There’s a flurry of news coverage this morning about the Business Roundtable releasing a new public statement on “the purpose of a corporation.” Whereas previous versions stated that “corporations exist principally to serve their shareholders,” the new statement emphasizes the way in which the signatory CEOs “create value for all our stakeholders, whose long-term interests are inseparable.” Opinion writers like the Washington Post’s Steven Pearlstein consider this shift in language “significant,” but it seems more a clarification of what has always been true for American businesses than any real change in direction.
The new BR statement lists five categories of stakeholders to which all members “share a fundamental commitment,” including customers, employees, suppliers, communities, and (listed last) shareholders. None of these constituencies are new, however, and it’s hard to see how any of the descriptions listed in the new document contradict what went before. Today’s statement says that the signatories commit to “dealing fairly and ethically with our suppliers” and “compensating [employees] fairly.” Have Honeywell and Best Buy been treating their suppliers unethically up to now? Are General Motors and PepsiCo just now starting to pay their employees fairly?
Surely the companies listed as signatories would insist that they have long been observing such standards already, whether it’s “supporting” employees, “serving as good partners” to suppliers, or showing “respect” to the communities in which they operate. As have most companies that have existed long enough to have their CEO become a member of the Business Roundtable. In many contemporary conversations about corporate responsibility, we’re left with the implication that companies could, if their management so wished, prosper indefinitely while maintaining an attitude of malicious disrespect toward their stakeholder groups. The “good” companies that join a statement this this one are thus set apart from the “bad” companies that, we are left to assume, embrace dishonorable motives, disrespect, and unethical behavior. However, with a few atypical exceptions like Enron and WorldCom—which have long since been punished by both markets and the law—we search in vain for the supposedly successful companies that don’t conform to at least the minimum standards that the BR statement demands.
The statement ends with the observation that “each of our stakeholders is essential.” I assume the stakeholders in question are supposed to consider that a gesture of respect, but it’s so close to a tautology that it’s essentially meaningless—a company with no customers or employees wouldn’t be much of a company. Which is exactly why today’s statement is both a problem but not much of a threat. It’s a problem because a vague statement with no specific goals or benchmarks is taken as a dramatic change of direction, which it almost certainly isn’t—even for any of the individual companies led by signatory CEOs, much less for American business in general. It’s a non-threat precisely because it doesn’t bind the companies involved to any specific course of action. It’s effectively non-reviewable and non-enforceable, even by the standards of voluntary association, so it’s largely a cost-free exercise in courting positive media attention.
Even with shareholders ostensibly demoted from number one to one of five equal claimants, the corporations in question will continue working to be as profitable as possible. There’s nothing in the new statement that would require managers to make any specific trade-off in the interest of any other group, and no way to enforce such a requirement if there was. More importantly, the ultimate discipline remains—investors invest in companies that they think will generate returns, not companies whose press releases have the most feel-good rhetoric.