On August 19, the Business Roundtable issued a new definition of the purpose of a corporation, signed by 181 CEOs of leading American corporations. This new definition widens the responsibility of a corporation from simply focusing on creating shareholder value, to include delivering value to customers, investing in employees, dealing fairly and ethically with suppliers and supporting local communities. Altogether an honorable sentiment.
Of course, this statement could be taken as a cynical ploy to forestall a potential social explosion or a time trip back to the 1930’s, when it reflected the common understanding. But taken at face value, it does represent a mindset change and effective repudiation of the shareholder orthodoxy of Milton Friedman. In other words, a very small step in the direction of (at least acknowledging the importance of) effective and sustainable corporate governance.
And even if I am wary of grand proclamations unaccompanied by specific policy recommendations, I am inclined to suggest waiting a year to see if anything has changed in the approach and way of doing business of these corporations. As one example of many, I would like to see whether Johnson & Johnson acknowledges its significant role in deepening the opioid crisis and commits to paying damages and supporting the communities its actions have helped devastate. Its top management publicly supports the new statement, as can be seen on the website of the Business Roundtable:
“This new statement better reflects the way corporations can and should operate today,” added Alex Gorsky, Chairman of the Board and Chief Executive Officer of Johnson & Johnson and Chair of the Business Roundtable Corporate Governance Committee. “It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”
To be sure: a more values-based governance from our largest corporations would indeed create massive positive change in Western societies and contribute to resolving some of the huge imbalances and problems they have helped create with the current, short-sighted focus on shareholders alone. The big question is: will they follow through?