On a Monday during the dog days of August 2019, a group of 181 chief executives signed a “Statement on the Purpose of a Corporation” affirming that the U.S.’s largest corporations have a “fundamental commitment” to “all stakeholders,” including customers, employees, suppliers, communities, and shareholders. As has been widely reported, this statement by the Business Roundtable marks a seismic shift away from corporate America’s prioritization of profits for shareholders, a tenet that can be traced to Milton Friedman’s comments in The New York Times almost a half-century ago that “the social responsibility of business is to increase its profits” (13 Sept. 1970). What may be more interesting to consider, however, is not whether the pendulum has swung from one view to the other, but whether the statement is a response to ever-increasing corporate activism, and in that context how making a commitment to all stakeholders might, in turn, increase benefit to shareholders.
The pressures facing corporations have heightened the dichotomy between boardroom and factory floor, between owners and workers. The statement of purpose attempts to address these tensions and affirms BlackRock CEO Larry Fink’s 2018 letter/rebuttal to Friedman in which he stated in a draft letter to shareholders that “To prosper over time, every company must not only deliver financial performance but also show how it makes a positive contribution over time” (“BlackRock: Focus on Society and Profits,” The New York Times, 16 Jan. 2018). And yet, the Business Roundtable statement is notable for its lack of policy statements, promises, or ideals. (It should be noted Fink signed the statement.)
There is no commitment to a $15 minimum wage; no plan to improve the environmental impact of industry; no pledge to do away with back-scratching boards, increase diversity, or even donate more to charitable organizations. The statement also makes no mention of a renewed focus on the privacy and security of its users—a pressing issue in our time.
Perusing the list of signatories reveals a number of the corporations that signed the statement have faced significant business setbacks in recent years, including data breaches, criminal charges, and fierce pressure from competitors. Others have confronted activist investors, causing cynics to remark on the self-serving nature of the statement rather than focus on its objectives.
Absent any prescribed roadmap, it is difficult to know what the next steps forward are in a purportedly new stakeholder-driven climate. What we can expect, however, is that this move will further encourage the growth of activist investors whose oft-stated objectives have been to improve not only shareholder value but to affect a target company’s social and environmental impact.
Although activist investing got off to a slower start in 2019 than 2018 (down more than 15 percent), the first half of 2019 solidified trends that have been developing over the past few years. In particular, activism across the globe continued to rise, with activists launching campaigns on six of the seven continents (no one has yet braved Antarctica). Additionally, activists have continued to voice their opinions on mergers and acquisitions, and the importance of board diversity, as well as on corporate social responsibility (CSR) initiatives. Against this backdrop, fewer threatened proxy fights have gone to a vote, with activists winning 129 board seats from 72 settlements during the first half of the year, according to Activist Insight.
If America’s most well-established companies, many of whose CEOs signed the statement, want to affect real change and avoid being the targets of shareholder activism, it is critical that a real effort to address the underlying issues plaguing corporations follows this aspirational pledge.
