Just one business day after the launch of The Shareholder Commons, the Business Roundtable announced that it had created a new Statement on the Purpose of a Corporation, which declares that stakeholders, including workers, customers and communities, are as essential to a corporation’s purpose as shareholders. Sounds like fantastic news — if companies from Amazon and American Airlines to Whirlpool and 3M are signing on to this new and improved corporate purpose, perhaps the concerns that The Shareholder Commons was created to address have been solved. Can we declare victory and go home?
Not quite. There has been lots of good discussion sparked by the news. Here are three good examples: Empty Rhetoric?, Don’t Believe CEOs Until Their Actions Match Their Words and Don’t Shun Profits. The reaction ranges from “that sounds like PR puffery,” to “serving stakeholders will destroy American capitalism” to “I thought that is what business already did.” Indeed, the Statement was susceptible to multiple (mis)understandings.
As the dust settled, the BRT issued an FAQ that was both clarifying and disappointing. The key was question six:
“How will you resolve matters if the best interests of any one stakeholder conflict with the best interests of shareholders?
While we acknowledge that different stakeholders may have competing interests in the short term, it is important to recognize that the interests of all stakeholders are inseparable in the long term.”
In other words, “don’t worry, there are no conflicts between long-term share value and workers, the environment or society.” This sounds wonderful but the fact is, that isn’t how the real world works. Companies can make money by externalizing costs (like the high environmental cost of carbon) or taking advantage of asymmetric knowledge — remember VW? (And before you point out that VW’s conduct cost their shareholders dearly, remember that getting caught was not part of their plan.) Indeed, this is why we have laws that apply to corporations — the profit motive does not inevitably lead to social good.
The tough question for capitalism is how to reconcile the value of markets and the profit motive for allocating resources against the risk that those tools can motivate behavior that threatens our collective future. That is what The Shareholder Commons is all about — using the power of investors and others to create a level but sustainable playing field for companies to compete on.
But the Business Roundtable and its membership is still in denial about the difficult choices that have to be made, and we cannot solve the hard problems of capitalism until we acknowledge their existence.