“This could be the start of something big.” *
Did 181 Business Roundtable CEOs “turn the corner” yesterday, upping their commitments to corporate social responsibility when they apparently elevated their stakeholders to equality with shareholders?
Among the companies’ new “Statement on the Purpose of a Corporation” vows:
. “protect the environment by embracing sustainable practices across our businesses”.
. “foster diversity and inclusion, dignity and respect”.
New York Times columnist Andrew Ross Serkin is not completely convinced: “How Shareholder Democracy Failed the People“:
“Some will doubt the sincerity of these business leaders words, and it remains an open question whether their companies will be held accountable — and by whom … Americans mistrust companies to such an extent that the very idea of capitalism is now being debated on the political stage.”
Many folks will be surprised to learn that the “Purpose” statement — significant, if followed by meaningful policy and performance changes (see below) – is actually a “turn of the wheel” in the evolution of capitalism. Shareholder primacy — profits — were not always at the core of corporate priorities.
Ross Serkin: “For nearly 50 years [from 1932 onward] corporations, for the most part, were run for all stakeholders. It was a time defined by organized labor, corporate pension program, gold-watch retirements and charitable gifts from companies that invested in their communities and the kind of research that promised future growth.”
That began to change, Ross Serkin says, in the 1970s with the rise of what he calls “shareholder democracy” – actually, shareholder interests being dominant – and has prevailed since then.
The genius of the current corporate social responsibility (nee “sustainable development”, “purpose” etc.) movement is company recognition that it is now “good business” to marry traditional business objectives (think, primarily profit) with contemporary social-progress objectives. And many of these companies now recognize that this coalescence can often actually enhance profits as they pursue their legal, moral and ethical obligation to deliver return on investment. Moreover, younger “publics” — employees, customers and, yes, investors — have shown significant support for this integration.
Arguably, the watershed event for this business model occurred in 2001 with the establishment of the United Nations Global Compact in which companies pledge to operate in accord with ten basic principles relating to human rights. labor, environment and anti-corruption. Now, UNGC, with its 9800 company signatories (and 4,000 affiliated organizations — governments, non-government organizations, academic institutions and civic groups) in 170 countries, is championing the achievement of the U.N. Sustainable Development Goals 2030. Re-doubling SDG operations would be consistent with the “Purpose” document.
Still, some question the Business Roundtable companies’ “Purpose” commitment. A number of big companies didn’t sign up. And the “Purpose” motivation has been questioned – although reputation management is a viable basis for such decisions. But the ultimate evaluation will take place in the months and years ahead as the companies evolve strategies and tactics to bring the commitments to life.
One of the of the major disconnects they must face is the perceived inconsistency that exists between CSR and sustainable development commitments — substantial as they may be — and the vast business lobbying at the local, state and national levels.
Sorkin: “For whatever progress may have been made Monday, it is hardly clear the debate is over. In fact, the fight for corporate identity is just beginning.”
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* Popular romantic song, 1950s (trust me)