by Hank Boerner – Chair and Chief Strategist, G&A Institute
The Business Roundtable (BRT) is an organization of CEOs of the largest companies in the U.S.A. — firms that generate a combined US$7 trillion in revenues, employ 15 million people, invest $ 147 billion annually in R&D, and provide healthcare and retirements benefits for tens of millions of Americans.
Member companies operate in every one of the 50 states and through the organization the nation’s top business leaders work to influence major societal issues — tax policy, infrastructure needs, trade and other issues..
This universe of large companies is where many institutional and retail investors place their bets on the economic future and enjoy some of the fruits of the efforts of the enterprises they invest in.
Investors provide much of the capital that make the wheels go ‘round for the BRT companies. Consider: investors in the BRT member companies received almost $300 billion in dividends.
And so investors have been a priority concern for the CEO members for the almost half-century existence of the Business Roundtable.
The BRT’s long-term guiding philosophy seemed to many to have been rooted in the period four decades ago when influential economists such as Dr. Milton Friedman of the University of Chicago advised the CEOs that their primary duty was to look out for the shareholders first…and all else would fall in place.
Professor Friedman famously set out the agenda for major company CEOs and boards in his essay in The New York Times magazine in September 1970: A Friednzan Doctrine.
“When I hear businessmen speak eloquently about the ‘social responsibilities of business in a free-enterprise system’…the businessmen believe that they are defending free enterprise when the declaim that business is not concerned merely with profit but also promoting desirable social ends, that business has a ‘social conscience’ …” he began.
In doing this, he explained, those running companies believe they “have responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers…”
Only people can have responsibilities, the professor said. A corporation or business as a whole cannot be said to have responsibilities, even in this vague sense.
He concluded his 3,000 word anti-CSR screed with this: “…the doctrine of social responsibility taken seriously would extend the scope of political mechanism to every human activity. It does not differ from the most explicitly collectivist doctrine…” (Read: Communism; this was written in the days of the Cold War.)
Dr. Friedman saw corporate social responsibility as a “fundamentally subversive doctrine and that business had one and only one social responsibility: to increase profits so long as it stays within the rules of the game…”
In fact, the business managers / owners are, or would be if anyone else took them seriously, “preaching pure and unadulterated socialism.”
We Are In a New Era
We are almost 50 years away from the 1970 essay by the good professor.
The game has changed. The world has changed. The nature of the former Russia-USA standoff of the Cold War era has changed. Attitudes in the business (corporate) community have changed (witness the BRT “purpose statement”). Institutional investor attitudes have changed (see: sustainable investing). A vast array of stakeholders have entered this discussion since the 1970s.
So What Is The Purpose of The Corporation in the 21st Century – in 2019?
In 1997, the Business Roundtable issued its statement of the purpose of the corporation: “The paramount duty of management and of boards of directors is to the corporation’s stockholders.”
No more. This week, the Business Roundtable moved beyond the long-term “shareholder primacy” operating principle, releasing its revised “Statement on the Purpose of a Corporation” — representing a dramatic course change in the principle operating philosophy of this powerful, CEO-led organization.
The almost 200 CEO signatories pledged to:
–invest in employees;
–deliver value to customers;
–deal fairly and ethically with suppliers;
–support communities in which they work; and, –generate long-term value for shareholders.
Each of stakeholders is essential, the Purpose Statement reads. We commit to deliver value to all of them, for the future success of our companies, our communities, and our country.
Jamie Dimon, CEO of JPMorgan Chase is the current head of the BRT and played an important role in the dramatic shift of attitude in the official stance of the organization. He sees this as “an acknowledgement that business can do more to help the average American.”
Adding color to this critical public re-positioning: “Society gives each of us a license to operate. It’s a question of whether society trusts you or not,” Ginni Rometty, CEO of IBM told Fortune.
On its web site, BRT states “as leaders of America’s largest corporations, BRT CEOs believe we have a responsibility to help build a strong and sustainable economic future in the United States.”
We can say here that it appears that ESG and Sustainability basic principles are now “officially recognized” by the members of the CEO association — and have been enshrined in the declaration of the purpose of the U.S. large corporation.
The Purpose Statement does touch on numerous concerns of the sustainable investor – a good step forward for this powerhouse organization.
Perspective: This new BRT direction is about ESG / Corporate Sustainability / Corporate Responsibility / Corporate Citizenship — the issues and topic areas we deal with every day here at G&A Institute!
The BRT was created two years after the Milton Friedman essay appeared in The New York Times magazine (October 1972). Institutional investors were flooding into the equities market with relaxation of “prudent man/prudent investor” rules or guidelines of that the day. Large publicly-traded companies were the crown jewels of cities and towns (think: IBM, Hudson Valley, NY; GE, Connecticut; GM, Detroit).
The CEOs of that day — the predecessors to today’s BRT leadership — were operating in very different societal environments than in the 21st Century.
Congratulations to the CEOs who signed on to the new Purpose — no doubt the conversations with institutional investors will be centered in some ways on the new “official” BRT perspectives in the days ahead.
For the record, note that the BRT released its first sustainability report — “SEEing Change” — in April 2008 with 32 companies contributing to the report. The tally was 155 companies involved by 2017, with goals being set for E and S improvements.
We are following the discussion kick-started by the Purpose Statement and will have more to perspectives to share in the weeks ahead.
Our Top Story is the excellent Fortune feature on all of this by veteran business writer Alan Murray. It’s a great summary of the dramatic move by the CEO signatories this week.Click here to read the Business Roundtable’s “Statement on the Purpose of a Corporation” and see the list of corporate CEO signatories.
The Top Story
America’s CEOs Seek a New Purpose for the Corporation
Source: Fortune – For more than two decades, the influential Business Roundtable has explicitly put shareholders first. In an atmosphere of widening economic inequality and deepening distrust of business, the powerful group has redefined its mission…