Want to play a little game?

Yesterday, the Business Roundtable, a group of nearly 200 of the most powerful CEOs in America, made a pretty big announcement. It's called "Statement on the Purpose of a Corporation."

You can read the statement in its entirety here, and I recommend you do. But before that, see if you can see what's changed by quickly comparing just two sentences.

This one is from a statement made by the organization way back in 1997:

"In the Business Roundtable's view, the paramount duty of management and of boards of directors is to the corporation's stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders."

And this one's from yesterday's statement:

"While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders."

Did you notice the difference?

Basically, it comes down to two words:

Stockholders and stakeholders.

Let's break down these two words, and examine the implications of this change.

Why the change.

For decades, most executives of corporate America have run their companies in line with economist Milton Friedman's theory, which posited that a company's only obligation should be to its shareholders (or stockholders).

According to Friedman, seeking profits for shareholders would be a public company's best chance at prosperity. And prosperous companies lead to higher employment and a healthier economy.

Critics, however, claim that because of the nature of the stock market, which includes a majority of investors who are focused on short-term gains, corporations who subscribe to Friedman's theory tend to neglect their responsibility to employees, and sometimes even to customers.

With the new statement, the Business Roundtable evens the playing field, so to speak. It has now expressed a fundamental commitment to all stakeholdersinstead of shareholders onlyA stakeholder includes anyone who has a major stake in the company, or who is affected by the company's actions--including employees, customers, suppliers, and even the community.

They haven't completely forgotten about shareholders. They're still mentioned; however, it shouldn't go unnoticed that shareholders are the last stakeholders on the list.

At first glance, this seems like a great example of emotional intelligence. After all, who wouldn't want companies to increase their commitment to customers, employees, partners, and the community, in addition to those who own stock in the company? 

The Wall Street Journal called it a "major philosophical shift for the association, which counts the chief executives of dozens of the biggest U.S. companies as its members."

Indeed, signers of the statement included the CEOs of:

  • Amazon (Jeff Bezos)
  • Apple (Tim Cook)
  • American Airlines (Doug Parker)
  • AT&T (Randall Stephenson)
  • Bank of America (Brian Moynihan)
  • Best Buy (Corie Barry)
  • Cisco (Chuck Robbins)
  • Coca-Cola (James Quincey)
  • Deloitte (Punit Renjen)
  • Exxon Mobil (Darren Woods)
  • FedEx (Frederick Smith)
  • Ford (James Hackett)
  • GM (Mary Barra)
  • Goldman Sachs (David Solomon)
  • Home Depot (Craig Menear)
  • IBM (Ginny Rometty)
  • JP Morgan Chase (Jamie Dimon)
  • KPMG (Lynne Doughtie)
  • Macy's (Jeff Gennette)
  • Pepsico (Ramon Laguarta)
  • PWC (Bob Moritz)
  • Salesforce (Keith Block)
  • SAP (Bill McDermott)
  • Target (Brian Cornell)
  • United Airlines (Oscar Munoz)
  • Walmart (Doug McMillon)

But you know as well as I, talk is cheap. Is this new statement simply lip service? Is it just another corporate tool, or does it truly signal a change in how these companies will do business from here on out?

Many are skeptical, as am I.

"Every one of these companies advertise that this is what they were already doing, looking out for their customers, caring for their employees, running an ethical supply chain," wrote Michael Andoscia, a reader of The New York Times whose comment was featured by the newspaper.

"Could it be that... that they were lying?"

Of course, there's an easy way to measure one's authenticity. As I wrote in EQ Applied: The Real-World Guide to Emotional Intelligence:

"Authenticity means saying what you mean, meaning what you say, and sticking to your values and principles above all else." 

Or, as Mr. Andoscia puts it:

"Show us your commitment to this idea by raising wages, increasing benefits, improving quality. Then we'll believe you."

Published on: Aug 20, 2019
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