CEOs publicly commit to serving employees and customers—not just shareholders
Since 1978, the Business Roundtable—an organization that includes the CEOs of almost 200 of the largest companies in the US—has periodically published its "Principles of Corporate Governance" to convey a common understanding of why and how American businesses operate.
Every version of that document issued in the past 22 years has communicated that corporations exist for the primary purpose of increasing shareholder value. For complicated political and economic reasons, this "shareholder primacy" philosophy has pervaded US businesses for decades.
Until yesterday.
A new statement on the purpose of a corporation
On August 19, 2019, the Business Roundtable issued its latest edition, including a "Statement on the Purpose of a Corporation," which outlined an enlightened and evolved philosophy that acknowledged that corporations have an opportunity and a duty to serve stakeholders well beyond those who directly profit. Specifically, the document, signed by 181 CEOs, outlines commitments to five groups of stakeholders:
- Customers. The Business Roundtable committed to delivering value by meeting or exceeding customer expectations.
- Employees. The document articulates commitments to diversity, inclusion, dignity, and respect for all employees, as well as more-practical matters like fair compensation, benefits, training, and education.
- Suppliers. Fair and ethical treatment of suppliers is a key tenet of a corporation's purpose, according to the updated document.
- Communities. The CEOs committed to respecting people in the communities in which they work, as well as to protecting the environment and embracing sustainable practices.
- Shareholders were note omitted from the list of key stakeholders. The Business Roundtable committed to generating long-term value for those "who provide the capital that allows companies to invest, grow and innovate," while engaging transparently and effectively.
What this means to business and the humans it serves
The order in which these stakeholders are listed in the document suggests a shift in priorities. While all five of these stakeholders are equal as the document is written, the order is neither alphabetical nor random. Customers and employees have finally floated to the top.
As I have long stated, at its core, business is nothing more than humans serving humans. With this document, nearly 200 CEOs of some of the largest companies in the US acknowledge this reality. As our economy evolves, we are moving from shareholder primacy to human primacy. Corporations, as powerful agents of social change, now publicly acknowledge their responsibility to serve customers, employees, and communities before shareholders.
Who are these CEOs anyway?
Lest you think this statement represents a minority group of progressive, left-wing, bleeding-heart softy CEOs, you should know that the corporations they head are collectively responsible for 15 million employees, $8 billion in charitable contributions, $147 billion in R&D, and $296 billion in dividends paid.
The companies represented by these CEOs—181 total—include automakers like Ford and General Motors; finance companies like Goldman Sachs, Morgan Stanley, and JP Morgan Chase; defense contractors like Lockheed Martin and Raytheon; retailers like Target, Walmart, and Walgreens; tech giants like Apple and Dell; airlines like American and United; and 167 other major corporations, most of which you've heard of.
This is not a minor statement by a minor organization. This is the very voice of American corporate leadership, calling for a shift from focusing on profits to focusing on people.
What now?
While a small group of thought leaders, advisers, consultants, and other professionals have long promoted the value of the human experience in business, this formal declaration from a group of very powerful capitalists represents the mainstreaming and legitimization of these ideas within the free-enterprise system.
Corporations of all sizes should review this document carefully and consider it a call to action. It's time for all businesses to recognize that they don't exist merely to generate capital, but also to be responsible stewards of that capital for the good of customers, employees, suppliers, and communities. Corporations should be in the business of maximizing human potential, enabling everyone they serve to make their greatest and most meaningful contributions to the world.
Will your organization take up the gauntlet, or will it continue to chase the outdated idea of shareholder primacy?
Free Spirit
5 年It's funny how these things go in cycles.? For most of my career, I had the privilege of working for one of the greatest companies in the world: Hewlett-Packard.? The fundamental thing that made HP such a force was the HP Way, which was all about serving employees and customers - NOT shareholders.?? Here's an anecdote about David Packard from 77 years ago:?? In 1942, at age 29, he attended a Stanford conference on wartime production. Dominated by industrialists from giants like Standard Oil and Westinghouse Electric, it was presided over by business school professor Paul Holden, a major management guru of the day. “Somehow, we got into a discussion of the responsibility of management,” Packard later told Peninsula journalist and historian Ward Winslow, ’52. “Holden made the point that management’s responsibility is to the shareholders -- that’s the end of it.? And I objected. I said, ‘I think you’re absolutely wrong. Management has a responsibility to its employees, it has a responsibility to its customers, it has a responsibility to the community at large.’ And they almost laughed me out of the room.” https://stanfordmag.org/contents/founding-fathers
Senior Account Director @ Adobe | Healthcare
5 年one word - pandering
Podcaster | Copywriter | Patriot of the Small Creator
5 年Highly interested to see what this will mean on the ground: While much of America's political debate is preoccupied with the binary hellscape of the "socialism v. capitalism" shouting match, the more fascinating possibilities of "enlightened capitalism vs. unenlightened capitalism" get eclipsed.