Last month, 181 CEOs in an organization called the Business Roundtable signed a document redefining the "purpose" of a corporation. The group, which includes Jeff Bezos (Amazon), Tim Cook (Apple), Mary Barra (General Motors) and Jamie Dimon (JPMorgan Chase) previously considered that purpose to be the "generating long-term value for shareholders."

The Business Roundtable--on paper at least--defines that purpose as "a fundamental commitment to all of our stakeholders," which they define as "delivering value to our customers, investing in our employees, dealing fairly and ethically with our suppliers, supporting the communities in which we work," and only then "generating long-term value for shareholders."

Much of the mainstream business press took this redefinition as a recognition at the highest management level that today's companies must do more than just strive to increase the stock price. They took at face value the Business Roundtable's statement that "each of our stakeholders is essential. We commit to deliver value to all of them."

There are three reasons why the "stakeholder value" is bullsh*t.

First, a basic principle of business is "What Gets Measured Gets Done." Among all those  commitments to stakeholders, the only one that's objectively measurable is shareholder value. Therefore, the CEOs will, at most, set up some easily-gamed metrics so that they can declare victory ("the community loves us three thousand!") and then move on.

Second, mission statements are prime examples of the "Law of Inverse Relevance," which is "the less you plan on doing about something the more you must talk about doing it." Examples of this Law are mission statement goals like "achieve diversity" and "encourage work-life balance." Talk becomes a cheap substitute for action.

Third and most important, CEO compensation in almost all companies is set up so that the financial interest of the CEO aligns perfectly with that of the shareholders. A CEO who increases shareholder value by screwing customers, employees, suppliers, and the community has everything to gain and nothing to lose.

To illustrate that a shift from shareholder value to stakeholder value is unlikely anywhere in today's business world, consider Kickstarter. In 2015, Kickstarter declared itself a "public-benefit corporation," which the firm defined as a "for-profit company that is obligated to consider the impact of their decisions on society, not only shareholders." In other words, Kickstarter formalized the concept of stakeholder value in its actual charter.

Kickstarter got four years of excellent PR because the Kickstarter "woker than thou" charter meshed well with the "power to the people" vibe of Kickstarter's service.

Then some Kickstarter employees decided to take the charter seriously and attempted to form a trade union.

Now, a trade union would be an Very Good Thing indeed for employees because, rather than just depended upon a benign dictator to bequeath them benefits, employees would have actual POWER to "foster a supportive environment for employees... [and] build a diverse, inclusive, and equitable organization," as the Kickstarter charter puts it.

Given all the high-fallutin' words about supportive organization, and a business model that depends upon the wisdom of crowds, you'd think Kickstarter CEO Aziz Hasan would have jumped at the chance to have some of its stakeholders empowered to represent their own interests.

But you'd think wrong. Hasan appears to have totally freaked out and fired the two most prominent organizers, who have turned around and filed a charge at the National Labor Relations Board alleging the company is union-busting, which is illegal. The result has been a PR disaster.

So consider this: if nimble Kickstarter--a self-declared, public-benefit corporation--balked when the rubber hit the road, how likely is it that 181 huge and definitely-not-public-benefit corporations will give their employees any real power? I'll answer for you: not bloody damn likely.

As evidence of this, observe how these CEOs have behaved now that the U.S. House passed the Forced Arbitration Injustice Repeal (FAIR) Act. This Act which would give employees the right to sue their employers (like for sexual harassment) rather than be forced into arbitration, a process that vastly favors employers.  (Only 1.8% of arbitration ends up awarding money to aggrieved employees.)

If the Roundtable's CEO members--who signed the document redefining corporate purpose as "stakeholder value"--really believed that, they'd be actively lobbying the U.S. Senate to pass the law. But I guarantee you that, if anything, most if not all those 181 CEOs are trying to torpedo the whole idea.

I'm not saying that CEOs Jeff Bezos, Tim Cook, Mary Barra and Jamie Dimon are hypocrites. No, wait... Actually, that is what I'm saying.

Here's the thing: corporations will only value stakeholders over shareholders when trade unions, laws, and regulations that force them to do so.

Published on: Sep 21, 2019
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