According to the reporting I’ve seen, the Business Roundtable has declared that they are changing the focus of their business from maximizing shareholders’ returns to improving the experience of all stakeholders. Stakeholders are made up of individuals or groups that have an interest in the success and progression of a company. External stakeholders comprise vendors, customers, neighboring companies, strategic partners, schools, and other community bodies. Internal stakeholders include partners, silent partners, investors, employees, and shareholders.
“We commit to deliver value to all of them [Stakeholders], for the future success of our companies, our communities, and our country.”
My understanding is that there were almost 200 leaders who signed the statement. Some of the companies are household names—Apple, Pepsi, Walmart, JP Morgan Chase—and I find their acknowledgment of stakeholder value refreshing.
There are now over 3,000 benefit corporations (B-Corp) entities worldwide. A B-Corp defines in it’s Charter or Articles of Incorporation, an intention to use some of its profits to benefit the community in which it operates. While this isn’t of particular interest for a privately held company, it is essential for a publicly held company that wishes to focus on stakeholders. Further, it is only fair for a company to let shareholders know ahead of stock purchase that they intend to use some profits philanthropically rather than turn all profits back to shareholders.
I am hoping that focusing on all stakeholders is a trend. We must wait and see what actually happens with the Roundtable members. However, between the increase in B-Corps and the statement from the Business Roundtable, I believe we see an awareness that businesses have to be socially responsible.
Let me quickly state that I do not think that the Roundtable members have all suddenly become socialists. Instead, I believe they are finally coming around to Nick Hanauer’s point of view—“I see pitchforks coming.” If you haven’t done so already, I recommend that you watch his TED talk. This talk is now more than five-years-old, and even more relevant today.
I believe that Milton Friedman is and was wrong when he stated that “business’ sole purpose is to generate profit for shareholders.”
Corporations should participate fully in their community. They have a right to a voice at the political table since they are taxed, and we believe there should be no taxation without representation. They must operate within the law as well as live up to the values of their community.
By narrowly focusing on maximizing the return to only one constituency—shareholders—some public companies have cut corners, broken the law, and created a vast gap between executive and employee pay. I know you need not be reminded of Wells Fargo, but surely they are an excellent example of the danger of a singular focus on growth, profits, and maximizing executive pay.
Hope Springs Eternal
I have been around the block a few times, so I’m not going to hold my breath while waiting for the long-overdue adjustment to corporate focus. I’m hopeful because I believe that corporations see these changes as necessary for their continued growth and to ward off further government intervention. I believe that if the members of the Business Roundtable genuinely do change to a stakeholder focus, they will find that the company not only survives but thrives. They will see their brand and their profits greatly enhanced.