business School and just hired an Executive Director, Noa Gafni. Like Like Peter Sobel’s comment Reply 1 Like 1 Like on Peter Sobel’s comment | |||||||||