New commitments announced this week from top US executives must be more than words on paper.
You know we live in strange times when America’s top CEOs are refuting the shareholder capitalism model.
That is what happened this week when the Business Roundtable—an association of chief executive officers of leading US companies—published a statement “on the purpose of a corporation” to much media fanfare. That vision included providing good jobs, supporting communities where companies work, and protecting the environment. It encourages a new model of corporate governance that respects all corporate stakeholders equally, as opposed to shareholders first.
While these commitments are a step forward for corporate America, they cannot just be words on paper. Shareholders and corporate executives tend to be rich men, and the employees, consumers, and community members at the base of corporate supply chains are often women of color. Companies must heed their voices as they implement these commitments.
A sham, or the real deal?
In a time of skyrocketing executive compensation, rising inequality, and climate emergencies, these commitments are long overdue.
Just 26 people, including corporate leaders in America, owned the same amount as 3.8 billion people worldwide last year. One hundred companies are responsible for more than 70 percent of the global emissions leading to climate change. The world desperately needs a more humane business model that serves the interests of all, not just those with stock options.
It’s easy to be cynical about this kind of statement. After all, it lacks concrete commitments and measurable milestones. It doesn’t take a stance on key issues related to corporate purpose, such as workers’ right to organize or the responsibility to pay taxes and respect human rights. When companies fail to pay their fair share of tax, countries miss out on critical resources to fight poverty, reduce inequality, and mitigate climate emergencies.
The statement also makes no mention of the disproportionate influence that giant corporations wield over public policy in the US and around the world—which means that those policies too often work for the already privileged few, and not the many who are struggling.
Why corporate purpose matters
For Oxfam, rethinking corporate purpose is an integral part of making our economies work better for everyone. History tells us there is nothing utopian in reconsidering the purpose of the corporation in order to align it better with the public interest. In fact, the shareholder-centric model that has been dominating the US economy is neither legally grounded nor historically inevitable.
Corporate purpose is a policy choice that has led to an overly extractive economic model. For the past few decades, liberalization expanded the model globally, contributing to the deep inequality we are experiencing now. It has also played a role in the tragedy of the commons that is our planet, not to mention an erosion of democratic institutions by virtue of corporate capture.
Some observers are justifiably skeptical about the corporate purpose paradigm. They argue that it can become a smoke screen aimed at luring in millennials and bolstering social support if not coupled with actual changes to a corporation’s organizational structure and conduct. Talking about corporate purpose can create a veil behind which much can be concealed. It becomes a symbolic act more than the basis for changing corporate practice in fundamental ways.
The risk of window dressing
We welcome companies grappling with the question about why they exist and what they seek to achieve. Too often over the past two decades have corporate commitments to address social and environmental issues failed to lead to meaningful change in practice and impact. All in all, companies’ significant uptake of sustainability efforts have done little to date to rattle the paradigm of firms prioritizing value for their owners.
Nevertheless, there is some significance when the top ambassadors of US-style capitalism openly endorse a stakeholder approach. It is the latest expression of a broader movement that is challenging the paradigm of maximizing shareholder value as the primary purpose of the corporation. And business is increasingly jumping on the (rhetorical) bandwagon. Even shareholders themselves have started to urge business to rethink their purpose and increase its contributions to society.
If companies are going to meaningfully transform their corporate purpose, they must do so with an eye towards creating an economic model that is accountable to people. This means creating governance structures that include representatives from all their stakeholders, not just shareholders.
The corporate purpose debate is only beginning. It is a debate that coincides with less than half of young Americans thinking positively about capitalism, the fear of a looming recession, and new policy proposals as part of the 2020 elections. This statement might be a tactical concession by CEOs but it is one that we will use to hold them to account.