On August 19, 2019, the Business Roundtable (BRT), the association of CEOs of the largest U.S. companies, announced a new Statement on the Purpose of a Corporation (the Statement), outlining a new standard for corporate responsibility. The Statement, signed by 181 CEOs, purports to commit the companies to place customers, employees, suppliers, and the communities they serve on par with shareholders. The Statement also represents a shift to a shared prosperity approach to business, replacing the group’s long-held idea of shareholder primacy.
Why the Change?
Much has been written about the BRT’s claim “that business as usual is no longer acceptable.” The group appears to be responding to waning public support of the status quo. But what is driving this group to make this change, and why now?
A number of well-documented trends are converging, and they may be forcing corporations to get out ahead of an inevitable market and consumer evolution. These change factors include:
1) Better informed consumers,
2) A presidential election year in which there are calls for more regulation of corporations by Democratic candidates,
3) Declining support of capitalism (only 42% of millennials support capitalism),
4) The impact of automation and technology on the workforce,
5) Active and vocal employees (organized walkouts), and
6) Frustration with reported compensation disparities (CEO earnings increased around 1000% from 1978–2018 while worker’s pay grew by less than 12%).
These CEOs certainly care about the voice and power of millennials—not just as consumers, but also as employees. In a recent poll, 80% of this age group said they wanted to work for “engaged companies.” Increasingly, millennials will also be investors. Is the Statement an opening salvo in a campaign to win them over?
As currently presented, the Statement is not a legal undertaking. It does not present new concepts, is not legally binding, and does not require any actions. Additionally, there is no suggestion the signatories are already in compliance with its principles. Left as is and without a plan for action or accountability, doubts remain about the Statement’s impact.
On the other hand, if market realities continue to move faster than the BRT, we may find that the Statement positions U.S. corporations as willing to adjust to a very different generation of investors and consumers.
Emerging New Metrics?
While the BRT statement is a more recent public statement about a potential paradigm shift, other organizations, statements, initiatives, and investments are moving in the same direction. In fact, these realities may trigger new types of research and metrics by which corporations could be judged.
The triple bottom line (TBL) concept articulated by John Elkington in 1994 examines a company’s social, environmental, and economic impact. While TBL captivated some companies, which went on to use this framework to provide a broader picture of corporate impact (including manager behavior and incentives) to boards and investors, it has not caught on widely. Even so, a handful of companies have undertaken TBL commitments, or broader corporate social responsibility commitments, including Novo Nordisk, Seventh Generation, and Patagonia.
The World Economic Forum, through its International Business Council, published a framework in September of 2016 to encourage corporations to focus on long-term growth that benefits shareholders and other corporate stakeholders.
The United Nations has embarked on a world-wide program, complete with 17 sustainable development goals, designed to engage the private sector in addressing the world’s most pressing challenges. Another program, the B Corp movement, is taking steps to replace shareholder primacy with benefit corporation legislation that would hold corporations legally accountable to create value for their stakeholders.
Read about other trends our analysts are following as part of our Bloomberg Law 2020 series.