Brief - The Hustle

US CEOs flip flop and decide corporations aren’t only accountable to shareholders

Written by Conor Grant | Jun 30, 2020 10:42:40 AM

Yesterday, 181 American CEOs in the Business Roundtable (BRT) issued a statement that changed “the Purpose of a Corporation” from simply providing value to shareholders to instead benefiting many stakeholders including customers, employees, suppliers, and communities.

Sorry, did you say ‘Business Roundtable’?

Founded in 1972, the BRT is an association of roughly 200 CEOs that lobbies for public policy that’s advantageous to corporations (today’s BRT lineup is headlined by corporate rockstars like Jeff Bezos, Tim Cook, and Jamie Dimon). 

In the past, the group has helped to limit consumer protections, prevent labor law reform, reduce corporate taxes, and open up US markets to foreign investment.

Now, the BRT wants corporations to answer to the constituencies it once lobbied against.

Here’s the flip flop, straight from the Corporate top:

  • 1997 version: “The paramount duty… is to the corporation’s stockholders…”
  • 2019 version: “We commit to… delivering value to our customers… investing in our employees… dealing fairly and ethically with our suppliers… supporting the communities in which we work… [and] generating long-term value for shareholders.”

So, why the pivot?

Simply put, the times they have a’changed, and widening corporate responsibility — not “shareholder primacy” — is now crucial to the success of businesses.

Younger people are less willing to buy products from (and work for) companies that don’t have well-defined corporate responsibility practices (think: Employee protests at Google, consumer criticism during #DeleteUber, emphasis on sustainable and fair-trade products). 

Furthermore, social media has made it easy for consumers to gang up on businesses who “do the wrong thing,” and companies will be able to weather the Twitter tempests more easily.

So now what?

The BRT statement is exactly that: A statement — not a plan of action (plus, only 181 of the BRT’s 192 members signed the statement).

It took the BRT a year to draft the statement, and it will likely take much longer for the group to effect any real change.

But while the statement has its critics, it’s still a huge symbolic change in the way that CEOs and other members of the business community think about the relationship between corporations and everyone else.