“The chief business of the American people is business.” – President Calvin Coolidge
If you weren’t looking for it, you probably missed it. But, in my opinion, the biggest news of the day, week, month, and maybe year broke today when CEOs from some of the world’s biggest companies signed a “Business Purpose” statement indicating that businesses do not just exist to maximize shareholder value.
Today, even with the fear of a global recession looming, CEO’s from some of the most recognizable companies, including Tim Cook (Apple), Jeff Bezos (Amazon), Julie Sweet (Accenture), Safra Catz (Oracle), Ramon Laguarta (Pepsi), and many more all signed the updated Business Purpose Statement that now makes commitments to customers, employees, supply chains, and communities.
Why is a statement like this such breaking news? Capitalism, more than any force, has pulled people out of poverty, influenced societal changes, is pushing the technological revolution, and is contributing to the environmental crisis. Far beyond ideology, even the U.S. court system has upheld that businesses exist to maximize shareholder wealth. Change capitalism, and who it creates value for, and you change everything.
…we know that [people] are struggling. Too often hard work is not rewarded, and not enough is being done for workers to adjust to the rapid pace of change in the economy. If companies fail to recognize that the success of our system is dependent on inclusive long-term growth, many will raise legitimate questions about the role of large employers in our society.
With these concerns in mind, Business Roundtable is modernizing its principles on the role of a corporation.
Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance that include language on the purpose of a corporation. Each version of that document issued since 1997 has stated that corporations exist principally to serve their shareholders. It has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are inseparable.
Just as we are committed to doing our part as corporate CEOs, we call on others to do their part as well. In particular, we urge leading investors to support companies that build long-term value by investing in their employees and communities.“
According to the New York Times, “Faced with mounting global discontent over climate change, income inequality and working conditions, a coalition of major companies pledged on Monday to revise a longstanding principle of corporate governance.“
This mounting wave forcing corporations to evolve to a more logical, world-positive capitalistic structure has been a long time coming. The social enterprise and benefit corporation movements have placed massive pressure on the corporate sector for over three decades to ditch the outdated thinking that a company only exists to maximize shareholder value, often in quarterly reports. Many attribute this short-term thinking to maximize profits is a driving engine of climate, social, and societal crises.
This movement towards more responsible business accelerated in January 2018 when BlackRock’s CEO, Larry Fink, issued a letter saying: Contribute to Society, or Risk Losing Our Support. In August of 2018, Fink built on the moment with now Presidential candidate, Elizabeth Warren, to introduce an Accountable Capitalism act. This news from Fink and Warren produced a backlash, showing that companies still had a long way to go to be socially and environmentally responsible.
In March 2019, Deloitte, in its annual Human Capital Report shared that, “Intensifying combination of economic, social, and political issues is forcing HR and business leaders to learn to lead the social enterprise—and reinvent their organizations around a human focus“. In fact, in the same report, Deloitte shared that “When CEOs were asked to rate their most important measure of success in 2019, the number one issues they cited was ‘impact on society, including income inequality, diversity, and the environment’ showing the urgency of this issue.”.
Certainly, corporations and their leaders are embracing more corporate responsibility. But statements and commitments are not enough. Klaus Schwab, the chairman of the World Economic Forum, indicated that this is a positive sign and statement, but that real actions must be taken. Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World joined the discourse as well, saying that voluntary statement and governance are not enough, and legislative action must also be taken to “put the teeth of the laws into these boardroom platitudes”.
Making capitalism work for all of us is not going to be an easy task. We explore this issue in-depth in the MovingWorlds Institute, and we’ll be doing more soon, too. If this topic interests you, please do send me an email (mark [at] movingworlds [ dot] org) and we can talk more about how building the abilities of leaders within the corporate sector to make world-positive decisions is a key ingredient of this movement.