“Too often hard work is not rewarded, and not enough is being done for workers to adjust to the rapid pace of change in the economy. If companies fail to recognize that the success of our system is dependent on inclusive long-term growth, many will raise legitimate questions about the role of large employers in our society.”
—Jaime Dimon, Chairman & CEO, JP Morgan Chase and Alex Gorsky, Chairman & CEO, JNJ [Business Roundtable Statement on the Purpose of the Corporation, August 2019]
In September 2019, a few weeks after the release of the Business Roundtable’s restatement of corporate purpose [“Updated Statement Moves Away from Shareholder Primacy, Includes Commitment to All Stakeholders”] a Bloomberg reporter called me for comment on a story he was crafting. When he and I spoke, his colleagues had already interviewed 21 of the 181 executives who initially signed on to the BRT’s statement.
A pattern was emerging; those interviewed thought the statement fairly captured how they thought of their roles and responsibilities; in fact, the reporters were told, it was easy to sign on, because nothing would really need to change. The signatories felt they were already attending to the needs of all of their so-called “stakeholders.”
That was the end of 2019, and pre-pandemic. Fifteen months later, in a virtual meetup of close to 300 MBA students and graduates, the chat was populated by a continuous stream of business commitments and new investments that looked promising—but also the gaps that persist between intentions and execution.
The road to rebuilding trust in business, and to unleashing the power of business in pursuit of public good, is littered with land mines and unexamined assumptions. If we are to seize this moment of reckoning in the nation, and rebuild the economy as if everyone matters, we will need to harness the energy of these individuals.
We will also need to look beyond examples of business generosity and new coalitions on everything from climate to community-building and explore governance norms and decision-rules that lag behind or get in the way of our intentions.
If anything has become clear in the pandemic, it is this: the employees are the business; they are critical allies in a changing world; they identify future risks and see the opportunity embedded in new norms around sustainability and social responsibility. They are also willing to amplify the voices of those at risk – who may be on the payroll in some form but are not benefitting fully in the fruits of their labor and productivity. Employees are allies. They expose risks and opportunities. They reveal externalities and invite the outside in.
Distrust in business has been building for decades, from the Occupy Wallstreet to Techlash to critique on the campaign trail. It is fueled by spectacular examples of business failure, from the implosion of Enron in the early 2000’s through the tale of woe at Boeing almost two decades later. Behaviors like earnings management, underinvestment in infrastructure, tax avoidance and outsized CEO pay packages linked to Total Shareholder Return, plus the stew of stagnant wages, self-dealing in Washington and environmental disasters have produced a resounding chorus of discontent and demand for a new governing ethic.
Creating Real Value
How do we leverage this moment? What might this mean? What are the steps that can turn a bold move and call to action by the Business Roundtable into a moment of real reflection in boardrooms and executive offices?
First, we need to unpack the word “stakeholder.” Second, we need to understand that the signatories who say nothing needs to change are confusing important community spirited activities and good works—with the underlying decision rules and values that determine how to allocate capital in order to put the health of society at the center. To leverage this moment, boards and executives need to look carefully at the design of the business model itself—and of the inputs and outputs of the business system.
Stakeholders is a general term that requires deeper understanding, and priority-setting. Rather than consign ‘stakeholder engagement’ to a team down the hall dedicated to monitoring outside coalitions—it is time to engage these strategists and specialists to help connect corporate purpose, strategy, and capital allocation.
Yes, of course companies invest in the institutions and communities where they work, and yes, of course they care about their employees and try to connect with the attitudes and preferences of Millennials and the like. But to reverse decades of mistrust—to assure we are on a different path—requires a level of authenticity that must be the rule, not the exception.
CEOs need a command of new questions. How does the company actually measure success—and over what time frame? What constitutes a high-quality decision that stands the test of time? Who is “downstream” from the business and needs to be consulted in order to assess—and mitigate—risk; to price, or eliminate, negative externalities? What are our closest allies—our employees—most concerned about and how do we assure we hear them clearly and include their voice in governance?
From Satya Nadella of Microsoft’s commitment to carbon recapture, Tom Wilson of Allstate and Dan Shulman of PayPal’s declarations on workers and jobs, Mark Benioff’s inquiry into equity at Salesforce, Ajay Banga of Mastercard’s commitment to wise use of data and the leadership of Pepsi to Walmart on sustainability in the supply chain—these and many, many more examples of business leadership are opening the door to new questions and expectations about business and its role in society. These executives have opened the door to questions about how they make their money, not just how they give it away.
Jeff Weiner, the inquisitive and thoughtful leader of LinkedIn, spoke to a group of Aspen Institute Fellows in the fall of 2019, shortly before announcing his departure from the company. He asked, “What are we trying to accomplish, and how are we going to accomplish it?” Simple questions, but complex in execution. Authenticity, he says, is about keeping your promises; it is about actions, not words.
But the pursuit of keeping promises will also take us into some difficult spaces. It requires a fresh look at some ‘third rail’ issues – explosive issues, where the real trade-offs between a successful business and a successful society lurk.
What would be the sign of authentic commitment to the principles of management released by the BRT? We will not find the answer on the generic surveys that crowd the in-box of CSR professionals. What matters most, in fact? The most relevant questions are challenging, but revealing:
• How much does the company spend on tax avoidance? Does it engage in transfer pricing schemes that assign value to low tax or no-tax havens to avoid higher taxes where the product is designed and produced? [Is there such a thing as a fair tax?]
• What purpose is served by share buybacks, and under what conditions are they initiated? What is a fair return to shareholders vs. executives vs. employees and contractors?
• How do the company’s lobbyists spend their time? What is the platform of trade groups working in the name of the company and does it jive with stated values and policy? What are the costs of political spending? Do we need to spend to be heard—and to what ends?
• What story would be, could be, told about job creation, and worker investment? What is the company trying to accomplish when it outsources jobs, and are there clear lines of sight into the wages, benefits, and opportunities for those who work in the company’s name, but not on the payroll?
• What is the return to shareholders vs. the return to real value creators? Does everyone participate in a profit-sharing plan, or is it reserved for key executives and managers? Who benefits the most from the profits and cash generated by the business?
And of course, what is the CEO paid to do? Is some version of total shareholder return the loudest signal in the pay package?
The BRT’s decision to restate the priorities of America’s corporations honors business’ license to operate. It is an important statement because of the dialogue it enables. But to restore trust requires us to revisit the fundamentals—and the scaffolding that keeps shareholder-centric thinking and profit-maximizing in place.
Boards, and employees at all levels, have a critical role to play.
Gianpiero Petriglieri in a Harvard Business Review article titled, “Are Our Management Theories Outdated?” writes:
“We do not need new theories of management. We need a broader purpose for it. And we need that purpose to emerge not in bold pronouncements but in ongoing conversations, with ourselves and others, that challenge instrumental theories. Those conversations are far more useful at existential junctures like this. They are a far better means to free us up and join us in bringing about a human turn in management—and ultimately in our relationships with each other, with technology, and with the planet in the workplace.”
The change is underway and is irreversible. The pressure to think differently—to embrace a new set of decision rules—emerges both from within the ranks of employees on a mission to connect their jobs to what they hold dear, and from changes in a society hungry for leadership from the private sector.