The Business Roundtable, an organization comprised of CEO’s from leading U.S. corporations, made news a few weeks ago when it issued a statement reflecting a profound change in business philosophy and purpose. According to the Wall Street Journal:
The Business Roundtable… changed its statement of “the purpose of a corporation.” “No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.
For years, we were told that the sole purpose of a corporation was to increase shareholder value. Period. But now, Milton Friedman be damned. What some might call an evil communist plot was announced by none other than Jamie Dimon, CEO of JPMorgan Chase. Money isn’t everything, right?
Why is this happening? Is business truly obligated to make the world a better place? Other than operating lawfully, what are the responsibilities of corporations?
Some might argue that paying attention to the “society writ large” is completely consistent with maximizing shareholder value. Contrary to what you might think, this isn’t a new idea at all. Iconic capitalist, industrial titan and conservative Henry Ford was one of them. He doubled the going wage for his factory workers so that they might actually be able to afford to buy the cars they were building. What a concept.
Traditionalists roil at the idea that a business exists for any other purpose than making money, agreeing with Friedman’s seminal 1970’s article “The Social Responsibility of Business is to Increase its Profits,” from which the Journal article quotes:
“The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.” Mr. Friedman wrote. “In fact they are—or would be if they or anyone else took them seriously—preaching pure and unadulterated socialism.”
“Catchwords” indeed.
Ironically, business’s interest in a better world is not based in altruism at all, but in the very capitalistic realization that shareholder profit will indeed by maximized as customers are better served.
The 2018 Edelman Earned Brand study is one of many that quantifies the influence of a company or brand’s social attitudes and behaviors, stating that “64% of consumers worldwide will make a purchasing decision based on a brand’s social or political position.” The report finds that the majority of the 8,000 people interviewed also believe brands have more power to both address and solve for social issues than the government.
Brands have seldom been purchased for utility alone. Rather, they have always relied on “laddering up” to a “bigger” emotional benefit. Now the “magic” of Disney, the “creativity” of Apple or the “community” of Starbucks isn’t enough. Consumers need to know a company’s politics and its stance on whether NFL players should be allowed to kneel during the national anthem.
Hardly a week goes by without a company promoting its social policy in addition to its products and services. Starbucks just announced an initiative to provide access to mental health services for its employees. Procter & Gamble made a major commitment to women’s sports. Anheuser-Busch’s Budweiser touts that its beer is made with wind power. Walmart’s CEO issued a major statement this week on gun violence, imploring Congress to “do its part,” and more importantly, announcing that the nation’s largest retailer will completely eliminate the sale of handguns and handgun ammunition, and discontinue the sale of short-barrel rifle ammunition that can be used in military style weapons as well as hunting rifles.
The need to align with a cause important to consumers is now de rigueur.
The Business Roundtable is just getting around to formally recognizing the reality of the marketplace. Are these CEO’s truly kind-hearted? Are they really interested in enhancing the well-being of their employees and customers? No doubt there are many who are. Not to be cynical, but if it’s good for business, it hardly matters to the others.
The larger point is that corporations have identified a profitable way to fill the void left by government. With a dearth of leadership in Washington, including a self-absorbed, wannabe dictator and a gridlocked Congress, nothing gets done. Cure homelessness? Reduce gun violence? Health care or all? Advance equal rights? Support a working wage? Fight corruption?
Nah.
I am not comfortable with private business setting public policy, but I suppose there is a populist element at work here with people voting with their dollars. In my entire life, I’ve never bought a thing at Walmart. But maybe I will now.
I suspect that the 2020 elections will bring major change, if for no other reason, what former Obama strategist and pundit David Axelrod describes as “Trump exhaustion.” In the meantime, if you want to get something done don’t write your Congressperson. Write to your CEO.
