What’s the significance of the Business Round Table?

Written by The Recap Team

2 min read

Milton Friedman always prioritized shareholders. But is this still the right way to operate? 

According to Friedman, the purpose of a corporation is to maximize returns to its shareholders. This means corporations have a responsibility to the public or society; their only responsibility is to its shareholders.

However, at the 2019 Business Roundtable,  181 CEOs of some of the world’s largest companies (CEOs from Amazon, Apple, Boeing, Chevron, Cisco, IBM, and Johnson & Johnson) are suggesting Friedman’s Shareholder Theory might be a  tad antiquated. To update it for the 21st Century, these business leaders are taking the initiative to redefine who their companies should be responsible for.

So What Are These CEOs Proposing?

The U.S. Business Roundtable (BRT) issued a statement redefining the purpose of a corporation. They say companies should be working for the benefit of its shareholders AND all of its other stakeholders (including but not limited to: customers, employees, suppliers, communities where they operate, etc.).

Signed by 181 CEOs (who make up or 95% of BRT members)  committing to:

  • Deliver value to their customers
  • Invest in their employees by providing fair compensation and benefits, investing in training and continuous learning, as well as foster diversity and inclusion
  • Deal fairly and ethically with their suppliers
  • Support the communities in which the companies operate by respecting the people as well as the environment by embracing sustainable business practices
  • Generate long-term value to its shareholders who provide capital, by committing to transparency and constant engagement.

One important caveat: It’s just the CEOs (not by the companies they represent) who committed to the ideas above.

While many applauded this move, not all the reactions were positive.

The Council of Institutional Investors (CII), a non-profit organization representing the U.S. pension and employee benefit funds with assets of more than $4 trillion, openly opposed the new articulation of the purpose of a corporation. CII is opposing the changes because they believe these changes may weaken shareholder rights “ it is critical to respect stakeholders, but also to have clear accountability to company owners.” CII also cited the absence of mechanisms in place to truly express and account for the company’s remaining stakeholders as the risk could be “accountability to everyone mean[ing] accountability to no one.”

While the Business Roundtable Pledge is just a start, it’s heartening to see the conversation is happening.  

The fact that the leaders of some of the largest companies in the world have come together and agreed to officially support a shift from shareholder primacy toward an explicit consideration of long-term stakeholder interests, is a significant accomplishment. 

We believe that it’s important to maintain the momentum that the statement has generated by rewarding companies that are ESG leaders in their industries. Is this enough? Or is it just the beginning? We’ll be keeping an eye on this to see where it goes. 

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