Statement on the Purpose of a Corporation(businessroundtable.org) |
Statement on the Purpose of a Corporation(businessroundtable.org) |
So I'm glad that they call out additional stakeholders and put customers and employees at the top of the list. Customers who are willing to pay for some useful good or service and employees who are willing to do a good job delivering it also seem like pretty essential ingredients for a successful business.
Externalities are a real thing, so I'm glad they mentioned local communities and the environment.
However, there may be external effects on global communities as well. For example, Facebook delivers value to its customers (advertisers) but causes harm to Facebook users.
There are also companies that harm their customers directly, in spite of customers paying for the "value" that they deliver.
This statement helps empower employees to say to illustrate to their corporate leadership that they are not, in fact, doing such a great job of being good guys. I have personally gone to managers that I work for and said "I think we need to invest in our employees more" and been told "we're not in the business of growing our employees". I've had managers that state that have demonstrated wanting the things that I want but refusing to act on those wants because they believe that those wants are selfish and immature, and that acting counter to their actual desires is a form of discipline that serves a higher purpose. Many believe this is good management like making your kid eat their vegetables in spite of their protest is good parenting.
For example, I have been in positions where I wanted to move on from old technologies and reported to engineering managers who also wanted to move on from old technology. I've even seen them demonstrate this by learning the newer tools and building side projects with them. Those same managers still could not be convinced to go to bat for the newer tools because they do not believe that they have a mandate to help their employees grow. I've personally seen leadership and especially middle managers make decisions based solely on the statement of shareholder value and ask how, for example, modernizing tooling helps shareholders.
This document strikes me as incredibly helpful to workers in the position that want to advocate for their own career growth. If you agree with these principles, do not look on it with skepticism. Instead, view it as a tool in your own arsenal that you can use to advocate for positive change in your own org.
It remains to be seen how seriously this will be taken and how closely companies will follow it. However, giving any benefit of the doubt makes this likely the best news we'll hear about anything for some time.
It's so easy for corporations to completely screw over the public, make a lot of money, then go out of business when they public wises up to it.
There are tons of examples throughout America of this. Mining companies are probably the worst.
The legal system needs to catch up this.
While Larry Fink pushes his social agenda on the companies he controls, leaders of private companies, whose stock is largely owned by investors with "skin in the game," will flourish.
That's basically all there is to it.
My web service client is a JSON consumer, but I'm a store's customer. It doesn't work the other way.
These corporations could start doing better, today, without a round of self congratulation about how they are gonna make tomorrow better first.
If they really intend to switch gears and prioritize other stakeholders, that may require some enforceable agreements among them to prevent competition from causing a race to the bottom, and I wonder if such agreements would be legal.
Governments are supposed to circumscribe the actions of public companies; they're chartered by governments as a tool of governments to accomplish government business. Companies should, within those boundaries, pursue profit for their owners.
I think it's more a bit like the Henry Ford deal where he insisted on paying his workers enough to actually be able to afford the cars. Anemic demand is one of those things that can get an economy stuck in a low-growth poverty trap.
Either that or they're trying to get ahead of the guillotines.
It's worth reading Friedman's September 1970 article. https://web.archive.org/web/20060207060807/https://www.color... It's been around since shortly after the UNIX epoch!
It's wise to read critically the motives of some of originators of the Business Roundtable statement. Nevertheless it's an important response to the Friedman Doctrine. If businesses like Jamie Dimon's even consider adopting it, it's a consequential change.
(genuine question)
I feel like there’s a strong shift happening in the US away from personal affect and responsibility and shifting it into legislative and corporate policies. The self is out of the equation.
The strongest manifestations of this (to me) are the perceived hypocrisy of proponents of this change. For example believe everyone should pay more in taxes without voluntarily paying more than the minimum themselves. Insist on inane doomsday climate predictions but also fight vehemently against nuclear power and jet travel for vacations without a care. List goes on.
Our problem as a society always seems to be those pesky other people and never ourselves.
IMO This is basically a "Go vote for Bernie Sanders" nod from the wealthy. None of them would say this so directly, except a financier like Asher Edelman, who explained how his economic policies would lower inequality and increase the velocity of money.
Read Ray Dalio's Why and How Capitalism Needs to be Reformed https://economicprinciples.org/Why-and-How-Capitalism-Needs-...
If you want some accurate reporting, go read the financial and business press. Turns out business people kind of need to know what is going on to do their job and are willing to pay for good news reporting. So if you want 'just-the-facts' reporting, the business press is pretty good.
> The point of this statement is to signal to the public, that the elite are ready to give them what they want and understand that the inequality is unsustainable. They are prepared to make concessions now and it's up to the public to take them.
Corporations suddenly wanting to tackle inequality and make 'concessions to the public'? That's not a reason for this PR move, that's corporate fairytale.
> I gave a reason for the PR move. I'm curious why you think my reason is wrong?
You did not give any reason other than exactly what the architect of this PR move would expect a very gullible person to interpret this as.
Yes.
> What action would you suggest is the appropriate one to this PR move?
When these corporations put their money where their mouth is, we can start to seriously consider such statements. Until then, laughter and derision are appropriate.
That said, it would be interesting (healthy?) to discuss/debate the merits of the actual statements:
* Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
* Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
* Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
* Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
* Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Curious where people thing they are wrong or incomplete.
For example, there's no mention of competition or its belief that healthy, fair competition brings about these things. In fact, it's distinctly anti-competitive in the fact that the leadership of all of these companies are behind closed doors coordinating a message like this.
Instead of going to a fancy conference and chumming it up with each other, then patting yourselves on the back about what great people you are, lead by example and hold the others to task. Make the living conditions of your employees better and then attack your competitor for not keeping up. Quit using the latest cultural cause as a marketing stunt and focus on making a better world for your customers and employees. The fact that you wrapped your corporate logo in a pride flag for a month doesn't do a thing to help your employee whose sanity is tested every day by their crappy manager, whether they're gay or not.
And figure out how to still make all this profitable in the long run.
I tend to get harshly downvoted when I bring up Google on Hacker News (since it employs a disproportionate amount of Bay Area engineers that hang out here and then get defensive about it), but no other company did I see quite the disconnect between what they SAY they aspire to and how they ACT.
Google has built an incredibly strong PR brand on being the "good guys", a "not a conventional corporation", "don't be evil", etc. But in a way it's far more dangerous. At least we know what Goldman Sachs is about, making money, the employees there largely know it, the world around them knows it, people know to be on guard when dealing with Goldman because you know what their motives are.
With Google, having worked in NYC with finance companies and spent many years at Google, people are Google are as obsessed with money, success, and prestige as any finance employee. But they SAY they are about making the world a better place, responsibility etc. Where this leads is not, Google doesn't do bad things, but the much scarier, they do wrong things but saying they can't be wrong because Google is the one doing it, and Google is supposedly good! Taking a page from Nixon, "when the president does it, it's not illegal."
This came to a head during the Maven debate over using Tensorflow to build auto-aim killbots. The most common ethical defense amongst employees was "well, if we don't do it, Amazon will do it, and that would be worse! Because we're Google, and we're the good guys." Now if a crack dealer said, it's alright for me to sell dangerous narcotics to these children and addicts, because if I don't do it, someone else will. And that person could be even worse! Would ANYONE accept that argument as ethically coherent? Of course not, yet these otherwise very intelligent Google employees seemingly swallowed up Google's absurd logic without thinking. You become the good guy by NOT doing the bad things, not by doing the bad things while claiming it's alright because you SAID you're the good guys.
Now, to pre-empt people accusing me of derailing, I'm not because this is extremely relevant to the original article being discussed here. This is banks leaders like Jamie Dimon following Google's lead. You don't have to actually take any REAL moral stand, you don't have to make any real ethical decisions, all you have to do is TALK about it a lot. Control the message. It's dishonest and it's hypocritical but it's worked out very well for Google. Compare Google to Uber. If you just look at the facts, between the Kelly Ellis accusations, the Andy Rubin thing, many more examples, Google's sexual harassment FACTS are actually WAY worse than what Uber was accused of. Yet Uber now has this awful reputation for being terrible to women while Google gets way less flak in both the tech community and the broader world - why? All because Larry and Sergey played the PR game way better than TK, they were the cool hip burners who cared about progressive stuff, while really they run their companies with the exact same corporate malfeasance, profit at any cost strategy of any NYC financial institution.
Bottom line, we need to hold companies accountable with ACTIONS, and if they give us WORDS instead of ACTIONS we should be MORE critical, not drop our guard and be LESS critical.
They may be useful for virtue signalling. But none of the virtues signaled are particularly controversial.
They may be useful for developing more enlightened self-interest among investors and the intermediaries that vote their shares. But they change nothing about the governance structure of the firms. Stockholders elect directors appoint officers who run the companies.
Many of us have seen corporate "mission statements" or "core values" or "company principles" changed with great fanfare and no discernible effect on substantive corporate behavior. This is even fuzzier than that. This release announces a change to a kind of generalization of many corporate mission statements. Fuzzy in, fuzzier out.
In the end, I have to be suspicious. The only meaningful signal I read here is an open, united affront to the principle of simple shareholder primacy. In the balance of power, that behooves executives, who experience simple shareholder primacy as an accountable constraint on their discretion.
Business Roundtable is an interest group for executives. It is not an interest group for customers, workers, suppliers, communities, shareholders, or their representatives. It may choose to try and leverage customers, workers, suppliers, communities, and their representatives against shareholders. That has to be a far more delicate process when you're not the owner of a special class of stock that assures you stay in power.
So 51% of corporate profits are reserved for the employee bonus pool? And all employees are eligible for said bonuses?
It's not hard to come up with examples of where this fails. Don't give me aspirational pie in the sky. Give me operational policy.
See, there are three layers of decision making: vision, strategy, and tactics. You set large aspirational goals first (eg Microsoft "empower every person and organization on the planet to achieve more"), then smaller component strategies ("build the a cloud provider that integrates business intelligence into everything you do"), then the concrete actions to make those srrategies happen ("integrate Active Directory authentication into kubernetes RBAC"). One "vision" level statement spawns many, many "tactics".
When you're dealing on the level of "181 CEOs" from huge companies as diverse as JP Morgan Chase, Johnson & Johnson, and Ford, it is impossible to talk about tactics and strategy. What Ford can do to better serve long term interests of all stakeholders is too different from what Vanguard should do. You are only able to agree on the big vision, and let the units (or whatever smaller more homogeneous group makes sense) work out the strategy level and below.
This is leadership 101 stuff. There are several models of decision-making, but they are all hierarchical in this way. You won't find many media outlets pushing a collective of 181 companies to issue a single press release about the exact on the ground tactics they will all implement, because in this field that's a nonsensical request on par with "but how many packets can apache serve?"
It is easy to be skeptical here (and I am), but I think it would be folly to disregard the attempt as mere public relations fodder and instead see this as a starting point and continue to follow-up to ensure they're meeting their stated goals. If it's clear they're not, then happily disregard :)
Health Insurance 401k (even non-match) PTO
Enforcement.
The whole premise of the article is wrong. The premise is that the problem with corporations is that they only consider the interests of their shareholders. That's wrong. The actual problem with corporations is that corporate governance has broken down, so that corporations no longer consider the interests of all their shareholders, and the shareholders themselves are no longer involved in determining the corporation's goals. Most shareholders now, in terms of percentage of voting stock ownership, are not individuals but mutual funds, who don't care what the corporation's goals are as long as its stock price and dividends meet targets; and CEOs, even if their share holdings are small as a percentage of the total, can easily get themselves special compensation packages and golden parachutes regardless of whether they improve the corporation's situation or not.
You stopped just short of what I think is the real issue here. Corporations these days are simply “financial paperclip maximizers”: amoral entities that do whatever is profitable, consequences beyond the bottom line be damned. There’s literally an episode of Black Mirror about this.
They “privatize profits and socialize costs,” as the saying goes, and they don’t blink at doing things that may be illegal, because the profit reward is so strong.
This is the kind of thinking that had oil companies suppressing climate change research in the 80s and tobacco companies suppressing lung cancer research in the 40s and 50s. A feel good statement by a couple hundred CEOs isn’t going to do anything about that.
Every CEO who signed this was nodding, thinking, "we do that already."
> The concentration of wealth and enhancement of corporate power translate automatically to decline of democracy. Research in academic political science has revealed that a large majority of voters are literally disenfranchised, in that their own representatives pay no attention to their wishes but listen to the voices of the donor class. It is furthermore well established that elections are pretty much bought: electability, hence policy, is predictable with remarkable precision from the single variable of campaign spending, both for the executive and Congress.
https://truthout.org/articles/noam-chomsky-moral-depravity-d...
Most Americans are politically disenfranchised and political decisions are often made counter to what the majority want and vote for, in favour of elite and corporate interests.
It's pretty amazing to claim corporations are signalling some kind of unity and/or support of the general public based on this PR piece, while their money, lobbying, and power are doing the exact opposite.
This should also mean cutting down on abusive or low-paid contractors, if they exist, and converting them to employees.
It may be that we can't, and therefore stock price is a bad metric focus on.
1. over what timescale? 2. at what level of risk?
As soon as they are incorporated, it's obvious that firms have both more leeway and more responsibility to take care of a wider range of stakeholders.
A purpose is not the same as something in its interest or that a "nice" corporation might do.
For example, investing in its employees might be in the corporation's interest in order to fulfill its purpose. But a corporation is not created in order to invest in its employees...
This is a PR exercise, as already commented by someone else.
Quite possibly, but the fact that it is necessary, suggest that businesses are recognizing that there is a problem.
Words is a first step.
For example, take "This starts with compensating [our employees] fairly". What criteria will they use to determine if this if being achieved? Without any additional revenues/profit, the only option you have is to change the distribution of revenues/profit. You could reward investors less and employees more, but investors will defect to those investments that pay them more. You could pay individual contributors more and management less, but management will defect to employers willing to pay them more.
I just don't see how any of these goals are achievable since they are so subjective. Depending on who you ask, someone people will say American corporations are a long way from achieving these and some will say American corporations already do these things.
Statements about planned obsolescence, disposable plastic packaging, repairability or specific forms of rent seeking are examples of the kinds of statements that would be serious.
I hope this isn't the case, but that's what kept repeating in my head while I was reading it. If this is an honest sentiment and the start of a change in the way business runs then we'll see that in short order. But, in the end, it all comes down to making money and not "the greater good".
Lots of businesses operate on razor thin margins, but still serve if a purpose.
What should be their course of action?
Great point! But, if this document is a starting point in Ernest, then as long as this is followed then it's a good start. The next iteration should, then, include a strong commitment to objective fairness in the supplier selection process. Whether or not that actually happens will depend on the commitment to remove corruption in the process.
Here are the words I saw:
value, customers, expectations, investing, employees, compensating, fairly, providing, important, benefits, supporting, training, education, skills, changing, diversity, inclusion, dignity, respect, dealing, ethically, suppliers, good, partners, companies, missions, communities, respect, protect, environment, embracing, sustainable, businesses, generating, long-term, shareholders, capital, innovate, transparent, effective, engagement
Why?
1. Look at how the gig economy pushes contractors further and further towards being employees in all but name, but so much in the way of benefits is tied up in whether or not the name or classification applies.
2. The statements talk about benefits that corporations bring and the support they provide but neglect to mention the costs they incur and the side-effects they place upon others. Corporations are organisms of a kind, and most if not all organisms consume some inputs to produce some outputs. Some of the those outputs are waste. That waste must to be accounted for and processed. Where would the BP oil spill and the PG&E wildfires be accounted for in those statements.
3. The statements avoid the mention of the term consumers, which is how many companies perceive and treat their customers driving the interactions between them to be increasingly banal and scripted. Consider how often in this forum we hear of "selling eyeballs" in advertising.
4. Similar to 3 but more generally, the statements make no mention of accountability in the cases of the spectrum of harm caused by ignorance, negligence, and further along that spectrum all the way to outright malice. The statements try to separate the positive things that human beings are capable of producing from the negative without mentioning the negative at all never mind the ever present probabilities. Failing to mention and own the harm that a corporation can cause makes me think of "rainbows and unicorns", and results in the corporation failing to truly possess genuine humility.
5. I think all the four points I listed above are actually a direct result of this point that I'm about to expand upon: for whatever reasons, corporations try to remove humanness from within and without. By removing the humanness from within, the corporation becomes less sensitive when it does manage to do harm. By removing the humanness outside, they reduce the other human beings they work with into a number of nouns: customers, employees, suppliers, communities, shareholders.
As a point of interest, consider the US Constitution and how it both defines the frame of the US government and the other entities it interacts, but also sets constraints on its behavior.
This is legally incorrect. It's a meme that should die. This idea is based on the assumption that not acting to maximize shareholder value is defrauding investors. But this isn't at all true. Corporations are free to do whatever they want, as long as they're transparent about doing so.
Or to make the same point in the opposite direction: companies must act ethically, because not doing so ends up being securities fraud[0]. Since stock price is in a large part based on perception, things that negatively affect perception that aren't disclosed could be (and are) construed as defrauding investors.
[0]: https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...
But why? This line of thinking typically assumes that people start companies strictly to make money--an assumption that I see as patently false. There are plenty of for-profit social enterprises (which is to say nothing of non-profits).
For example, Patagonia recently changed their mission statement "We’re in business to save our home planet" [1]. To think that they continue to exist just because Yvon Chouinard doesn't have enough cash in the bank is laughable.
Literally every CEO would laugh at this statement in the privacy of their office, while they engineer stock manipulation to trigger their stock options and retire in 5 years.
It's like an ethics in business class at MBA schools. It's window dressing.
Of course the political donations of the signers of this document, which is in all likelihood:
- non-binding - has no monetary commitments - involves no policy commitments contrary to their revenue streams - addresses no previous examples of bad behavior by the companies, nor any pledges to ameliorate those impacts
The political donations from these entities most assuredly will point to the exact opposite motivations.
> So when an association of big public-company CEOs gets together and declares that corporations should serve the community, take care of the environment, and be responsible to employees and customers, not just shareholders, that might be because the CEOs have thought it over and decided that employees and the environment are getting a raw deal, but it is also possible that the CEOs have thought it over and decided that shareholders are annoying.
[1] https://www.bloomberg.com/opinion/articles/2019-08-19/we-loo...
I’d find it annoying if I exceeded expected earnings and my stock price falls because I didn’t hit my insane 20%+ growth expectation.
I’m not sure they will find employees any less annoying, but at least you can fire them...
The thoughts and feelings of these CEOs mean nothing unless it's predicated/followed by regulatory change.
1. Letting companies feel good about themselves
2. Providing something worthy sounding in the public eye that might defuse "bad publicity."
3. Doing a bit of investigation and complaint resolution in connection with the scummiest 5% of businesses, which often weren't members. Moral outrage? A desire to kneecap the most difficult competitors? Probably a bit of both.
I'll agree with earlier posters who are a bit cynical about all the factors listed in Reasons 1 and 2. But Reason 3 shouldn't be overlooked. I don't think the Business Roundtable will suddenly be concerned about how Exxon, Walmart, etc. make their money or deal with customers, employees, suppliers, etc. On the other hand, odds are good that they will take a stand against small-time chicken processors, toxic-waste dumpers, etc.
Back in my BBB days, we did some real work to crack down on fraudulent apartment-referral outfits, which not only ripped off newcomers to New York City, but also made life ugly for the mainstream realtors, building owners, etc. that were BBB members.
Even if such battles may seem like grandstanding, they can be of some use.
Its precisely engineered to make you think the issues it appears to be talking about are being acknowledged and addressed, when in reality, they are going to be completely ignored, then when, and if, it is brought up as criticism, it can be completely deflected from because the things it says are so totally subjective.
This is 100% PR bullshit designed to mislead you like this.
If they wanted to be better, corporations could start today, right now, and skip the worthless ceremony.
the time for this was back in 2011, when the populist politics were first rearing their head on a national scale. now, it reads like a belated non-apology for past maliciousness. and it won't save them from the rising tide.
At first glance, this seems like a terrific move. In recent decades, this trend of shareholder primacy has been more than evident. CEOs are expected to lead their companies to more and more performance quarter by quarter, rather than focusing on the long-term prospect -- sometimes even at the cost of it.
Let's hope that this "shareholders first, at all costs" mantra finally dies. There's more than one dimension to success, especially future success.
That changed in the 1990s because companies no longer valued long term commitments. The famous example is IBM laying off, in bulk, countless long-term employees in the interest of increasing their bottom line.
The only way I was able to get a pay raise in the tech industry was by changing jobs. Once I figured that out, I changed jobs about once a year to triple my salary. On the way of doing this to climb the corporate ladder, I saw a lot of unethical behavior:
I saw countless dot-com startups dissolve after all of the executives gave themselves as big of a golden parachute as possible; I had consultants tell me to put experience I never did on my resume; I saw a company closing shop without paying their employees their final paycheck; I saw (and still sometimes see) hucksters promising good work and “exposure” but saying they could not pay you “for the time being”; I see companies demanding extensive experience (the infamous “ten years of React” job posting -- keep in mind React has been around for under seven years) but never offering on-the-job training; I have seen people who have developed injury or disabilities interfering with their work being “laid off” without warning; I have seen big tech companies refusing to hire anyone outright and cut off contracts short in the interest of maximizing CEO pay and shareholder value.
In short, I have become cynical about the tech industry and how it treats employees. Sure, it’s a living wage, but they won’t hire you if you mention “work life balance” during the interview; they expect long hours from their employees and expect the company to become their passion or life. No wonder why fewer people in America decide to give birth to and raise kids; it’s just not possible with the insane hours tech companies expect from their employees.
Yes, I’ve become quite cynical about the tech industry. It chews up workers and spit them out. The happiest memories of my life are not being in some cubicle in some office making too much money, but the times in my life when I took a break from tech and supported myself as an English teacher in another country, and had time to actually make real world friends and be able to date normally. Those are the times I cherish; that and the time I spend with my beautiful daughter.
it really started changing (slowly) in the 70s as a reaction to the free-wheeling 60s. 1980 was the major inflection point with ronald reagan's election as president, which ushered in trickle-down economics as national dogma.
How many of these corporations are putting their money where their mouth is and lobbying lawmakers to make these things mandatory for all corporations?
How many of these corporations are putting their money where their mouth is and putting money into raising the minimum wage?
Money talks, bullshit walks.
Oh the irony... [0]https://www.forbes.com/sites/rachelsandler/2019/07/12/johnso...
[1] https://www.theguardian.com/us-news/2019/jul/24/opioids-cris...
Second, even if this was the goal of a business, it then leaves it up to businesses(boards?, CEOs?) to define things like "ethically", "important benefits", "diversity" etc. These aren't things you could get all people to agree on in the first place- hence the whole democracy thing we do. A lot easier to make these statements then turn them into policies.
Let businesses do what they do best - give them a set of constraints (laws) and let them maximize value. If they do "good" things as well, great, if not, fine. If we don't like the outcomes (environmental damage, inequality) change the rules to change the value equation.
I hear this over and over. What statute demands this?
You are using it this way, but I have many times heard terrible corporate behavior dismissed because they were simply following the law that they must maximize shareholder returns.
Public corporations are not going to stop being paperclip maximizers until we legally and economically force them to stop. This is absolutely nothing but an attempt to divert public anger away from any new regulation that would force companies to deliver more value to society and less to shareholders. Sadly, no different than greenwashing.
Shareholders can, at any time, decide to replace the CEO with someone who will "do good" or whatever.
So if people want to change a company, what they have to do is simple. Buy out the shares, and get majority control, and then make whatever changes that they want.
Want your corporation to be environmentally friendly? Give a significant amount of shares (again, with voting rights) to an environmental NGO.
Yes, that means giving up control, but it will work.
Without regulation, what is the mechanism to ensure that they comply? Public shaming? Survivor guilt?
Instead, how about bringing the stakeholders (starting with non-managerial-employee representatives) for these objectives onto the boards of directors?
Now, whenever there's a discussion about what some company should do, and some free market devotee repeats the mantra that the company should just maximise shareholder value, one can point to this.
If hundreds of CEOs agree that the purpose of a corporation is a bit more complex than shareholder value maximisation, then the discussion can proceed to the hard part (how to trade off the different objectives and interests optimally).
"To make a profit. To make a consistent profit. To make a living. To make a profit in the long run. To make things. To make things in the most economical way. To make the greatest number of things. To make things that last the longest. To make things for the longest possible time. To make things people need. To make things people desire. To make people desire things. To give meaningful employment. To give reliable employment. To give people something to do. To do something. To provide the greatest good for the greatest number. To promote the general welfare. To provide for the common defense. To increase the value of the company stock. To pay a regular dividend. To maximize the net worth of the firm. To advance the lot of all stakeholders. To grow. To progress. To expand. To increase knowhow. To increase revenues and decrease costs. To compete efficiently. To buy low and sell high. To improve the hand humanity has been dealt. To produce the next round of technological innovations. To rationalize nature. To improve the landscape. To shatter space and arrest time. To see what the human race can do. To amass the country's retirement pension. To amass the capital required to do anything we want to do. To discover what we want to do. To vacate the premises before the sun dies out. To make life a little easier. To build a better tomorrow. To kick something back into the kitty. To facilitate the flow of capital. To preserve the corporation. To do business. To stay in business. To figure out the purpose of business."
https://www.businessroundtable.org/business-roundtable-redef...
(edit: removed text accidentally pasted in)
https://en.wikipedia.org/wiki/Business_Roundtable
They're a group of CEOs that has lobbied against union protections, against antitrust legislation, and against increased powers for shareholders over CEOs and boards. So this seems like a bit of a departure from their usual policy, unless the real goal is to transfer power from shareholders not to the general public but to the CEOs and boards.
They have a list of members here:
https://www.businessroundtable.org/about-us/members
So far, I've just found one company among the non-signatories I listed whose CEO is a member (Virginia M Rometty of IBM).
Micro, Qualcom, Oracle, Comcast, and Texas Instruments' CEOs are also member-signatories.
Keep your propaganda, take action and let that speak for you.
(Yes, I'm aware that can be gamed like any other metric. At least it involves concrete changes, not just a fluff piece.)
I don't feel ready to discuss it in greater details; however, if any of you has experience in setting up non-profits and/or foundations (I am based in San Francisco), I would love to talk to you.
Also, if any of you think it's a great idea, feel free to ping me.
MyHNusername at gmail.
Joel Bakan's book The Corporation (and the documentary of the same name) lay out this case well.
It is survivorship filter, good guys have much smaller chances to climb the ladder.
This statement is a bunch of malarkey designed to present the appearance of reform in order to avert the reality of reform.
It's coming from (see the members) presumably the most secure and profitable corporations out there. While perhaps some have issue most are not anywhere near the 'every man for himself' thinking that gets companies into trouble.
Look there are many things a super profitable corporation can do to enhance their image in the eyes of employees and customers.
But the truth is if you are going to take an airline flight or buy a dishwasher most consumers (or most business customers if a business sale) will not decide based on values such as this.
Ditto for most stock investors. They will go for the best return not the best company values. And you know if you need someone to operate on your brain or a Physician very generally you want the best results not someone with the best personal values.
While this may be true of some, I don't think all CEOs want to stop working. Nor are all of them principally concerned with wealth.
Can you not imagine a CEO driven to satisfy their customers and employees? I can think of several.
The pursuit of shareholder value is more of a cultural norm. Top management and many employees have stock or stock options, so naturally everyone is happy when the stock goes up. Increasing revenues and profits are almost always rewarded. This is all justified as aligning employees' interests with shareholder value.
The article shows that some companies might be moving away from this a little bit. In practice, employees are people who can be motivated by beliefs other than what personally benefits them, and the statement provides a bit of philosophical cover for that. But I expect that growth will continue to be considered good.
If we're really lucky, someone has found a way to objectively value the goodwill generated by taking good care of their customers, employees, and partners. Or perhaps that already existed, and the metric has moved into favoring good behavior for some reason, so these CEOs are agreeing to move together into this new operating theater so they can take maximum advantage of their existing customer base and spend less on churning customers.
It's a myth that executives are legally bound to create value for shareholders.
From [0], "Directors and officers, broadly speaking, have a duty of care and duty of loyalty to the corporation. From that flow more specific obligations under Federal and state law. But notice: those responsibilities are to the corporation, not to shareholders in particular…..Equity holders are at the bottom of the obligation chain. Directors do not have a legal foundation for given them preference over other parties that legitimately have stronger economic interests in the company than shareholders do."
[0] https://www.nakedcapitalism.com/2017/02/why-the-maximize-sha...
So, CEOs can take externalities into account when making decisions within the legally feasible.
My wife wrote a law journal article on this but it isn't digitized unfortunately.
Words without action don't mean shit.
Shareholders own the business. And they can do what they want with it.
It is a total lie to say that they "have" to maximize profits.
How many billionaires are homeless after their ventures implode?
Has this happened in recent memory, at all? Because when I was growing up and getting the pro-capitalist America view of things on the regular, I vividly recall that capitalism is all about your success individually, that you risk it all and if you lose, you lose.
Even Elizabeth Holmes, an entrepreneur* who's business not only failed, massively, not only caused a man's suicide, not only lost fortunes both public and private, all without ever producing a SINGLE FUNCTIONING OR USABLE PRODUCT, she left a rich woman if I'm not mistaken.
*I was gonna quote that word here but no, I'm not going to because the mythical status of these people in American society is a joke. Anybody can be an entrepreneur. There are no qualifications and no requirements and you cannot break someone's faith in the "mythical rich 1%" than having them work for one, directly for a year, and see how maladjusted, how emotionally vulnerable, and how utterly dependent they are on subordinates for even trivial tasks.
In other words, execs said "here are our values", employees came back and said that maven didn't live up to those values and begrudgingly, kicking and screaming even, execs agreed, or at least capitulated.
It would certainly be better if employees didn't have to remind executives of the values they committed to, but having them has still been a net positive.
Do you think Richard Feynman was a bad person because he helped build the atom bomb?
The person I responded to appears to disagree with maven. But they used googles actions as a negative thing, when in the end those actions aligned with his values.
That said, an executive taking this approach would be taking on some risk with this approach as it's, er, not exactly guaranteed that a court would see things this way.
The fact that corporations happen to use dollars as a medium of exchange for shares of their ownership is a separate issue and not really relevant to the question of whether "shareholder value" can include non-monetary outputs.
Illustrating this point, I can imagine an organization designed to maximize the amount of tacos sent to its shareholders, and that manages the sale of its shares in donuts.
Only externally enforced rules, evenly applied, create a level playing field where individual companies can have confidence that they are not harming themselves by adhering to the rules.
I don't think "whatever is profitable" pins it down enough. They do what is profitable on a short time scale. They don't do what is profitable over long time scales like 30 or 50 or 100 years. If they did, they would not be able to get away with, for example, privatizing profits and socializing costs, because what enables them to do that is that the profits show up in the short term but the costs only show up in the long term.
Back when corporate governance worked, shareholders were mostly individuals and they typically held shares on a long time horizon. That created obvious incentives to judge corporations by profits on a long time horizon. But now, most shareholders are mutual funds who judge individual corporations on a short time horizon--if the corporations don't make their numbers, the mutual fund trades their stock away. That means corporations have no incentive now to look at profits on a long time horizon--even though their shareholders do.
When most shareholders were individuals instead of mutual funds and other financial institutions, and held shares on fairly long time horizons. Things gradually evolved away from that during the post-WWII boom.
Yes, I've felt pressure in the business environment to do questionable things because my competitors were doing them.
"The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law. "
And the same agreement vests in the officers the ability to do whatever is necessary to further that purpose. You obviously can't go against the results of a direct shareholder vote but officers have enormous leeway. If they decide to forgo profits in order to make customers happy, whether or not that is meant to drive long term growth, that is completely legal as long as there are no conflicts of interest.
Right, and acting unethically can be securities fraud. Hence illegal. Even if the unethical thing is on its own not illegal, and in pursuit of higher short term profits.
>A corporation cannot do what it wants, but it can do what shareholders want.
Yes it can, as long as it makes sure to inform shareholders of what it intends to do. As long as shareholders have information with which to make an informed decision, it doesn't matter what that information is.
As for information, management of the corporation works for the shareholders. If the shareholders don’t like management decisions,they can replace management. So, ultimately the corporation is an entity designed to advance the interests of shareholders.
― Adam Smith, The Wealth of Nations
Note that most public companies have institutional investors as the largest component of their ownership; such investors tend to own all the major competitors.
GM: top 5 are Capital World Investors, Vanguard, BlackRock, Berkshire Hathaway, and Harris Associates.
Ford: top five are Vanguard, BlackRock, Newport, State Street, Franklin.
Fiat-Chrysler: top five are Tiger, Harris, Baillie Gifford, Vanguard, Deutsche Bank, FMR.
Looks like Vanguard is certainly in a position to encourage the big-three car manufacturers to work together.
Intel: Tiger, Harris, Baillie Gifford, Vanguard, Deutsche Bank.
AMD: Vanguard, BlackRock, Wellington, FMR, Invesco.
Your CPU choices will make money for Vanguard.
HPE: Dodge&Cox, Vanguard, BlackRock, Primecap, State Street.
Dell: Temasek Holdings, Dodge&Cox, Elliott, BlackRock, Vanguard.
Apple: Vanguard, BlackRock, Berkshire Hathaway, State Street, FMR.
When you buy computers, you make money for Vanguard.
In summary, Tim Buckley at Vanguard can set up a meeting with any group of CEOs at minimal notice. He doesn't actually own much of anything, but the right of ownership for a large percentage of the USA's economy is a thing that he directs.
Or maybe it's Robert Kapito at BlackRock; same deal.
Umm, no. Unless you have a very different idea of what "large percentage" means.
Free market !== unregulated market.
In order for an unregulated market to be a free market, perfect competition is required[0], otherwise you get market failure.
In the real world, we use laws to discourage behavior that leads to market failure.
[0]: https://en.wikipedia.org/wiki/Free_market#Perfect_competitio...
It's not as if corporations don't do a lot of that already when it's in their interests.
See also: "Actions speak louder than words."
I am uncertain how this letter changes the established case law regarding C Corps.
No corporation is required to "maximize shareholder value". In fact, they cannot be because there is no possible legal standard for what constitutes "maximizing value".
B Corporations have no special legal standing. It's just a certification created by a group that tries to push corporations towards responsibility (or, more cynically, provides virtue-signalling-as-a-service). Any corporation can adopt any or all of the principles set out for B Corporations, if the changes to their charter and by-laws are approved. It is the existence of such requirements in the corporate governance documents that provides the legal requirement, not a private certification.
You're correct that B Lab's certification has no special legal standing. A "benefit corporation", however, is a recognized legal entity in many US states [1]. Patagonia is both a certified B Lab B Corp and a private benefit corporation. I should have made this point clearer.
> No corporation is required to "maximize shareholder value"
The rise in benefit corporation legislation was in part caused by the 2010 eBay v. Newmark decision in Delaware, which included the statement, "Promoting, protecting, or pursuing nonstockholder considerations must lead at some point to value for stockholders." [2] Note that this is still a vague statement, not using "profit" or any specific timeframe. I know that this case is still hotly debated, and I don't know enough to comment on all its implications.
Outside of a legal framework, it can be argued that all corporate directors that are non-majority owners of their public companies do have a requirement to "maximize shareholder value", or, to radically oversimplify the process, they will be replaced by shareholder vote.
So I should drop the "legal" modifier to my comments, and just refer to "obligations" to the shareholders and "action" by the shareholders.
Again, I do not know what significance the recent letter has on any of this.
[1] https://en.wikipedia.org/wiki/Benefit_corporation [2] https://www.delawarelitigation.com/uploads/file/int51%281%29...
He does direct investment.
Not exactly no, I made the claim that a lot of unethical, but not directly illegal, behavior has been successfully called securities fraud.
> So, ultimately the corporation is an entity designed to advance the interests of shareholders.
Which is not the same as "generating returns for shareholders". Of course this also gets even more confusing with voting/non-voting shares, where for the majority of shareholders, your interests don't matter at all.
No, they can't. If management took an action that is within their power to take it cannot be reversed at shareholder whim. They can certainly throw out the current management and install new management who will attempt to reverse what the old management did, but what is done is done.