Business Roundtable Mission Flips from Shareholder Capitalism to Social Good
The Business Roundtable, a prominent business lobby, surprised many by doing a complete 180 degree turn in their mission statement. The abrupt switch from “shareholder capitalism” to “supporting an economy that serves all Americans,” was further underscored by a recent letter to Congress urging “a comprehensive consumer data privacy law.” That letter was signed by 51 CEOs. Reactions to these moves have been mixed with some vocally skeptical and others simply uncertain where dangers and opportunities lie in this shakeup of business affairs.
In previous years, the Milton Friedman worldview, which came to be known as “shareholder capitalism,” held sway over the preeminent lobby and its members’ actions. Last month that changed when the Business Roundtable issued a new statement of purpose declaring a corporation’s true purpose is to promote “an economy that serves all Americans.” This new statement charging corporations to treat their customers, employees, communities, and country as equal to shareholders in the eyes of CEOs harkens back to an earlier time when that was the case.
Some speculate that this change may have been inspired or spurred by the recent business gains found in the new customer experience movement and related technologies. Others wonder if increasing corruption in politics and business has illuminated the flaws in a pursuit of profits alone at the cost of all else. Still others speculate fears of an uprising due to income inequality may be at the root of this sweeping reversal.
Whatever the reasons for the Business Roundtable’s change in focus, Harvard Business Review (HBR) research finds that a purpose that reaches beyond just making money does tend to make corporations more profitable.
“In our data we find that companies with high levels of purpose outperform the market by 5%–7% per year, on par with companies with best-in-class governance and innovative capabilities,” write the HBR researchers.
Not everyone thinks that a business spreading its attention and intention beyond the “business of business,” meaning outside the scope of “shareholder capitalism,” is a good idea. For this group of skeptics, and a few others, the letter to Congress calling for a new consumer data privacy law is simply a bridge of disbelief that stretches too far.
“Why on earth does a body representing CEOs of supposedly free-enterprise businesses need to be told how to behave by the Nanny State? Their website claims ‘Leadership in Action,’ but we have 50 multimillionaire plutocrats leading from behind, asking Washington (DC) to craft a law, no doubt with help from their lobbyists, that will do the opposite of what they proclaim,” said Colin Bastable, CEO of Lucy Security. “The interests of consumers and the American business CEOs do not equate.”
However, research finds that their interests are intertwined. Having a defined and meaningful purpose also tends to galvanize employees and stir customer loyalties. But only when that purpose is perceived to be mutually beneficial.
“We find that purpose declines when there is a larger gap between the pay of CEOs and median workers and between the…