Dramatic Change of Direction For The Business Roundtable With Issuance Of “Purpose Statement” Signed By The CEOs Of America’s Largest Companies

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…

News From the Sustainability Front as The Trump White House Makes Controversial Moves on ESG Issues — Actions and Reactions

by Hank Boerner – Chair/Chief Strategist – G&A Institute

February 23, 2017
Forward Momentum! – Sustainability 2017

Are you like many of us having sleepless nights and anxiety spells as you watch the antics of the Trump White House and the creeping (and similarly moving-backwards) effects into the offices of important Federal agencies that the Administration is taking over?

Consider then “other news” — and not fake news, mind you, or alt-news — but encouraging real news that is coming from OTHER THAN the Federal government.

We are on track to continue to move ahead in building a more sustainable nation and world — despite the roadblocks being discussed or erected that are designed to slow the corporate sustainability movement or the steady uptake of sustainable investing in the capital markets.

Consider the Power and Influence of the Shareowner and Asset Managers:

The CEO of the largest asset manager in the world — BlackRock’s Larry Fink — in his annual letters to the CEOs of the S&P 500 (R) companies in January said this: “Environmental, social and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and thus a company’s long-term prospects. We look to see that a company is attuned to the key factors that contribute to long-term growth:
(1) sustainability of the business model and its operations; (2) attention to external and environmental factors that could impact the company; (3) recognition of the company’s role as a member of the communities in which it operates.

A global company, CEO Fink wrote to the CEOs, needs to be “local” in every single one of its markets. And as BlackRock constructively engages with the S&P 500 corporate CEOs, it will be looking to see how the company’s strategic framework reflects the impact of last year’s changes in the global environment…in the ‘new world’ in which the company is operating.

BlackRock manages US$5.1 trillion in Assets Under Management. The S&P 500 companies represent about 85% of the total market cap of corporate equities.  Heavyweights, we would say, in shaping U.S. sustainability.

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As S&R investment pioneer Steve Viederman often wisely notes, “where you sit determines where you stand…” (on the issues of the day).  More and more commercial space users (tenants and owners) want to “sit” in green spaces — which demonstrates where they “stand” on sustainability issues.

Consider:  In the corporate sector, Retail and other tenants are demanding that landlords provide “green buildings,” according to Chris Noon (Builtech Services LLC CEO). The majority of his company’s construction projects today can easily achieve LEED status, he says (depending on whether the tenant wanted to pursue the certification, which has some cost involved). The company is Chicago-based.

This is thanks to advances in materials, local building codes, a range of technology, and rising customer-demand.

End users want to “sit” in “green buildings” — more than 40% of American tenants recently surveyed across property types expect now to have a “sustainable home.” The most common approaches include energy-saving HVAC systems, windows and plumbing. More stringent (local and state) building codes are also an important factor.

Municipalities — not the Federal government — are re-writing building codes, to reflect environmental and safety advances and concerns. Next week (Feb 28) real estatyer industry reps will gather in Chicago for the Bisnow’s 7th Annual Retail Event at the University Club of Chicago to learn more about these trends.

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Institutional investors managing US$17 trillion in assets have created a new Corporate Governance framework — this is the Investor Stewardship Group.

The organizers include such investment powerhouses as BlackRock, Fidelity and RBC Global Asset Management (a dozen in all are involved at the start). There are six (6) Principles advanced to companies by the group that including addressing (1) investment stewardship for institutional investors and (2) for public corporation C-suite and board room. These Principles would be effective on January 1 (2018), giving companies and investors time to adjust.

One of the Principles is for majority voting for director elections (no majority, the candidate does not go on board). Another is the right for investors to nominate directors with information posted on the candidate in the proxy materials.

Both of these moves when adopted by public companies would greatly enhance the activism of sustainable & responsible investors, such as those in key coalitions active in the proxy season, and year-round in engagements with companies (such as ICCR, INCR).

No waiting for SEC action here, if the Commission moves away from investor-friendly policies and practices as signaled so far. And perhaps – this activism will send strong messages to the SEC Commissioners on both sides of the aisle.

Remember:  $17 trillion in AUM at the start of the initiative — stay tuned to the new Investor Stewardship Group.  These are more “Universal Owners” with clout.

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Not really unexpected but disappointing nevertheless:  The Trump Administration made its moves on the Dakota Access Pipeline (DAPL), part of the Bakken Field project work, carrying out a campaign promise that caters to the project’s primary owners (Energy Transfer Partners**) and other industry interests, S&R investors are acting rapidly in response.

The company needed a key easement to complete construction across a comparatively small distance. Except that…

  • The Standing Rock Sioux Tribe says the route would cross their drinking water source, impact their sacred sites, and threaten environmentally-sensitive areas;
  • would violate treaty territory without meeting international standards for their consent; (this is the 1868 Fort Laramie Treaty, which according to the U.S. Constitution, should be the supreme law of the land);
  • and ignore alleged shortcomings in the required environmental review (under the National Environmental Policy Act – NEPA).

