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by Jena McGregor (Washington Post) A group representing the nation’s most powerful chief executives on Monday abandoned the idea that companies must maximize profits for shareholders above all else, a long-held belief that advocates said boosted the returns of capitalism but detractors blamed for rising inequality and other social ills.
In a new statement about the purpose of the corporation, the Business Roundtable, which represents the chief executives of 192 large companies, said business leaders should commit to balancing the needs of shareholders with customers, employees, suppliers and local communities.
“Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity,” said the statement from the organization, which is chaired by JPMorgan Chase CEO Jamie Dimon. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
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A range of lawmakers have been trying to force companies to consider society’s larger goals when they do business or be penalized.
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The organization “is really playing catch-up with any number of members of their organization that have been working to dampen short-term pressures and make investments” in employees, communities and broader society. (Judith Samuelson, executive director of the Aspen Institute’s Business and Society Program)
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The new statement includes 181 signatures of the 192 current members of the Business Roundtable.
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That concept — often known as “shareholder primacy,” or a corporation’s duty to maximize shareholder value — grew to prominence in the mid-1980s and has since become a widely accepted governance norm, one that critics say has driven a fixation on short-term results and helped balloon the size of CEO pay packages, fueled by outsized stock awards.
An analysis released Aug. 14 by the Economic Policy Institute, a left-leaning think tank, found that chief executive compensation had grown 940 percent since 1978, by one measure, while typical worker compensation had risen just 12 percent over the same period.
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Corporations are also facing increasing pressure — whether from customers, employees or public groups — to take stands on issues that affect society at large. Tech companies have had employees push back against contracts with immigration and border control agencies. Walmart has faced calls to stop selling guns after a recent mass shooting in its El Paso store, and senior corporate leaders have been increasingly vocal on social issues ranging from racism to LGBTQ rights as consumers increasingly look to spend money with companies that share their views. READ MORE
The Finance 202: Corporate critics cautiously optimistic about new CEO mission statement (Washington Post)
CEOs say shareholders won’t be No. 1 anymore. Turns out they already weren’t. (Washington Post)
Top US CEOs rethink the meaning of shareholder value (Washington Post)
Top CEOs are reclaiming legitimacy by advancing a vision of what’s good for America (Washington Post)
Excerpt from Washington Post-Top CEOs Are Reclaiming Legitimacy: In the Roundtable’s new formulation of corporate purpose, delivering value to customers, investing in employees, dealing fairly and honestly with suppliers, supporting communities and protecting the environment all have equal billing with generating long-term value for shareholders. The statement rejects the whole idea of “maximizing” one value to the exclusion of all the others. Instead, it acknowledges the need for balance and compromise in serving all of a company’s stakeholders. READ MORE
