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A shot across the bow – or lip service?

A shot across the bow – or lip service?

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With the stroke of a pen, Business Roundtable erased four decades of corporate doctrine as set out by Milton Friedman. Specifically, 181 corporate CEOs repudiated the idea that corporations’ sole obligation is to maximize shareholder value and instead put forth that corporations are obligated to all stakeholders.

Call it a shot across the business-as-usual bow.

We’re talking about the Business Roundtable’s recent Statement of Purpose: the commitment of CEOs to customers, suppliers, employees, the broader community, and shareholders. The statement puts shareholders last on the list in a deliberate effort to up-end the traditional focus on maximizing shareholder profits, stressing instead a kind of “stakeholder” capitalism.

Some pundits across the media are lashing into the statement, with the consensus being that corporations should not be meddling in affairs better left to the public domain. The Council of Institutional Investors puts a fine point on it: “Accountability to everyone means accountability to no one.”

James R. Copland of the Washington Post calls the statement “a truism. No business can long survive without meeting [all] stakeholder needs.” He adds, however that “there is a big difference between saying that a for-profit shareholder corporation should be sensitive to varying constituencies’ concerns and saying that its principal purpose is something different from the traditional view. One needn’t be an expert in public-choice economics or corporate governance to understand that politicizing corporate decision-making would be inefficient.”

On the other end of the debate, though, are 30 employers—including Patagonia, the outdoor apparel company, and Ben & Jerry’s, the purveyor of ice cream owned by Unilever. These entities are pushing statement signatories to go even further: These employers took out an ad in the New York Times calling on corporations to file as “B” corporations. Quoting from bcorporation.net, B corporations are those that balance “purpose and profit.”

It is definitely a worthy debate, one that perhaps is long overdue.

By now most thinking people believe that this kind of corporate social responsibility is necessary to a functioning society, when corporations—chief creators of value—have so much impact on the wellbeing of their communities.

In our own HR-centered work we take as gospel that the traditional approaches to corporate health, wealth and career programs are no longer sustainable, nor are they meeting the needs of employees. In our view, a new social contract is needed: businesses must align their investment in these programs with individuals’ total wellbeing goals. When employees see that their employer supports them in meaningful ways, they become more committed to meeting the organization’s business results.

The Business Roundtable itself states as much – that it’s not moving away from its responsibility to shareholder earnings. ”Just as we are committed to doing our part as corporate CEOs, we call on others to do their part as well. In particular, we urge leading investors to support companies that build long-term value by investing in their employees and communities.”

That’s the only way to deliver the best outcomes for employees, the organization—and its shareholders.

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