These are “abuses”, and banks and financial services firms involved may be complicit in these violations by the nature of their financing, S&R investors note. Their involvement in the project financing could impact their brands and reputations and relationships with society. And so S&R shareholders are taking action.

Boston Common Asset Management, Storebrand Asset Management (in Norway) and First Peoples Worldwide developed an Investor Statement to Banks Financing the DAPL. The statement — being signed on to by other investors — is intended to encourage banks and lenders to support the Rock Sioux Tribe’s request for re-routing the pipeline to not violate — “invade” — their treaty-protected territory. The violations pose a clear risk, SRI shareholders are saying.

The banks involved include American, Dutch, German, Chinese, Japanese, and Canadian institutions.  They in turn are owned by shareholders, public sector agencies, and various fiduciaries — “Universal Owners,” we would say.

The banks include: Bayerische Landesbank (Germany); BBVA (Argentina); Credit Agricole (France); TD Securities (Canada); Wells Fargo; ABN AMRO (The Netherlands); Bank of Tokyo-Mitsubishi UFJ; and Industrial and Commercial Bank of China, and others.

The shareholders utilizing the Investor Statement say they recognize that banks have a contractual obligation with the respect to their transactions — but — they could use their influence to support the Tribe’s request for a re-route…and reach a “peaceful solution” acceptable to all parties.

As The Washington Post reported on January 24th, soon after the Trump Administration settled in, President Trump signed Executive Orders to revive the DAPL and the Keystone XL pipelines. “Another step in his effort to dismantle former President Barack Obama’s environmental legacy,” as the Post put it.

One Executive Order directed the U.S. Army Corps of Engineers to “review and approve in an expedited manner” the DAPL. Days later the Corps made their controversial decision, on February 7th reversing course granting Energy Transfer Partners their easement. This week the remaining protestors were removed from the site (some being arrested).

The sustainable & responsible & impact investment community is not sitting by to watch these egregious events, as we see in the Investor Statements to the banks involved. The banks are on notice — there are risks here for you.

* * * * * * * *

May be what is happening in the asset management and project lending activities related to the project is the IBG / YBG worldview of some in the financial services world:  I’ll Be Gone / You’ll Be Gone when all of this hits the fan one day.  (Like the massive Ogalala Aquifer being contaminated by a pipeline break. The route of the extension is on the ground above and on the reservation’s lake bed.  Not to mention the threats to the above ground Missouri River, providing water downstream to U.S. states and cities.)

* * * * * * * *

Energy Transfer Partners, L.P:  (NYSE:ETP)  This is a Master Limited Partnership based in Texas.  Founded in 1995, the company has 71,000 miles of pipelines carrying various products. The company plans to build other major pipelines — the Rover Project — to carry product from the shale regions (Marcellus and Utica) across the Northern U.S. state east of the Mississippi.  ETP LP acquired Sunoco (remember them?).

Mutual Funds – Bond Holders – other key fiduciaries with brands of their own to protect — are funding the operations of ETP LP.

Brand names of equity holders include Oppenheimer; Goldman Sachs Asset Management; CalPERS; JPMorgan Chase.  Bond holders include Lord Abbett, PIMCO, Vanguard.  There are 567 institutional owners — fiduciaries — with some 45% of ownership, according to Morningstar. Partners include Marathon Petroleum Company (NYSE:MPC) and Enbridge (NYSE:ENB). (Bloomberg News – August 2, 2016 – both firms put $2 billion in the project and related work.)

The Partnership used to have an “Ownership” explanation on its web site — now it’s disappeared. But you can review some of it in Google’s archived web site pages here: http://webcache.googleusercontent.com/search?q=cache:http://www.energytransfer.com/ownership_overview.aspx&num=1&strip=1&vwsrc=0

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We are seeing in developments every day (like these above with non-governmental strategies and actions) that hold out promise for corporate and societal sustainability advocates and sustainable investment professionals that with — or without — public sector support, the Forward Momentum continue to build.

We’ll share news and opinion with you — let us know your thoughts, and the actions that you / your organization is taking, to continue the momentum toward building a better future…a more sustainable nation and world.

Out the Seventh Generation, as the Native American tribes are doing out in the American West in protecting their Treaty lands.  In that regard we could say, a promise is a promise — the Federal and state governments should uphold promises made in treaties.  Which are covered as a “guarantee” by the U.S. Constitution that some folk in politics like to wave around for effect.

FYI — this is Article VI:  “This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land, and the Judges in every State shall be bound thereby…”

We’re a Long Way from NYC’s Stonewall Inn, But Still a Ways to Go for Corporate LGBT Policies, Says Investor Coalition

by Hank Boerner – Chairman, G&A Institute

We’ve come a long way since the gay & lesbian communities mobilized and began in earnest their civil rights campaigns of the 1970s and 1980s and into the1990s. It was the New York City Police Department’s wrongheaded “raid” on the Stonewall Inn in Greenwich Village neighborhood in June 1969 that provided the important spark for the long-term, winning campaign by LGBT community for equal rights and equal protection under the laws of the land. “Stonewall” became a rallying cry for the next installment of the continuing “journey” of the civil rights movement in the United States.

