#35 I've been thinking about this Business Roundtable statement a lot
The Business Roundtable, comprised of the CEOs of the largest companies in America, recently released a statement that redefines the purpose of a corporation to promote “an economy that serves all Americans.”
I’ve been thinking about it a lot.
I have also been listening to Sapiens on recent roadtrips with my husband, in which the author Yuval Noah Harari wrote (I’m summarizing here) that a company, really, is nothing. Yes it’s people, and assets, and legal documents, and ideas, but really, it’s not a thing that you can hold in your hand and say “here, I have it.” Its legal incorporation exists only because we all have agreed on the legal system that says its incorporation exists.
Others have compared companies’ complexities to organisms, and that, like organisms, they must evolve to fit their surroundings.
Is the Business Roundtable statement a sign of evolution?
I believe markets in the same way I believe in evolution. Markets are the darwinian effect of humans’ love for outsourcing services and having material things. We as a species have tried many forms of economic structures in societies, and market based economies have, for the most part, prevailed.
And yet an economic structure doesn’t form a society; it’s layered on it. Political systems exist too. In theory, a well working democratic capitalistic society with free markets should work for everyone . . . its cash flow should, in its purest sense, “trickle down.” This is what Milton Friedman was alluding to when he said in 1970 that “there is one and only one social responsibility of business: to engage in activities designed to increase its profits.”
Profits pay corporate taxes, profits pay employees, employees also pay taxes, and employees give money left over to charity. The flow of cash, ideally, trickles.
But it doesn’t.
When you look at how accessible wealth and market mechanisms are to various groups of people in the US, there are all sorts of disparities. Markets may be working, but democracy isn’t. There’s no true meritocracy, no well oiled machine; there’s instead a system working for the haves and not for the have nots, a system that was seeded the first day white European settlers traveled to this country.
The haves do things like invest a few thousand dollars early in Uber to get rich in its IPO. The have nots buy its early stock that’s losing value by the day and drive its cars.
As long as democracy remains fractured, the free market is a myth. Economic opportunity doesn’t trickle down. Policy changes like a living minimum wage, antitrust regulations, and yes, probably every single item in the Green New Deal are needed to do for markets what our current structure is not allowing to freely happen.
I also believe that it is our job as a country to take care of each and every single person here. And just as I believe in markets, I believe them to be the biggest opportunity for leveling the playing field. Our government may be among the wealthiest in the world but we also run a deficit and we’ve been in a battle of budgets since our inception. The NASDAQ doesn’t have a deficit and it doesn’t have a budget. When I examine how taxes and public benefits and balance sheets work, I believe it’s much more sustainable and economically viable to raise the minimum wage than to grow the welfare state even if yes, that means we pay more as consumers for dining out and perhaps make less in our 401(k)s.
Which brings me to the math, and incentives behind the math, and law.
Corporations really only have to do two things. They make money selling things, and they spend money to produce and sell and deliver those things. It is the fiduciary responsibility of companies to maximize the gap between the money they make and the money they spend.
And this is where I, like many, have walked away from my initial enthusiasm for the Business Roundtable’s statement with a bit of confusion and skepticism. The CEOs’ statement (which is quite brief it you want to give it a read yourself), commits to serving five stakeholder groups: customers, employees, suppliers, communities in which the companies work, and shareholders.
As many have pointed out, the math doesn’t add up.
Generally, serving customers, employees, suppliers, and communities costs money. Even if you play around with benefits like lessening the costs of employee turnover at a purpose-focused company or investing in opportunity zones or the like, this is still a net cost at the expense of shareholder profits.
There are many companies – an increasing number, I think, especially smaller and mid sized businesses – that do invest in each of these stakeholders and have found a balance of purpose integration that makes everyone, including shareholders, happy. But for other companies, including many represented in the Business Roundtable, this is going to be a gigantic jump. Short of converting to a benefit corporation, what in practice will this commitment actually look like to make the numbers work?
And even if it does work, how will that be sustained? When a shift in values and the business and operational model happens it’s often led by the conviction of a CEO. When CEOs change, the DNA of a company and its values changes too. Like I discussed above in Sapiens, a company’s values aren’t tangible, they are part of the ineffable thing that is a company and are often precarious at best even with stable leadership.
I know all the other surface level things, like how GenZ and millennials won’t work somewhere that isn’t purpose driven, that progressive and socialist ideas are gaining traction, and that in some broad sense market forces are indeed pushing toward purpose. But I want to see the translation to tangible practices of this all, at scale, and lasting over time.
I would also love to be part of it, which is why I’ve been tiptoeing a bit into exploring if there may be a place for me in corporate purpose or responsibility or impact or whatever we want to call it.
Until then I will continue to look to benefit corporations, social enterprises in which impact is integrated with revenue generation, and smaller, often private companies that don’t have as many shareholders to answer to as models of what the corporation should be – and frankly what it should always have been.
PS - I also happened to scroll through the membership of the Business Roundtable (membership is based on company size and revenue), and it’s overwhelmingly and unsurprisingly male and white. Yes, the site has a large portal of resources and its commitment to diversity and inclusion. But still, #smh and sighing.