In August this year the Business Roundtable, a group of chief executive officers of nearly 200 major U.S. corporations, issued a statement with a new definition of the “purpose of a corporation.”The signatories include BlackRock Inc.’s Laurence Fink, Bank of New York Mellon Corp.’s Charlie Scharf and the CEOs of several Wall Street banks, including Goldman Sachs Group Inc., Morgan Stanley and Moelis & Co. It also includes Amazon.com Inc. founder Jeff Bezos, the world’s richest person. The Group is chaired by Jamie Dimon JP Morgan Chase’s Chief Executive.
Why is this so important?
These business leaders have said they plan to abandon the traditional view that shareholders’ interests should come first amid growing public disquiet and concerns over the failings of the market in addressing complex global and national problems. The Business Roundtable have said that the purpose of a corporation in the 21stCentury is to serve all of its constituents, including employees, customers, investors and society at large.
Sounds a bit like conscious capitalism? In any event here is the Statement in full:
Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.
Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth.
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
- 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.
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.
Larry Fink, BlackRock’s Chief Executive has been vocal in this area in the past calling on business leaders to reevaluate the purpose of a corporation, specifically the “inextricable link” between purpose and profit. In his 2019 annual letter to shareholders he wrote “Purpose is not the sole pursuit of profits but the animating force for achieving them,” As divisions continue to deepen, companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity.” In Fink’s opinion, fundamental economic changes and failings of the U.S. government to provide lasting solutions has forced society to look to companies for guidance on social and economic issues, such as environmental safety and gender and racial equality.
It’s disappointing therefore that “The Economist” in it’s leader of the 24th of August should respond by saying that competition, not corporatism is the answer to capitalism’s problems. They assume that the CEOs are driven partly as a pre-emptive move before a Democratic victory in the 2020 US Presidential election. More importantly though they consider what they call “collective capitalism” suffers from two major pitfalls, a lack of accountability, and a lack of dynamism.
Whilst I have been an avid reader of the Economist for most of my adult life, I feel slightly reluctant to criticize their editorial, but they fail to understand how conscious capitalism would work. In the first instance they challenge the extent to which the chief executive officers should know what society wants from their companies. We will simply have a small number of unrepresentaive business leaders, who have no democratic legitimacy in their position, ending up with immense powers to set goals for society that range far beyond the immediate interests of their company. That would be true if it were the case, but the Economist does not realise that CEOs will not be working in isolation, but will be informed and guided by all members of their community, particularly their customers, their investors, and also their staff. It fundamentally recognizes that businesses operate and function within the communities within which they exist – they cannot survive if they act in isolation.
The second problem The Economist identifies is one of dynamism, suggesting that collective capitalism will prevent innovation and growth.Again, this quite simply doesn’t stack up. As the successful businesses such as Patagonia have been hugely innovative and differentiated themselves from their competitors. And this is where the Economist seem to be confused – Conscious Capitalism doesn’t dismiss competition. Of course, firms in the future will always compete and offer different services at different prices for customers.
In drawing this to a close, the Business Roundtable hasn’t provided a road map or a prescription as to how to deliver the new purpose of businesses. That will rest with each business to explore for themselves and this is where the opportunities lie. We are living at a time when everything we thought we knew may be wrong and the challenge will be to find the simplicity on the other side of complexity.
And that’s why it’s so exciting.