Will the influential Business Roundtable’s commitment to stakeholders over shareholders alone make a difference? Maybe. Maybe not.
This week, CEOs of major companies announced what might be the death of shareholder primacy, when the Business Roundtable declared corporations can no longer put the interests of shareholders before those of a broader set of stakeholders.
The announcement, and member company pledges to compensate employees fairly, protect the environment, and foster diversity and inclusion, dignity and respect, is a remarkable and perhaps final nail in the coffin of Milton Freedman’s 1970 maxim that corporations exist to serve only their shareholders.
[bctt tweet=”…… a remarkable and perhaps final nail in the coffin of Milton Freedman’s 1970 maxim that corporations exist to serve only their shareholders.”]
Long time advocates of corporate sustainability and responsibility (CSR), however, greeted the statement with something between a mild cheer and the cynical ennui of having been there and heard that before…. many times.
There is little we don’t already know about or have not developed around profitable, high performance stakeholder-led CSR to substantially and immediatly change corporate behavior for the good.
[bctt tweet=”…… There is little we don’t already know about or have not developed around profitable, high performance stakeholder-led CSR….”]
Yet somehow, Alex Gorsky, chief executive of Johnson & Johnson noted that while writing the Roundtable’s new doctrine there “were times when I felt like Thomas Jefferson.”
Given many Roundtable companies are already signatories to stakeholder focused initiatives, it’s uncertain whether allusions to the author of the US Declaration of Independence is an act of actual or willful ignorance. Either way, it’s hard to shake the image of a corporate vampire standing over its bloodless victim now offering to be a wellness guru.
[bctt tweet=”….. it’s hard to shake the image of a corporate vampire standing over its bloodless victim now offering to be a wellness guru. “]
Recent spotty history on corporate commitment to CSR is clear even for companies with decent reputations: Volkswagen lied about car emissions; Walmart made illicit payments to thwart environmental law in Mexico; Facebook’s delays addressing data privacy issues; and, of course, SNC-Lavalin’s very own bribery affair. The list is much longer but I hope the point is made. (No, I didn’t forget Monsanto and its Roundup, or Exxon et al for suppressing decades of research confirming climate change. You recall I mentioned ‘decent reputation’).
More diplomatic CSR advocates note the Roundtable has taken a ‘positive step’ and they look forward to seeing ‘commitment in practice.’ I’d wager that privately no one is holding their breath.
Canadian CSR expert Coro Strandberg’s assessment might best reflect reality, “the announcement is further proof that the narrative of business is changing. Business leaders now see themselves as a part of society not apart from society.”
[bctt tweet=”…..Business leaders now see themselves as a part of society not apart from society. “]
But the question remains: will this ‘newfound’ commitment to stakeholders substantially address leading corporations’ damaging contributions to climate change, biodiversity loss and the inequality that threatens life on this planet as we know it?
Hard to say. What is clear, is that until the Roundtable gets specific about implementation, timetables, and reporting, who could be blamed for not taking them at face value?
A quick way to prove their sincerity would be to have Roundtable member CEOs voluntarily reduce their salaries to a reasonable ratio of their lowest paid employees which, according to Bloomberg, was an incredible 248-to-1 in 2018.
More systemically, the Roundtable could ask governments to codify their stakeholder aspirations with legally binding standards and public performance reporting system.
These are the types of changes required to put teeth in the Roundtable’s doctrine. They are also indicative of initiatives member companies have largely resisted, often aggressively. The reason? Under any meaningful system, stakeholders, not the companies decide on the binding system.
Still holding your breath?
[bctt tweet=”….corporate leaders cannot seek to delay putting words to practice as all the necessary CSR infrastructure to do so already exists.”]
There can be no confusion: it will not be easy for companies to accept the changes implied in their new doctrine. It is equally certain that corporate leaders cannot seek to delay putting words to practice as all the necessary CSR infrastructure to do so already exists.
Given we have about a dozen years before climate change will trigger irreparable damage to our planetary habitat, the time of sycophantic cheerleading is also long over.
Cynicism, history, and doubt aside, the Roundtable’s new doctrine provides vigilant voters, consumers, investors, and governments a gifted opportunity to ensure improved corporate impacts on society and the environment.
Will shareholder primacy to go quietly into the night?
Not likely. But the Roundtable announcement offers hope that we just might make it to a more sustainable dawn.
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