It is indisputable that over the past decade, capitalism has gained a robust foothold in the West. What still remains hotly contested, however, is whether the markets are responsible for the masses. More specifically, whether or not businesses, in conjunction with selling commercial goods, should also bring good to its patrons through other means such as charitable giving and dedicating programs towards local communities.
On August 19th, nearly 200 of America’s most powerful corporations seemed to offer up their renewed stance in this debate, and it is a rather unorthodox one. A statement was issued Monday by the Business Roundtable — a prominent US lobby group comprised of influential executives — titled “Statement on The Purpose of Corporation.” Within the open letter, which was signed by 181 American CEOs who altogether compose nearly 30% of the country’s market capitalization, signatories upended both traditional ideological frameworks while paving new paths.
Business Roundtable announces the release of a new Statement on the Purpose of a Corporation signed by 181 CEOs who commit to leading their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders. https://t.co/ZWMRTDZRqA. pic.twitter.com/8Kd4IVFjva
— Business Roundtable (@BizRoundtable) August 19, 2019
The statement sought to redefine the role of a corporation, which as the coalition outlined in 1978 is to be loyally subservient to its shareholders. According to the previous quasi-constitutional document published in 1977, companies’ sole purpose is to increase both profit and shareholder satisfaction — a principle that many companies have since religiously internalized and inserted into the core of their business model.
Bigger than the views of simply one lobby group, “shareholder capitalism” — the idea that companies answer exclusively to those from whom they accumulate capital and are not subject to any other civic duties — has been endorsed by economists and politicians alike.
From Milton Friedman, who expressed in a 1970 New York Times essay that companies are not bound to any other objective except profit maximization, to Ronald Reagan, who is best known for his faith in trickle-down economics — the theory that slashing corporate taxes and stimulating the economy will elevate the average person’s welfare — shareholder capitalism has successfully amassed popularity.
However, the grandiose ideals detailed in the recent letter fundamentally challenges the principle that companies give back to society purely through enhancing profit streams and consequently creating jobs.
Reinforced by testimonies from executives of JPMorgan, Johnson & Johnson and the Ford Foundation, the statement vowed that signatories would “share a fundamental commitment to all of our stakeholders.” Examples of such stakeholders range from employees and customers to suppliers and local communities, with shareholders standing at the end of the five-item list.
As the statement admitted, businesses have become an integral component of the social and economic fabric at large. But as an institution, they have failed a majority of their constituents. While workers, suppliers and consumers have been cast aside, private interests have eroded the social mobility of millions, such that the American dream became nothing more than just an impractical fantasy for the average citizen.
Ambitious promises to actualize this agenda were also made. The involved parties pledged themselves to goals such as paying fair wages, standardizing ethical supply chains, integrating sustainable practices and more, all of which testify to the belief that businesses should not only act as vehicles for economic stimulus, but also as agents of positive social change.
Though the document does not outline concrete steps towards reforming the entire trillion-dollar industry, it is emblematic of a shifting consensus and a corporate moral reckoning. Its signatories most notably include Amazon CEO Jeff Bezos, Apple CEO Tim Cook and Coca-Cola CEO James Quincey, demonstrating that economic juggernauts are, too, beginning to come to terms with the problems of a profit-over-people business doctrine, one that has certainly propped up, if not outright caused, soaring income inequality, poverty and environmental degradation in the US and overseas.
If this operational framework is even partially adopted and companies truly grow to be more than beholden to just their shareholders, the beneficiary will be society at large. It is not yet foreseeable whether corporations will be willing to defy their capitalistic instincts and hold themselves accountable to the greater good, but the newly released letter is surely a step in the right direction.