The Purpose of a Corporation, or: we love you, you’re perfect, now change

America’s Business Roundtable has issued the following Statement on the Purpose of a Corporation:

  • Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe 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.
  • Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth.
  • While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit 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.
  • 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.
  • Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.

This specifically rejects the previous bedrock principle that corporations exist principally to serve their shareholders. With 200 “who’s who”-level signatories including the heads of Apple, Amazon and JP Morgan Chase, the initiative struck the New York Times as being sufficiently important that it occupied the lead place on its website for several hours. I don’t want this blog to drown in cynicism – if I were terminally pessimistic about the capacity of corporate reporting to achieve something worthwhile, I wouldn’t keep pumping this stuff out. But it also seems to me I’ve written over the years about a large number of initiatives which (if I remembered them all), proved less momentous than anticipated. The Roundtable helpfully linked to a Fortune article which, although generally laudatory (“something fundamental and profound has changed in the way (CEOs) approach their jobs”) also captured my own thoughts in the following passage, courtesy of an interview with Anand Giridharadas, author of the book Winners Take All: The Elite Charade of Changing the World

  • “I absolutely see the change,” Giridharadas told me recently. “It has become socially unacceptable as a company or a rich person not to be doing good. CEOs are asking the question: ‘What can I do to make the world better?’
  • “But what many are failing to do is ask: ‘What have I done that may be drowning out any of the do-gooding I’m doing?’ ” He cites the 2017 tax bill, supported by the Business Roundtable, as an example. The lion’s share of the benefits, he argues, ended up in the hands of the top 1%, increasing the income inequality underlying many social problems.
  • “What I see are well-meaning activities that are virtuous side hustles,” he argues, “while key activities of their business are relatively undisturbed … Many of the companies are focused on doing more good but less attentive to doing less harm.”

And it pretty much has to be that way, if those companies are to continue operating at all. Amazon for example is environmentally unfriendly by its very nature, follows a business model that depends in large part on low-wage workers, and has generated an obscene amount of wealth and power for its leader, among other things. No doubt it can find ways to sprinkle more virtue as it goes along, but the hole may be so deep that it can never climb out. So it’s fair to question what form of commitment is actually represented by Jeff Bezos’s signature on the document.

It’s interesting that this new declaration comes not long behind the Operating Principles for Impact Management which I covered last time, described as “a market standard for impact investing in which investors seek to generate positive impact for society alongside financial returns in a disciplined and transparent way.” On the face of it, this might suggest that investors and corporations are converging on a similar sense of equilibrium. However, if I’m correct in suggesting, as I did, “that for many industries (maybe for all of them, ultimately), the ability to extract a financial return is an inherent indication of an ultimately negative impact for society,” then there’s a long way to go on crafting the precise nature of that equilibrium…

More to come on this.

The opinions expressed are solely those of the author

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