Faced with mounting global discontent over climate change, income inequality and working conditions, a coalition of major companies pledged Monday to revise a long-standing principle of corporate governance.
Shareholders, the coalition said, aren’t everything.
The statement from the Business Roundtable, a collection of executives representing some of the United States’ largest companies, offers a new definition of “the purpose of a corporation.” No longer should the primary job of a corporation be to advance the interests of its shareholders, the group said.
Companies must also invest in their employees, deliver value to their customers and deal fairly and ethically with their suppliers, the group said.
The statement was signed by nearly 200 chief executives, including the leaders of Apple Inc., American Airlines Inc., Accenture PLC, AT&T Inc., Bank of America Corp., Boeing Co. and BlackRock Inc.
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” said the group, which is led by Jamie Dimon, CEO of JPMorgan Chase & Co. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
The Business Roundtable did not provide specifics on how to achieve this shift, offering more of a mission statement than a plan of action. But the companies pledged to compensate employees fairly and provide “important benefits,” as well as training and education. They also promised to “protect the environment by embracing sustainable practices across our businesses” and “foster diversity and inclusion, dignity and respect.”
Since the 1970s, the Business Roundtable, which primarily functions as a lobbying organization, has periodically issued principles of corporate governance that describe how a company should operate. Each version of those principles over the past 20 years has stated that “corporations exist principally to serve their shareholders,” according to Monday’s announcement.
“It has become clear that this language on corporate purpose does not accurately describe the ways in which we and our fellow CEOs endeavour every day to create value for all our stakeholders,” the group said in its statement.
While the group cast the change in language as a recognition of corporate evolution, it was also a tacit acknowledgment of the heightened scrutiny companies are facing.
Lawmakers in Washington are scrutinizing the dominance of large tech companies such as Amazon.com Inc. and Facebook Inc. Voters across the country have been supporting efforts to raise the minimum wage. And global concern about climate change is leading companies to reduce polluting emissions.
“They’re responding to something in the zeitgeist,” said Nancy Koehn, a historian at Harvard Business School. “They perceive that business as usual is no longer acceptable.”
Senator Bernie Sanders, a Vermont independent whose voice has been among the loudest calling for businesses to take more responsibility on social issues, said he was pleased that the Business Roundtable had recognized the dangers of corporate greed.
“But we need more than a public relations stunt,” said Mr. Sanders, who has made opposition to corporate power a cornerstone of his presidential campaign. “We need a concrete plan on how they will bring back American jobs overseas, pay all workers a living wage with good benefits, stop attacking unions and start paying their fair share of taxes.”
Klaus Schwab, chairman of the World Economic Forum, said the acceleration of technological disruption of the traditional work force had led to greater sensitivity toward corporate responsibility.
“The threshold has moved substantially for what people expect from a company,” he said. “It’s more than just producing profits for the shareholders.”
Mr. Schwab said the statement was an encouraging sign – but that companies needed to take concrete actions, not just make big promises.
“It’s the right thing to do,” he said. “But we have to continue to put flesh to the bones.”
Business Roundtable had been working on the new language for about a year, said Brian Moynihan, CEO of Bank of America.
“You can provide great returns for your shareholders and great benefits for your employees and run your business in a responsible way,” Mr. Moynihan said in an interview.
While the new statement of purpose represents a sizable shift from the Business Roundtable’s long-standing principles, it was not the first time the group had taken a position on a social issue.
Last August, the group denounced U.S. President Donald Trump’s immigration policies, describing family separations as “cruel and contrary to American values.”
The new statement represents an even broader shift, signalling companies’ willingness to engage on social issues of pay, diversity and environmental protection.
But without concrete action, it is just words, said Anand Giridharadas, author of Winners Take All: The Elite Charade of Changing the World.
“If the Business Roundtable is serious, it should tomorrow throw its weight behind legislative proposals that would put the teeth of the law into these boardroom platitudes,” he said. “Corporate magnanimity and voluntary virtue are not going to solve these problems.”