Reflections on the Business Roundtable Statement on Corporate Purpose, One Year Later
A year ago on August 19, Business Roundtable released an updated Statement on the Purpose of a Corporation, forgoing shareholder primacy and instead committing to delivering value for all stakeholders. Coming from the CEOs of America’s largest companies, it was a bold declaration that reverberated across the business world.
One commentator observed at the time, the BRT signatories “are responding to something in the zeitgeist…They perceive that business as usual is no longer acceptable.” But the statement offered few concrete commitments and questions quickly emerged from across the ideological spectrum. Were the signatories trying to correct the perception that business was out of touch with the zeitgeist of the time or were they acknowledging that business practice needed to substantively change to earn society’s trust? Put another way, was the statement an augur of a new form of inclusive “stakeholder capitalism” in the United States, or was it simply a change in language?
The jury is still out. Unwinding the 50-year-old business paradigm of shareholder-centric capitalism takes time and the year since the statement was published has been anything but typical. The coronavirus pandemic, an intensifying economic crisis, and a summer of demonstrations for racial justice have provided further evidence that business as usual is no longer acceptable — and may no longer even be tenable.
To take the measure of how much business has changed, we spoke with 10 leaders in business, academia, and advocacy about what companies must do now to embody the principles of the BRT statement. We asked them all the same question:
What is the next move business leaders should take to indicate real movement towards the principles outlined by the BRT Statement one year ago?
Their diverse responses suggest action on both centuries-old societal ills and those unique to this moment and focus on both policies and personnel as catalysts for change. Collectively, they underscore the complexity of transforming words into action. Read on:
Give up some of our privileges
The BRT’s 2019 statement recognized that all Americans “deserve…to lead a life of meaning and dignity” and corporations should be managed for the benefit “of all stakeholders—customers, employees, suppliers, communities, and shareholders.” To make these words a reality, BRT members have to start giving up some of the privileges that they have gained in our society. Corporations and their leaders have gained great wealth and power over the last 40 years because of rule changes that favored business and capital over individual workers, communities, and the general welfare. These rules and privileges remain in place today, serving as a moat protecting the corporate enterprise and the wealthy at the expense of the middle class, and limiting opportunities for individuals to succeed on their merits. Business leaders can meet the lofty goals of the BRT’s statement by giving up some of the privileges they have gained and, in the words of Darren Walker, “lean[ing] into our discomfort.”
– David Berger, Partner, Wilson Sonsini Goodrich & Rosati
Develop the tools companies need to change their behavior
It is a general rule that when we don’t have a tool for doing something, we just don’t do the thing. For example, options trading was small potatoes until the Black-Scholes Option Pricing Theorem gave traders a tool for valuing options. At the time BRT released its new statement, I commented that its members wouldn’t adopt new behaviors unless BRT developed new tools, to help them to do so. BRT hasn’t, so its members haven’t changed behavior or practices in any noticeable way since the release of the new statement. If BRT isn’t going to develop anything, at least it could formally endorse great tools developed by others, like tools for improving employee welfare from the Good Jobs Institute or B Corporation certification from B Lab. It is time for BRT to take productive action!
– Roger Martin, Author
Change capital structures and governance to institutionalize a broader corporate purpose
If business leaders are serious about reimagining the purpose of the corporation, they need to be willing to share wealth and power. Sharing the wealth means changing capital structures. This could include providing equity to all employees (and maybe even other key stakeholders), making them owners too, so they can benefit more from the success they help to create. Sharing power requires meaningful changes to governance. Including workers, long-term investors, and other stakeholders in supervoting classes could give more control to those most vested in a company’s future. Worker representation on boards, directly or indirectly, could change the conversation at the top. Creative implementation ideas abound, but business leaders need to do more than talk about stakeholder importance – they need to create structures and institutionalize approaches that ensure enduring influence.
– Michelle Greene, President, The Long-Term Stock Exchange
Implement equitable work-from-home policies that enable employees to prosper over the long haul
The COVID-19 pandemic is a remarkable challenge and an opportunity for CEOs to implement the brand of stakeholder capitalism articulated in the Business Roundtable statement. Workers are facing incredible uncertainty. The prospect of ongoing disruptions is very real, a fundamental next move companies need to make is to adopt policies that not only protect employees but also allow them to thrive under these extraordinary circumstances. While studies suggest that working from home has led to increased employee productivity, employers must factor in the indirect costs this productivity exacts on individual workers, their families (particularly around childcare), and society-at-large. As schools, daycares, and much of the rest of society remains closed, companies must view themselves as part of – rather than independent from – the collection of institutions that we depend on and develop employment policies that are integrated within these systems. Employees deserve flexibility and additional resources to succeed in this new world.
