August 19, 2019; New York Times and Washington Post
On Monday, the Business Roundtable, a coalition of many of the largest US companies, issued a brief one-page statement that purports to redefine “the purpose of a corporation.” Among the nearly 200 companies signing on to the statement are the leaders of such firms as Apple, American Airlines, AT&T, Amazon, Bank of America, Boeing, BlackRock, Citigroup, Goldman Sachs, JPMorgan Chase, and Walmart.
Specifically, in addition to standard language about benefiting stockholders, the statement “commits” its signers 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.”
A lot of this is hard to take seriously. To highlight just one fly in the ointment—aren’t the fundamental business models of Amazon and Walmart, two prominent signers, predicated on squeezing suppliers?
The exercise of defining corporate purpose may be challenging, but the Business Roundtable has been at it since 1978. The tone, however, has changed over time, notes David Yaffe-Bellany. Since 1997, Roundtable statements routinely included the sentiment that “corporations exist principally to serve their shareholders.” But now, Yaffe-Bellany reports, the group says, “It has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders.”
The fault, we are told, lies not in corporate practice, but in its language.
The new Business Roundtable statement tells us that a core corporate principle is investing in employees. Yet an Economic Policy Institute report released earlier this month found that over the previous 40 years (1978-2018), corporate CEO wages increased 940 percent (adjusted for inflation) versus an average increase in median wages of only 12 percent.
As NPQ noted a year ago, rising inequality dramatically affects health and well-being. According to British social epidemiologist Richard Wilkinson, who coauthored with Kate Pickett The Spirit Level: Why Greater Equality Makes Societies Stronger, the impacts “include physical and mental illness, violence, low math and literacy scores among young people, lower levels of trust and weaker community life, poorer child well-being, more drug abuse, lower social mobility and higher rates of imprisonment and teenage births.”
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In a press release, at least one corporate titan was sounding mighty contrite. “The American dream is alive, but fraying,” remarked Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and chairman of Business Roundtable. Of course, Dimon is hardly an innocent bystander in the dream-fraying process. According to the company’s US Securities and Exchange Commission (SEC) filings last year, Dimon earned 364 times the wages of the median employee at his company, earning $28.3 million (by alternative calculations, $29.5 million) in 2017.
Writing in the Washington Post, Jena McGregor notes some of the realpolitik reasons for the shift in Business Roundtable tone, if not corporate practice. McGregor points out that the new statement has been released “at a time of widening income inequality, rising expectations from the public for corporate behavior. and proposals from Democratic lawmakers that aim to revamp or even restructure American capitalism.”
Washington Post business columnist Steven Pearlstein admitted the political motive:
With Republicans in control of Congress or the White House for most of the past 20 years, the business community has been able to achieve much of its policy agenda by playing an inside game. But with Democrats now threatening to retake the White House and possibly the Senate in 2020, and the Republican Party lining up behind a Republican president spouting populist rhetoric, business leaders feel some urgency to re-engage in the public debate. By disavowing shareholder primacy and embracing a broader vision of corporate purpose, the Roundtable has now enhanced the political legitimacy of such efforts.
Pearlstein, however, still sees the statement as important, not because he expects the document itself to cause a shift in corporate behavior, but because “it confirms a shift in attitude that has already occurred” that reflects a willingness of at least some corporate players to be more accommodating of social, economic, and environmental demands. It is also, of course, notable that shareholder (maximization) theory—a doctrine famously articulated in the New York Times by economist Milton Friedman in 1970 that said the sole social responsibility of business is to earn profits—has taken a major hit, at least rhetorically, from the CEOs of nearly 200 leading US companies.
Still, there is good reason to be skeptical. Charles Elson, a business professor who directs the John L. Weinberg Center for Corporate Governance at the University of Delaware, remarked, “They talk about their great concern for the workers—well they’re the ones who’ve paid themselves so astronomically and created these pay gaps that are so dramatic. I’d like each of them to volunteer to cut their own salaries by two-thirds and give it back to employees if that’s the way they feel.” Of course, in Dimon’s case, this would leave him with annual compensation of a little over $9 million, barely enough to get by.
McGregor notes that Elson’s email to the Business Roundtable suggesting that CEOs voluntarily reduce their own compensation has yet to spur a reply.—Steve Dubb