Business Roundtable, an association of executives of nearly 200 of the largest U.S. companies, from Apple to Walmart, announced a broadening of its longstanding Statement on the Purpose of a Corporation promising to make a “fundamental commitment to all of our stakeholders” including customers, employees, suppliers, communities and the environment. While these executives are still committed to maximizing profits for shareholders, Via Nova applauds their recognition of the various stakeholders that are crucial to long term corporate success. We believe companies that ignore these stakeholders develop regulatory, legal and financial issues that ultimately damage profitability and shareholder value.
Supporters and critics quickly surfaced to applaud or chastise the announcement. Critics point out that the statement unequivocally states that “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.” They dismiss the inclusive statement regarding stakeholders as a mere truism – of course companies should treat their customer and employees well. They contend any shift away from profit maximization results in a lack of focus and ultimately, corruption. Moreover, the statement does not suggest in any way a weakening of the fiduciary duties of the boards and executives to manage such companies’ affairs for shareholders’ benefit.
Supporters acknowledge the truism argued by the critics, agreeing, in part, that the comments about delivering value to the various company stakeholders are indistinguishable from the multitude of inoffensive and politically correct commentaries found in most all corporate annual reports. Instead, supports note that the new statement represents a very public rebuke to the previously held view stated by renown economist Milton Freidman that the social responsibility of business is to increase profits. The statement is a shift from “shareholder capitalism” advocated by Freidman to a broader “stakeholder capitalism” where companies acknowledge a broader set of responsibilities not only to shareholders, but also to customers, employees, suppliers, communities and the environment. Moreover, the content of the statement itself is not as notable as that it has the backing of CEOs representing nearly 30% of total U.S. market capitalization.
Via Nova believes the statement by Business Roundtable is a sign that the growing desire for policies promoting responsible and sustainable corporate actions is gaining mainstream traction. It is a small victory, but an important victory.