– Eric Horvath, Director of Capital Strategies, Common Future
Follow the leadership of people of color
In the United States, racism has been and continues to be profitable. Black, Indigenous, Latinx, and low-income Asian people are actively victimized by theft, exclusion, and exploitation. Systemic racism is woven into the fabric of our economy, and American businesses are, at best, complicit in or, at worst, directly responsible for the economic oppression of Black, Indigenous, Latinx, and low-income Asian people. If people of color are to become true stakeholders in the vision outlined in the BRT’s statement, American businesses must follow the leadership of people of color by dismantling the oppressive systems they’ve created and by building new systems that produce economic liberation for people of color. This starts by actively acknowledging and repairing harm, and by investing in leaders of color inside their businesses and in the communities they operate.
– Jeremie Greer, Co-Founder & Co-Executive Director, Liberation in a Generation
Bring diverse perspectives to the boardroom
A year after the Business Roundtable challenged the primacy of shareholder value, current events have continued to expose the challenges and inequalities that affect customers, employees, suppliers, and communities. When it comes to increasing stakeholder value, corporate boards increasingly bear the responsibility for weighing inevitable tradeoffs. Boards with members whose perspectives stem from varied life experiences are better suited to respond – yet corporate boards often lack diversity, both in representation as well as background. Given the importance of trust in the board relationship, new directors are typically sourced through personal referrals, which often under-represent women and people of color. This is not a pipeline problem; it’s a network gap. CEOs and their boards will unlock greater economic and social benefits by committing to diversity in the boardroom and sourcing candidates outside their personal networks.
– Jocelyn Mangan, Founder & CEO, Him For Her; 2016 Aspen Institute Henry Crown Fellow
Evolve leadership practices amidst changing populations and expectations
Business leaders need to commit themselves to genuine personal, managerial, and leadership development that is relevant to the issues and populations of the future. Conventional leadership and management styles are fading. The American workforce is evolving, on many levels, and business leaders need to understand what it will take to inspire and motivate. At the same time, leaders need to set an example, over a sustained period of time, of what it looks like to evolve and grow amidst changing expectations. Boards themselves must understand these changing dynamics so they are properly equipped to install leaders that will create value in an increasingly multi-stakeholder environment.
– Lex Suvanto, Global Managing Director, Edelman
Adopt consistent stakeholder reporting
Clear and consistent reporting is essential to stakeholders’ ability to hold companies accountable. BlackRock supports convergence toward more common global reporting standards. We encourage companies to use the TCFD framework, with SASB metrics, in their reporting on material sustainability factors. As a fiduciary, BlackRock engages with companies to drive the sustainable, long-term growth that our clients need to meet their goals. We hope more companies provide more stakeholder reporting to demonstrate how they plan to and already are meeting the commitments they made in the Business Roundtable Statement.
– Michelle Edkins, Managing Director, BlackRock Investment Stewardship
Align investor and management expectations along time horizons
A leader’s best intentions need the support of aligned incentives and time horizons. As a next step, company leaders should work to ensure that their funding sources understand and are aligned with their time-horizons and intentions. For example, public companies report quarterly earnings, so communicating a clear plan and timeline for certain tradeoffs paying off will be important, much like R&D projects are handled. Likewise, private equity owners generally have a 3-5-year time horizon. One option is to shift to being traded on the Long-Term Stock Exchange or being funded by private equity or family offices with a generational time-horizon. No matter what, there needs to be a stakeholder value creation plan that is communicated to set expectations with all stakeholders, including investors so that companies are not forced to do the opposite of their intentions to meet their long-term purpose.
– Jennifer Simpson, Executive Director, Aspen Institute Finance Leaders Fellowship
Answer the call of this once-in-a-generation opportunity for racial and economic justice
Martin Luther King reminded us over fifty years ago that we cannot have racial justice until there is economic justice. COVID-19 has reminded us of the important questions that we need to ask if we are to achieve economic justice. These questions include the following: Do we really want for future generations to live in a system that is not delivering the most critical public goods that our society needs: equal access to health, action on the climate crisis, affordable housing, quality education, a decent minimum wage, protection of social safety nets, and sustainable development? Will business be willing to use its influence on public policy and the political process to enable these injustices to be addressed? Will they support a just progressive tax system that benefits all and not just the few? All of these are important questions that we must ask on this one-year anniversary if we are to aspire to the kind of just society that our nation needs and deserves.
– Krishen Mehta, Senior Advisor, Tax Justice Network
Wondering what Joshua Bolten, President and CEO of Business Roundtable, had to say about the BRT Statement at the one-year anniversary? Check out this recording of Joshua Bolten in dialogue with our Executive Director, Judy Samuelson.
For more insights on the anniversary of the BRT Statement, read Judy’s latest blog, Who’s winning the battle for stakeholder capitalism?
To continue the conversation on what the BRT Statement means for the future of U.S. capitalism, join us in September for a webinar with Darren Walker, President of the Ford Foundation. Register here!