The growing importance of all stakeholders
Over the summer the Business Roundtable (BR) released a new statement on what it views as the purpose of a corporation. Because the statement comes from them, it has significance in the marketplace; the group is sort of a non-profit think tank made up of CEOs and it publishes a variety of business research from the perspective of its members. It has issued this kind of statement before on subjects like corporate governance. So the latest statement can be viewed as a check on how the role of the corporation changes over time.
Back in the 1960s and 1970s when Milton Friedman ruled economic opinion it was strongly believed that the role of the corporation was making profits for shareholders and nothing else. That was not the only opinion; in the same era, Management guru Peter Drucker, opined that a corporation’s main job was to make a customer. But that’s a difference of degree at most and this monolithic view has been in decline in recent years.
As government has eased off its role as the ultimate provider of a variety social services, many people have sought other sources and philanthropy has tried to step up to the challenge and this ties in the BRT’s most recent statement on the role of a corporation in today’s society.
The statement on the role of the corporation, signed by 181 CEOs, seeks to reach out to stakeholders including shareholders but also employees, customers, suppliers and communities. Their statement on the role of the corporation follows.
- 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.
Almost as soon as the statement made the wires, business savvy people began wondering what it would take to turn many of the prescriptions into actions, would there be follow through?
Around the same time, Accenture and the UN Global Compact, released their own report that examines CEO attitudes. Their report, “The Decade to Deliver: A Call to Business Action,” surveyed 1,000 CEOs globally.
The UN-Accenture study looked for answers about follow through in two important areas, climate change and inequality. Inequality is the tip of the spear when discussing corporate social responsibility. It encompasses employee pay, including executive compensation, how a corporation works within its local community, and even how the corporation organizes itself toward climate change. Many people argue that pollution is a legitimate part of the discussion because corporations make profits from polluting the environment but usually fail to pay for cleanup leaving the society diminished.
The UN-Accenture report identified three goals or “calls to action”
- Raising ambition and impact in CEO’s own companies
- Changing how we collaborate with more honesty about the challenges”
- Defining responsible leadership”
Obviously, there’s great variability among the CEOs of global corporations due to geography, type of business, sector, and much more. But the survey results indicate that the CEOs are ahead of their investors. From the UN-Accenture study:
“In 2016, business leaders’ attitudes toward sustainability reached a peak as CEOs saw opportunity to recalibrate their sustainability efforts in line with global milestones. This is not exactly the case three years later. Despite clear opportunity, CEOs in 2019 acknowledge that business execution is not measuring up to the size of the challenge of the Global Goals—or to their previous ambition.
The sticking point is investors. The old school Milton Friedman purpose of a corporation still obtains. According to the Harvard Business Review article,
“No matter what the BRT statement says, most companies won’t act aggressively unless they believe investors value their sustainability efforts. And while there is actual movement in the investor community of late, as CEO of EDF Energy, Simone Rossi, says ‘There is a great disparity between the public statements put out by banks and investors and their apathy towards sustainability behind closed doors.’ No wonder only 12% of the CEOs cite pressure from shareholders as a motivation.”
My two bits
All of this paints a challenging picture for philanthropy. Unless, or more likely until, the investment community sees issues of sustainability and inequality as significant issues of our time–issues that they can play a role in changing–it’s likely that we will see some very good individual efforts by corporations that will have some effect in different locations. But the challenges ahead of us are global and require a global effort. What to do? Clearly individuals can do two things.
First, they can spend their consumption money with businesses that reflect their concerns. But also, as consumers of financial services, individuals can be selective in which services they use in the conduct of their economic lives. As consumers of financial services too, CEOs can and if the UN-Accenture report is any indication, will, select their financial partners with more care.
History is littered with examples of movements that channeled financial support to reward behaviors by global businesses. It’s possible we might be at the start of another such era.