Knights of the (Business) Round-table; Let’s Talk Social Corporate Responsibility
It’s a common refrain these days, “chivalry is dead.” And, patriarchal associations aside, while there is no shortage of evidence to bolster this refrain, two weeks ago, Jamie Dimon, CEO of JP Morgan Chase and Chair of the Business Roundtable, along with 180 other CEOs said, “not today.” In perhaps the clearest sign yet that corporate America is buying into this whole “impact thing,” the Business Roundtable, a lobby group of ~200 of the nation’s top CEOs, issued a statement contradicting the Gospel of Freidman and shareholder primacy for a broader definition of corporate responsibility to all stakeholders.
In 1970, Nobel laureate Milton Friedman declared that “there is one and only one social responsibility of business…to engage in activities designed to increase its profits.” He postured that, other than obeying the law, the sole purpose of corporations was to make money for shareholders. In 1997, the Business Roundtable and 200 of the scions of American industry formally adopted this view stating that “the paramount duty of management and of boards of directors is to the corporation’s stockholders”; a view they re-submitted as recently as 2016. With that in mind, this most recent shift declaring a responsibility to all shareholders, defined as customers, employees, suppliers, and communities in addition to shareholders, is no small thing.
Before we get too excited, however, and while the public declaration is important, the statement contained no mechanisms for enforcing this behavior and there are plenty of skeptics. ImpactAlpha raised the point that many of the same CEOs that signed this declaration have worked to limit shareholder resolutions ranging from climate change to gun control. Additionally, observers have pointed out that CEOs and corporations still have a fiduciary duty to protect shareholder interest, the job they were appointed or hired to do. Not to mention the complication that price dynamics and globalization present a company when considering what its “community,” and its responsibility to it, is.
Call it “creative capitalism” like Bill Gates did in his 2008 Davos speech; Or “shared value” like Harvard Business School Professor Michael Porter; Or perhaps “woke capitalism” as one Barron’s columnist referred to it; or even empty pandering as skeptics have. Regardless of what you call it, it’s clear that at a time when faith in capitalism and the free markets is in the dumps, the narrative is shifting and CEOs have taken notice. It’s not a panacea, or even a substitute for better policy, but this particular pragmatist welcomes the declaration along with the ideas it represents and the conversations it spurs.
Tucker Pribor, Senior Associate
Vanguard, member of the Business Roundtable, recently was forced to drop close to 30 stocks from two of its ESG ETFs when it came out that stocks such as Sturm Ruger (gun maker), Yum Brands (fast food), and Geo Group (private prison operator) were included. An all too recent and unnecessary reminder that talk is cheap from these CEOs.
Corporate social responsibility comes in many forms. Even the smallest company impacts social change with common examples of CSR including: reducing carbon footprints, improving labor policies, participating in fairtrade, charitable giving, volunteering in the community and, of course, socially and environmentally conscious investments.
All the way back in 2014 Washington Post columnist Steven Pearlstein won a Pulitzer for a series of articles on the U.S. economy. Within this series and amongst his explanation of the rise in income and wealth inequality in the country, he attributed some blame to the BRT’s support of shareholder primacy.
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