Group signals shift to stakeholder-focused model

Aug 23, 2019
Business Roundtable drops idea that companies function to serve shareholders only

The Business Roundtable signaled a major shift in corporate thinking this week by stating that the purpose of a corporation should be the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders – rather than just the latter.

The updated statement moves away from the group’s traditional philosophy of shareholder primacy. Rather, companies’ focus should be on investing in employees, delivering value to customers, dealing ethically with suppliers and supporting outside communities as the vanguard of American business, according to the new Roundtable statement.

‘While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,’ reads the statement, which is signed by 181 CEOs. ‘We commit to deliver value to all of them, for the future success of our companies, our communities and our country.’

Gary LaBranche, president and CEO of NIRI, tells Corporate Secretary sister publication IR Magazine that this shift is part of a wider trend: ‘The redefinition of purpose from shareholder-focused to stakeholder-focused is not new to NIRI members. For example, a 2014 IR Update article by the late Professor Lynn Stout urges a more inclusive way of thinking about corporate purpose.’

NIRI has also addressed this concept, including at its senior roundtable annual meeting and the group’s annual conference, LaBranche says. The trend was further seen in the NIRI policy statement on ESG disclosure released in January this year.

LaBranche says: ‘The statement is a revolutionary break with the Business Roundtable’s previous position that the purpose of the corporation is to create value for shareholders, which was a long-held position championed by Milton Friedman.

‘The challenge is that Friedman’s thought leadership helped to inspire the legal and regulatory regime that places wealth creation for shareholders as the prime directive for corporate executives.’

He adds: ‘[W]hile the new Business Roundtable statement reflects a much-needed rebalancing and modernization that speaks to the comprehensive responsibilities of corporate citizens, we can expect that some shareholders will push back on this more inclusive view of who should benefit from corporate efforts and the capital that makes it happen. The new statement may not mark the dawn of a new day, but it perhaps signals the twilight of the Friedman era.’

Jamie Dimon, chair and CEO of JPMorgan Chase and chair of the Business Roundtable, says in a statement announcing the new stance: ‘The American dream is alive, but fraying. Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.’

Along with Dimon’s, the Business Roundtable statement received signatures from other leaders of major US companies, including Amazon founder Jeff Bezos, Apple CEO Tim Cook, Bank of America CEO Brian Moynihan, Boeing CEO Dennis Muilenburg and General Motors CEO Mary Barra.

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