The Business Roundtable’s Restatement of Corporate Purpose: A Big Step or a Fig Leaf? (Part I of III)
It is curious that physical courage should be so common in the world and moral courage so rare. Mark Twain
Frankly, I have to admit my reaction to the recent Business Roundtable’s issuance of a new Statement on the Purpose of a Corporation, which was signed by 181 CEOs who committed to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders. Copy HERE.
My reaction has been mixed – positive public relations statements can be important if they are backed up by commitment. If this was just a way to position corporate interests in a positive spin to address growing public and consumer concerns and questions, this statement will fall into the dust heap of broken promises.
On the other hand, if this statement is backed up by a greater commitment to ethical cultures and compliance, we should mark the occasion.
As of now, however, it is just a set of words on a piece of paper (albeit electronic paper). The proof will be in the future. And then the question will be – how will we know if the 181 signatories really make some changes?
Aside from my initial skepticism, what is the precise meaning of the statement and why was it made?
For those of us who have been pushing the importance of ethical culture to corporate sustainable growth, there is nothing new here. To those who are concerned that the statement is somehow inconsistent with the fundamental purpose of a corporation which to is to maximize shareholder value, the commitment to sustainable growth satisfies that demand by prioritizing long-term, sustainable growth over short-term quarterly results. Corporate leadership can always justify such a trade-off as benefitting long-term value of shareholder interests. The danger lies when a company fails to attain the long-term objective – shareholders are likely to complain and even initiate litigation to hold corporate leaders accountable.
Let’s go back to the focus on the Business Roundtable’s “modern standard for corporate responsibility.”
The 181 signatory corporations noted that they “share a fundamental commitment to all of our stakeholders.” The commitment consists of five principles:
- 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.
These principles are significant and they reflect a broader corporate mindset. To the optimists, these principles, if carried out, reflect a broader definition of “purpose” that incorporates all significant stakeholders. To the pessimists, these principles reflect a forced awareness needed to conform to rapidly expanding public and consumer interests in positive corporate conduct.
The Business Roundtable release suggests that companies are being asked to play a great role in promoting political and social change as a result of political fraying and faltering in this hyper-partisan era. With the threat of an economic downturn and in this difficult social climate, the restatement was itself a positive contribution to the social dialogue surrounding public issues and concerns.
In the end, I will reserve judgment. All too often, I have heard words, even positive expressions that are encouraging to everyone that are not followed by action. We we need to hold these companies and signatories accountable – if their commitment to this new purpose is real, we should be able to observe real and significant change. If this was nothing more than a political ploy for a good press release, the absence of change will become evident in short order. For now, let’s keep our fingers crossed and hope for the best.