In a remarkable about face, the Business Roundtable, which represents 200 of America's largest and most powerful companies has issued a fresh definition of the purpose of a corporation that trashes 30 years of 'shareholder primacy.' In a press release, BRT said:
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.
So far so good and perhaps unsurprising in light of a report by the Economic Policy Institute that says since 1978, CEO pay has risen 940 percent compared to just 12 percent for the average American worker.
Exorbitant CEO pay is a major contributor to rising inequality that we could safely do away with. CEOs are getting more because of their power to set pay, not because they are increasing productivity or possess specific, high-demand skills. This escalation of CEO compensation, and of executive compensation more generally, has fueled the growth of top 1.0% and top 0.1% incomes, leaving less of the fruits of economic growth for ordinary workers and widening the gap between very high earners and the bottom 90%. The economy would suffer no harm if CEOs were paid less (or taxed more).
EPI is not alone. Legislators in the US are putting pressure on corporations to act in a more socially responsible manner. Last year, for example, the Washington Post noted that: Some companies still don’t have any female directors. California wants to fine them. For our part, diginomica routinely follows and comments on issues around gender inequality in all its guises, LBGT topics, ageism and more.
Laudable though the statement might be, I wonder what it means going forward. On the one hand, we see CEOs like Marc Benioff of Salesforce putting words into action:
As a community, we stand here and we say we are going to commit to a higher level. We are going into a higher level together to express our values. We know what the most important thing is to us…we’ve said it for years and we'll say it again - our culture is built on trust, the fundamental trust that we have with you, the fundamental trust that we have with our key stakeholders, with our customers, with our employees, with our partners.
Our trust is with you and we take that very seriously. It's our highest value, and we ask every company to ask, ‘What is your highest value?’. In a world where technology is taking us over and in a world where technology through the Fourth Industrial Revolution is grabbing us, realize that we all have a higher responsibility to ask that question, especially to see the gambits that are unfolding before us, especially as Artificial Intelligence gets released into the whole world.
Benioff isn't alone. You can trace this thread back to Bill Gates final WEF speech in 2008 as leader of Microsoft when he said:
The world is getting better, but it’s not getting better fast enough, and it's not getting better for everyone.
The great advances in the world have often aggravated the inequities in the world. The least needy see the most improvement, and the most needy see the least—in particular the billion people who live on less than a dollar a day.
It's a drum Gates has pounded ever since while also putting his money where his mouth is.
Action not words
Statements of purpose are far removed from action. Sounding great on paper I have to wonder whether BRT signatories can deliver on the calls to action.
On call after analyst call, I almost never hear (or at least cannot remember) CEOs/CFOs talking about the imperatives BRT espouses today. On those calls it's all about sales, growth, and shareholder value. You can argue that is a resonable thing to do given the audience. I take the view that those same CEOs/CFOs could easily use those opportunities to remind shareholder representatives that treating people fairly and solving for inequality across every dimension in the workplace is good business.
Beyond that, I wonder the extent to which Jeff Bezos, CEO Amazon (and BRT statement signatory) will find ways to deliver on the new purpose when his company is regularly excoriated for operating poor working conditions. Or what about current issues around partnering? And how about the manner in which IBM has fired its gray hairs in favor of a younger generation?
And then there is the problem of activist investors. I find it hard to understand how for example Bill McDermott, CEO SAP and another of the BRT signatories, is going to square some of the principles of the BRT statement with the almost certain share buyback demands of Elliott Management. And what about other companies that are committed to large buyback arrangements as a way of boosting shareholder value?
I want to believe that the BRT statement is more than pious words. My guess is that many company leaders will find it much harder to turn about given the enormous and relentless pressures of the quarterly reporting cycle. It would, for example, be good to see CEOs outline their action plans so that shareholders/investors are on notice as to what to expect.
Given all the stakeholders mentioned in the statement, it will be very difficult for CEOs to satisfy every constituency and again, I have to wonder how that will play out. And how will those same leaders disentangle the ties between share price performance and pay? Can you see many willing to give up any of the outsized compensation to which they have become accustomed?
And what about other geographies? Will European CEO's or those in Asia follow suit?