The 1960s/1970s were the era of civil rights protests — we were involved in or witnessed and were affected by the civil rights / voting rights movement; the counter-culture “revolution” (remember the hippies?); the drive for adoption of the ERA (Equal Rights Amendment to the Constitution); and the anti-war movement protests against the conflict in Vietnam.  These were catalysts as well for the LGBT equal rights warriors of the decades that followed the 1969 Stonewall protests.

Finally, in recent years, after years of campaigning by LGBT advocates, most states have been adopting protective measures to protect the LGBT community.  Same gender marriage is a reality in many U.S. jurisdictions.

On November 7, 2014 The New York Times carried an update — it was a “milestone year” for LGBT rights advocates, the publication explained.  Voters in the 3Ms — Maine, Maryland and Minnesota – favored same-sex marriage; the first openly-gay US Senator (Tammy Baldwin) was elected by Wisconsin voters.

Still, there was vocal and often fierce opposition to same-sex marriage and equal protection under the law for LGBT citizens.

About LGBT Policies and the US Corporate Community

Many large companies (estimate:70 companies in the S&P 500 Index to date) have adopted non-discrimination policies to protect LGBT employees in the United States, says the 2014 Corporate Equality Index (a national benchmarking tool of the Human Rights Campaign).

We see these policies and programs for inclusion described in the many sustainability and responsibility reports we examine as exclusive data partner for the Global Reporting Initiative (GRI) for the United States of America.

Still, legal protections for LGBT citizens are not sufficient in numerous US jurisdictions. “Homophobic” policies and attitudes still reign in too many US cities and states and local communities.

And policies, attitudes, practices in other countries?  Well, that’s really a problem, say sustainable & responsible investment advocates — and steps are being taken to address the situation.

The S&R investment advocacy campaign is focused on the LGBT employees of US firms working overseas.  In countries like Russia, one of the world’s largest industrial economies, which has harsh anti-LGBT policies. The US investor group points out that 79 countries consider same sex relationships illegal; 66 countries provide “some” protection at least in the workplace; and in some countries, homosexuality is punishable by death.

In a business environment that continues to globalize in every aspect, with American large-cap companies operating everywhere, the investor coalition is calling on US companies to extend their LGBT policies on anti-discrimination and equal benefits policies to employees outside the United States. A letter was sent by the coalition to about 70 large-cap companies (the signatories manage US$210 billion in assets.

Shelley Alpern, Director Social Research & Shareholder Advocacy at Clean Yield Asset Management explains: “Today, most leading U.S. corporations now have equitable policies on their books for their [American-based] LGBT employees. Ther’s a dearth of information on how many extend policies outside of the U.S. In starting this dialogue, we hope to identify best practices and start to encourage all companies to adopt them.”

The objective of the shareowner advocacy campaign is to stimulate interest in the issue and create a broad dialogue that leads to greater protection of LGBT employees of US companies operating outside of the United States.

Mari Schwartzer, coordinator of shareholder advocacy at NorthStar Asset Management compliments US firms with effective non-discrimination policies and states:  “While we are pleased that so many companies have adopted non-discrimination policies in the USA which incorporate equal protections for LGBT employees, the next phase of implementation is upon us — we must ensure that international employees are receiving equal benefits and are adequately protected.  Particularly those stationed in regions hostile to LGBT individuals…”

Signatories of the letters sent to companies include these sustainable & responsible investing advocates:  Calvert Investments; Jantz Management; Miller/Howard Investments; Office of the Comptroller of New York City; Pax World Management; Sustainability Group/Loring, Wolcott & Coolidge; Trillium Asset Management; Unitarian Universalist Association; Walden Asset Management; Zevin Asset management.

Companies contacted include:  Aetna, AIG, Allstate, Altria, Amazon, American Express, Apple, AT&T, Bank of America, Baxter, Best Buy, Boeing, Cardinal health, Caterpillar, Chevron, Cisco, Citigroup, Coca Cola, Colgate Palmolive, Costco, CVS Health, Delta, Dow Chemical, DuPoint, EMC, FedEx, Ford Motor, General Electric, General Dynamics, General Motors, Goldman Sachs, Google, HP, Home Depot, Honeywell, Human, IBM Ingram Micro, Intel, J&J, JPMorgan Chase, Lockheed Martin, McDonalds, McKesson, Merck, MetLife, Microsoft, Morgan Stanley, Oracle, PepsiCo, Pfizer, P&G, Prudential, Sears, Sprint, Starbucks, Target, Texas Instruments, United Continental, United HealthGroup, United Technologies, UPS, Verizon, Visa, Walgreen, Walt Disney, Walmart, Wellpoint, Wells Fargo.

Summing up the heart of the issue for investors (and corporate employees):  “Corporations must take the extra step to ensure consistent application of LGBT-inclusive workplace policies throughout their operations, regardless of location,” said Wendy Holding, Partner, the Sustainability Group of Loring, Wolcott & Coolidge.