For Immediate Release
Stefanie Spear, firstname.lastname@example.org, 216-387-1609
CEOs of World’s Largest Corporations: Shareholder Value Is No Longer Sole Objective, Overturning Milton Friedman’s Long-Standing Theory
WASHINGTON - In a 1970 Times magazine article, economist Milton Friedman stated that corporations exist solely to serve their shareholders and must maximize shareholder financial returns to the exclusion of all else. Moreover, he maintained, companies that did adopt "responsible" attitudes would be faced with more binding constraints than companies that did not, rendering them less competitive. This has been the dominant interpretation of capitalism for nearly 50 years. Today, nearly 200 CEOs of the world’s largest corporations did an about-face with an updated “Statement on the Purpose of a Corporation” from the Business Roundtable. This statement aligns with the intent and purpose of what shareholder advocates have been asking companies for decades. It overturns the1997 Statement of Purpose which parroted Freidman.
The results of this (now outdated) corporate philosophy has been short-term returns rather than long-term value. In the process, much has been sacrificed. As You Sow stands for the principle that for a corporation to achieve maximize value it must consider all stakeholders in its business plans, including employees, customers, suppliers, and the communities in which they operate and must value, preserve, and promote a sustainable climate, breathable air, drinkable water, and food that is safe to eat. We are pleased that the Business Roundtable agrees and look forward to collaborating on full implementation.
Today’s revised statement of purpose by the Business Roundtable says that:
“If companies fail to recognize that the success of our system is dependent on inclusive long-term growth, many will raise legitimate questions about the role of large employers in our society.”
Shareholders alarmed by growing global social and environmental risks have been vociferously raising these issues — and it is a welcome sight indeed to see that the Business Roundtable has been listening. The question is: will action follow?
Recently, corporate trade associations have tried to block implementation of these very ideas, arguing that shareholders who raise social, environmental, and even governance issues are wasting the time and money of corporations and shareholders. Over the past few years, the Business Roundtable has been spearheading efforts to deny shareholders the right to raise the very concepts that the Roundtable has now adopted. If the Roundtable’s new statement is to be taken seriously, we expect to see it withdraw its ongoing attempts to eliminate shareholders’ voices and welcome the engagements designed to implement these new practices.
Shareholders have long understood that corporate short-term practices reduce the long-term value of companies and create lasting harm to society as they externalize costs and pollute the commons. Will the new purpose compel corporations to shift policies and practices? Will it empower corporate leaders to internalize costs that have led to environmental degradation? That is the test. Shareholders are ready and willing to work together to turn words into actions.
Stakeholder-centric capitalism is not a new or radical idea. In fact, according to a recent Forbes article, there are more than 10,000 businesses operating as benefit corporations with stakeholder-centric governance baked into their by-laws. The article explains, “Upending shareholder primacy has explicitly aligned...management, directors, and investors around their common goal to build long-term value for all stakeholders.” Studies increasingly demonstrate something we have known all along — that a corporation will benefit in a broad range of ways by considering not only its shareholders, but also the company’s impact on its full range of stakeholders.
SCROLL TO CONTINUE WITH CONTENT
Never Miss a Beat.
Get our best delivered to your inbox.
The new Statement of Purpose speaks of “investing in employees.” Bravo! Treating employees well, with strong policies around healthcare, sexual harassment, gender equality, diversity, and justice not only attracts the best and the brightest employees, but helps to retain them over the long term, saving on a corporation’s single largest cost. Treating employees poorly; stripping them of power and incentive; paying non-living wages while jealously guarding skyrocketing C-suite pay packages may enrich management, but it costs companies, shareholders, and society dearly over time. Based on the new statement we expect to see corporations treating all employees as partners in the future of the company; inviting employee representatives onto the board; reducing executive compensation and raising minimum wages to balance pay ratios; ensuring pay and promotion equality for all protected classes; and listening to employees to increase overall company value and board diversity.
The new statement also speaks to “delivering value to customers.” This is another idea that has been at the core of hundreds of shareholder resolutions over decades. Treating customers poorly by making defective products or using toxic materials and ingredients may save money in the short term, but ends in value destruction as the trusted company brand is associated with these practices and customers flee to safer and better competing brands. Safe and healthy products win a customer’s loyalty time and again. It is an annuity, and it is why brand reputation itself is often the single most valuable asset a company owns. Again, we welcome this idea and look to see broad implementation including adding customer representatives to the board.
The statement also discusses “dealing fairly and ethically with our suppliers.” Allowing slavery in supply chains, not paying living wages by suppliers, purchasing from companies that expose their workers to environmental toxicity, and cruel working conditions are practices that must end. Let’s work together to drive the inequity out of supply chains.
Environmental impacts on local and global communities is critical. The new statement acknowledges the goal of “supporting the communities in which we work.” We are pleased to see that the Business Roundtable understands that polluting rivers, creating toxic air, harming the climate, and depleting natural resources eventually ends in litigation, harms health, damages the brand, reduces environmental resilience, reduces companies’ social license to operate, and in the end can raise existential risks to the planet. These costs accrue across society and far outweigh the short-term costs of building zero waste systems and state-of-the-art disposal processes, energy efficiency, reducing toxic inputs, and using resources effectively. Community members should be welcomed to corporate boards. We agree that the definition of “community” should extend out to the entire planet and all interconnected ecosystems. Shareholders have been working to move companies to provide detailed plans on implementation of long-term policies in line with this statement. We welcome the opportunity to work cooperatively with companies to meet these goals.
A recent New York Times article written by an ex-corporate lawyer sums up the problem that this new Statement of Purpose has hopefully addressed:
Under the current system “…corporate executives are legally obligated to act like sociopaths...The corporate entity is obligated to care only about itself and to define what is good as what makes it more money. Pretty close to a textbook case of antisocial personality disorder.”
The new statement, if truly adopted into the bylaws of all corporations will enable the humanity of the people who run these companies to be unshackled from the legal obligation to think only of their most base profit motives.
The antiquated notion that corporations exist for the sole benefit of shareholder returns was long overdue for a rewrite given its basic conflict with long-term value creation. Now that the new “Statement of the Purpose of a Corporation” has been adopted by key business leaders, and will soon be in the bylaws of all major companies, shareholders are ready to put these words into action for the benefit of all. Together we can reshape the definition of capitalism to accommodate all stakeholders, including those that have been increasingly left behind to create a safe, just, and sustainable world.
This is the world we live in. This is the world we cover.
Because of people like you, another world is possible. There are many battles to be won, but we will battle them together—all of us. Common Dreams is not your normal news site. We don't survive on clicks. We don't want advertising dollars. We want the world to be a better place. But we can't do it alone. It doesn't work that way. We need you. If you can help today—because every gift of every size matters—please do. Without Your Support We Won't Exist.
Please select a donation method:
As You Sow is the nation’s non-profit leader in shareholder advocacy. Founded in 1992, we harness shareholder power to create lasting change that benefits people, planet, and profit.
Our mission is to promote environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies.