In this Dec. 3, 2014 file photo, JPMorgan Chase Chairman and CEO Jamie Dimon listens as President Barack Obama speaks to leading CEOs to discuss ways to promote the economy and create jobs during the president's last two years in office at the Business Roundtable Headquarters in Washington. (Jacquelyn Martin, File)
By Jena McGregor
The organization representing the nation’s most powerful chief executives is rewriting how it views the purpose of a corporation, updating its decades-old endorsement of the theory that shareholders’ interests should come above all else.
The new statement, released Monday by the Business Roundtable, suggests balancing the needs of a company’s various constituencies and comes at a time of widening income inequality, rising expectations from the public for corporate behavior and proposals from Democratic lawmakers that aim to revamp or even restructure American capitalism.
“Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity," reads the statement from the organization, which is chaired by JPMorgan Chase CEO Jamie Dimon.
The group says its members “share a fundamental commitment to all of our stakeholders," and commit to doing well by their customers, employees, suppliers and local communities. “Each of our stakeholders is essential," the group adds. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
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The new statement puts an official stamp on a more stakeholder-driven approach to governance that some CEOs have individually advocated for in recent years. It comes more than two decades after the lobbying group, in a 1997 document about corporate governance principles that it has periodically updated, took an explicitly shareholder-first stance. “The Business Roundtable wishes to emphasize that the principal objective of a business enterprise is to generate economic returns to its owners,” it wrote.
That concept — often known as “shareholder primacy,” or a corporation’s duty to maximize shareholder value — grew to prominence in the mid-1980s and has since became a widely accepted governance norm, one that critics say has driven a fixation on short-term results and helped balloon the size of CEO pay packages, fueled by outsized stock awards.
Even in more recent guidelines, the idea that maximizing shareholder value should be the primary goal of a corporation has been backed by the Business Roundtable, albeit less explicitly. In its 2016 document, the group says management’s goal is “producing sustainable long-term value creation” and calls for compensation committees to “incentivize the creation of long-term value.” While it also suggests the board “may consider the interests of all of the company’s constituencies,” it advocated doing so when it “contributes in a direct and meaningful way to building long-term value creation.”
The new statement comes as the gap between the compensation growth of corporate executives and American workers has grown at staggering rates. An analysis released Aug. 14 by the Economic Policy Institute, a left-leaning think tank, found that chief executive compensation had grown 940 percent since 1978, by one measure, while typical worker compensation had risen just 12 percent over the same period.
A range of lawmakers, meanwhile, are trying to force companies to consider society’s larger goals when they do business or be penalized. Democratic presidential candidate Sen. Elizabeth Warren (Mass.) has proposed a plan that would require U.S. corporations to turn over part of their board of directors to members chosen by employees. Vermont Sen. Bernie Sanders, another 2020 hopeful, would prohibit corporations from buying back their own stock — a move that drives up share prices — unless they offer a certain level of pay and benefits for workers. Other efforts include bills to penalize companies for data breaches or improve the diversity of corporate boards.
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Meanwhile, corporations are facing increasing pressure — whether from customers, employees or public groups — to take stands on issues that impact society at large. Tech companies have had employees push back against contracts with immigration and border control agencies. Walmart has faced calls to stop selling guns after a recent mass shooting in one of its stores and senior corporate leaders have been increasingly vocal on social issues ranging from racism to LGBTQ rights as consumers increasingly look to spend money with companies that share their views.
It was not immediately clear which members of the Business Roundtable supported or opposed the change. And it remains to be seen how much the companies change their practices in light of the new commitments.
But the new statement is, in a sense, a return to the past for the powerful lobbying group. It sounds a remarkably similar statement from the Business Roundtable’s more distant past. In its 1981 statement about corporate responsibility, the organization said “corporations operate within a web of complex, often competing relationships which demand the attention of corporate managers."
It went on to list the same stakeholders as the new statement does, saying that “balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management. The shareholder must receive a good return but the legitimate concerns of other constituencies also must have the appropriate attention.”
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