This past week, 181 Business Roundtable CEOs signed a new statement on the purpose of a corporation. The most important change is to take into account all stakeholders including customers, employees, suppliers, communities, and shareholders. Theoretically, this changes the way any corporation adopting this thinks about everything they are doing. Practically, some have already been doing this and some never will.
A lot of corporations have been following the Friedman Doctrine in which Milton Friedman suggested that “the social responsibility of business is to increase its profits.” Doing that then allows the business’s shareholders to decide which social initiatives they choose to pursue with their shares of the profits.
Separately, Peter Drucker argued that purpose of business is “to create a customer.”
More recently, a number of organizations have been looking at “triple bottom lines,” explicitly telling their shareholders that they will look at financial, social, and environmental results.
Now the Business Roundtable members including CEOs of companies like Apple, Amazon, Coca-Cola, Ford, FedEx, IBM, United Airlines, and Walmart are combining all three of these.
Here’s their complete statement.
“Statement on the Purpose of a Corporation
Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.
Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth.
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
Implications for you
To be clear, this dog has no bite. There are no new laws or regulations. You don’t have to do anything differently at this point.
But you may want to.
Even if creating a customer is not the only purpose of a business, businesses that fail to create and nurture their customers aren’t going to be around for very long. Customers matter.
Similar to that, any organization that doesn’t nurture its employees is going to lose its best employees and be left with the rest. That’s a recipe for disaster. Employees matter.
As the world gets flatter and more interconnected, no organization can survive on its own. It needs allies and suppliers to give them leverage. Suppliers matter.
Speaking of the world, if we wreck it, all will perish. We have to protect our environment. Communities matter.
Finally, no one is suggesting profits and shareholder returns don’t matter. Shareholder returns matter.
What Matters and Why
Do let the five BRAVE questions help you think things through (Where play? What matters and why? How win? How connect? What impact?) As you think about what matters and why, look hard at customers, employees, suppliers, communities and shareholders.