The heads of some of the biggest companies in the United States declared on Monday that their companies exist to “benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.”
These CEOs are members of the Business Roundtable, an association used to discuss and advocate for policies they believe will benefit American business. Their latest declaration came in the form of a new “Statement on the Purpose of a Corporation,” which they have periodically updated since 1978 as a sort of mission statement.
This new one is signed by 181 CEOs of some of America’s largest public companies. It may not be legally binding, but it is a significant acknowledgment from the country’s elite, even if a symbolic one, of the ways the US has been failing regular people. It is the first Business Roundtable statement to reject “shareholder primacy,” a theory that states that a public company exists solely for the benefit of shareholders and has guided corporate governance for the past four decades.
“Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term,” JPMorgan Chase CEO Jamie Dimon wrote in a release.
Signatories include the heads of companies across all industries, including Amazon, Apple, American Airlines, Caterpillar, IBM, Johnson & Johnson, Pfizer, and Walmart. CEOs of the defense contractors Lockheed Martin and Raytheon also signed. Business Roundtable members that didn’t sign the new document include the CEOs of Alcoa, Blackstone, GE, Kaiser Permanente, NextEra, Parker Hannifin, and State Farm.
The letter comes after increasing pushback to shareholder primacy in the last few years — a trend that Business Insider has been covering in our Better Capitalism series, and that has been discussed in CEO conferences like the Chief Executives for Corporate Purpose‘s annual Strategic Investor Forum. When you look at the history of the past four decades, it makes sense why CEOs would be shedding “shareholder capitalism” for a more attractive “stakeholder capitalism.”
The rise of shareholder primacy and the recent backlash
In 1962, the economist Milton Friedman wrote “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.”
This line turned into dogma in the 1980s, when Friedman became an adviser to President Ronald Reagan, and his thoughts on deregulation for the purpose of market efficiency became law.
The economist Joseph Stiglitz broke down the shift for us in an interview last year: Public sentiment began to change en masse when the financial crisis of 2007-2008 brought to light the staggering level of income and wealth inequality in the US. In the booming market of the recovery, it became apparent to millions of Americans that the benefits of a strengthened economy were going to those who already had wealth. And for those who lost their jobs to cheaper overseas labor or automation, the state of the country seemed as bad as it had been. The decades of trickle-down economics and the pursuit of profits at all costs have not been kind to much of the country — part of why the economy sounds like it’s doing well generally, but feels so bad for people personally.
That resulting populism also combined with millenials’ coming of age. This growing consumer base and workforce was more concerned than previous generations with corporate transparency and purpose. They expected employers to do things like recognize their impact on climate change and provide employees’ with robust parental leave policies.
The new statement from the Business Roundtable is an acknowledgement of these forces, arguing in the face of a rising interest in socialism that capitalism can be a force for good, when practiced in a slightly adjusted approach.
“Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity,” the Roundtable wrote. “We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.”