The US Business Roundtable, which represents the chief executives of 192 large US companies, including Bank of America, JPMorgan, Morgan Stanley, Citi, Wells Fargo and several other large financial firms, released a new ‘Statement of purpose of a corporation’ in August. It has ruffled quite a few feathers.
The Roundtable’s new statement now reads: “Business leaders should commit to balancing the needs of shareholders with customers, employees, suppliers and local communities,” as opposed to its former statement from 1997 that said: “The principal objective of a business enterprise is to generate economic returns to its owners.”
It can be read in different ways, depending on your level of cynicism. The cynic’s view might be that now that shareholders are demanding higher social and environmental standards from the companies in which they invest, the chief executives of those companies have decided that shareholder preferences are no longer the be-all and end-all.
But cynicism aside, apparently some of the Roundtable’s members felt the new statement better reflected their ethos and would encourage other members to step up their commitments to society. I would love to know which ones. It’s an unusual and very disparate group of corporations whose commonality seems only to be their size and, therefore, power.
Jamie Dimon of JPMorgan Chase, Randall Stephenson of AT&T, and Dennis Muilenburg of Boeing at last December’s roundtable
There are certainly several (if not most) members that need to be seen as more socially and environmentally responsible. Johnson & Johnson, for example, is a member; in September it was ordered to pay $572 million by an Oklahoma judge for creating an opioid crisis in the state. (The firm’s CFO has said it will appeal.)
ExxonMobil is another. In October the energy firm will face trial against the State of New York on charges of deceiving investors about the company’s management of risks posed by climate change regulation.
And then, of course, there is Wells Fargo, which continues to face lawsuits over adviser misconduct – the latest in Massachusetts regarding unregistered advisers.
It’s hard to take seriously the notion that a change to a statement of purpose will make corporations and their executives more focused on their impact on society. Apparently, many people took umbrage with the lack of actionable suggestions that the Business Roundtable provided, because it then chose to publish an article clarifying that: no, it isn’t going to be dismissing shareholder concerns; no, it is not trying to appease ‘socialists’; and yes, it’s not just talk, it does have an action plan.
There’s no more challenging issue for our country than how to preserve our free-market system while ensuring that the benefits of capitalism flow to every American
– US Business Roundtable statement
But here’s its to-do list. First it recommends increasing the minimum wage: “$7.25 is too low,” it says. It is notable that it doesn’t recommend what it deems to be an appropriate wage. The other actions include working on skills training, increasing the debate around moving away from quarterly earnings and backing a bill on government funding for part-time education.
These are all fine suggestions, but is this all the greatest minds of corporate America could come up with? It seems half-hearted. And it doesn’t help that the Roundtable states: “There’s no more challenging issue for our country than how to preserve our free-market system while ensuring that the benefits of capitalism flow to every American.”
Is there really no more challenging issue for the country right now? Because I can think of one that begins with ‘Climate’ and ends in ‘a whole lot of low to middle-income Americans worse off’. Did I miss something? Is there really such a threat to free markets that we need to focus on preserving it?
But griping aside, there are many things the Business Roundtable could galvanize its members to do that would ensure this statement is not just words on a page. And, fortunately, the B Corporation movement was ready to provide concrete ideas.
More than 30 chief executives from B Corps such as Amalgamated Bank, Danone and Patagonia took out an ad in The New York Times to express their willingness to help the Business Roundtable chief executives turn their words into actions.
Elaborating further in an oped in Forbes, B Lab co-founder Jay Coen Gilbert suggested measures such as stakeholder governance and serving those most marginalized. Both are suggestions perfectly suited to financial institutions.
I would add another suggestion: curbing excessive executive pay and rethinking remuneration for executives that is tied to stock prices.
I understand the argument for having skin in the game, but how can chief executives truly run a business with society’s and employees’ best intentions in mind when they are being paid in or already own stock?
An example is the SEC filing in February 2018 that shows that the Business Roundtable chair, Jamie Dimon, beneficially owned 8.9 million shares of JPMorgan Chase.
If the suggestion by the Roundtable is that shareholders’ values do not align fully with those of society, then surely this issue is worthy of discussion.