WASHINGTON – The bosses of 181 of the US’s biggest companies, among them Hanes brands, Macys, Target Corp, and Walmart, have changed the official definition of “the purpose of a corporation” from maximising shareholder profit to “improving our society.” The radical change calls for businesses to focus on looking out for employees, caring for the environment and dealing ethically. The change of tack is set out by Business Roundtable, an association of chief executive officers of America’s leading companies. In comes in response to growing concerns about the wealth gap between rich and poor and an acceptance on both sides of the political spectrum that business as usual is not an option.
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The Business Roundtable periodically issues principles of corporate governance, and each version of the document issued since 1997 has endorsed principles of shareholder primacy. However, the new statement – which supersedes previous statements – outlines a modern new standard for corporate responsibility.
Specifically, the new purpose of corporation calls on businesses to deliver value to customers, invest in employees, deal fairly and ethically with suppliers, support communities and generate long term value for shareholders.
All sound fantastic in theory, although it will be deeds not words which dictate whether this change of emphasis by the Business Roundtable has any impact. To offer one example, many of the organisations listed as signatories have hugely questionable track records when it comes to the treatment of suppliers, and it would be naïve to expect them to change overnight.
“The American dream is alive, but fraying,” said Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. and chairman of Business Roundtable. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernised principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”
“This new statement better reflects the way corporations can and should operate today,” added Alex Gorsky, chairman of the board and CEO 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.”
Industry leaders also lent their support for the updated Business Roundtable Statement, citing the positive impact this commitment will have on long-term value creation:
“I welcome this thoughtful statement by Business Roundtable CEOs on the Purpose of a Corporation. By taking a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone – investors, employees, communities, suppliers and customers,” said Bill McNabb, former CEO of Vanguard.
“CEOs work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value,” said Tricia Griffith, president and CEO of Progressive Corporation.