Born in New York City, a product of the Great Depression, Milton Friedman promoted economic theories that powered a substantial swath of the nation’s public policies in business development from the 1950s forward. His postulation has defined the behavior of the nation’s business enterprises and their leadership from management to boards of directors:
In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has a direct responsibility to his employers. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.
Politically, perhaps, the issue was heightened with Mitt Romney’s remark that “Corporations are people, my friend.” Friedman’s acolytes refined his thinking into a unitary concept of corporate conduct asserting that a company’s stock price was a near-perfect measure of whether its executives were doing the work he laid out for them; this became the doctrine of “shareholder value” that business executives across the land adopted. Critics counter that this narrow focus on the welfare of shareholders alone contributes to economic distortions and imbalances solidified by generous rewards to corporate management such as golden parachutes, stock incentives, and other perks that detract from decision-making that entertains a broader set of social values. Currently, the criticism has focused on wealth inequality and environmental threat.
Contemporary critics, including many highly respected economists, have challenged Friedman’s view. More importantly, perhaps, corporate leaders themselves appear to be undergoing an epiphany about the purpose and function of corporations in modern society. As issues of wealth inequality, the decline of manufacturing, the rise of the gig economy, and environmental concerns enter more strongly into the political culture, the long term survival of business enterprises prompts differing views of the “profit first” goal to the detriment of workers, communities, and suppliers.
Recently, the Business Roundtable, representing 200 of the nation’s leading CEOs, caused quite a stir by declaring the purpose of a corporation to be not merely to generate returns for shareholders and investors (an official criterion since 1957) but also to encompass concern for the welfare of a broader set of stakeholders–workers (who are consumers), communities hosting brick and mortar locations providing employment, and suppliers in related or ancillary businesses. The response to the Roundtable’s pronouncement was varied, as reported by Bloomberg News (September 20, 2019). Here are a few:
- Our companies are already run with customers, employees, suppliers and communities in mind. And shareholders, of course. Otherwise we’d have gone out of business long ago.
- I don’t know how you look at the current situation in the country and say:‘We’re really killing it in terms of taking care of all our stakeholders. There’s been a tremendous imbalance with shareholder value being put ahead of everyone else.
- I do think business can do more. But I don’t think business alone can do it.
- Most corporate CEOs feel that we serve each stakeholder best by serving all.
- The best companies, frankly, are not those who try to scrape every last dollar for the shareholder.
Other CEOs offered these perspectives:
- The best companies, frankly, are not those who try to scrape every last dollar for the shareholder. — Lawrence Kurzius of spice-maker McCormick & Co., speaking about his firm’s efforts to assist small farmers in developing countries.
- It was easy for us to sign the Roundtable’s statement because we were living it. — Vistra Energy Corp.’s Curt Morgan, pointing to the company’s employee bonus program and efforts to subsidize or waive utility bills for low-income families.
- The shareholders are absolutely at the center. We’re just saying what was left unsaid but implied: You can’t keep the shareholder at the center if you’re not excellent with the other people affected by your company. — Mark Sutton, CEO of International Paper Co., discussing how his firm’s work sustaining forests and reducing emissions isn’t getting in the way of investor returns.
Under the nation’s system of government, corporations are the legal creatures of state government. Since the early 2000s, several states have adopted legislation permitting entrepreneurs to form public benefit corporations, a specific type of entity that allows public benefit to be a charter purpose in addition to the traditional goal of maximizing profit for shareholders. Most of these statutory provisions permit existing corporations to convert to public benefit, and many have opted to do so.
In recent years, both national and international business entities have become public benefit enterprises and have promoted a not-for-profit to create a focus for membership and develop criteria and standards for certification called BLab[https://bcorporation.net]. The website carries its story:
Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy…. The B Corp community works toward reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high quality jobs with dignity and purpose.
This promised reformation of business will, of course, not occur in any short term, and maintaining these goals will consume a great deal of attention. The good news is that the words are now public and thousands of companies have attained certification as B enterprises. Not unlike acceptance of climate change, this is a process for future generations. Among mile markers may be: workers or unions elected to corporate boards; a Fortune 500 company converting to a public benefit one; members of local communities being elevated to a board; and a major company relocating its headquarters back to the United States.