The August 19th, 2019 statement put out by the Business Roundtable has been hailed as a “redefinition” of the role and purpose of the corporation as promoter of “an economy that serves all Americans”. But rather than a “rethink” of corporate purpose” (Steven Pearlstein, Washington Post, 08/20/19) and a shift from maximizing shareholder value to maximizing stakeholder value, the statement evidences a “just-in-case” market sensitivity and political expediency.
Corporate responsibility is common sense
Corporate responsibility is neither a new standard nor a modern standard. It is, or should be, a common-sense practice. In the dawn of modern life, a sense of responsibility was ingrained in the American Land of Enterprise (Benjamin Waterhouse, 2017). Corporate responsibility was part and parcel of business practice beginning in the late 18th century, when personalized business shifted to an more formalized structure based on specialized firms as a result of increasingly market-oriented economy that grew out of the transportation and communication revolutions. But as the corporate form of business became increasingly dominant, so did the focus on attracting shareholders.
As business grew increasingly bigger in size, so did the debate over concentrated wealth and corporate power. And it came at a cost for many Americans, caught in the clash of big and increasingly depersonalized business and capitalism’s excesses, on one hand, and the opportunities and challenges of freedom and growth.
Our blindness has led to irresponsible business practices
The question of whether corporate America – large, integrated corporations - is good or not so good for society is not new. But as corporate speak has increasingly dominated the business landscape, so has American society’s blindness to social problems. Material prosperity and consumer culture has increasingly weakened civic engagement since the end of World War II. This weakness has been reflected by corporate America.
Corporations are not living beings on their own. The people who manage them, work in them, invest in them, hold shares in them, supply them, and buy from them are the corporation. And all those people, not just the shareholders, have made the American corporation what it is today.
The problem is that as American society has fallen ever more deeply in love with bigness, because it embodies the triumphs and challenges of America as a superpower, the virtues of smallness have been forgotten. With the eclipse of manufacturing and the rise of services and retail as economic king and queen, the virtuous ties between the personal, the political and public interest have been cut. This has created tremendous wealth and opportunity at the top, increasingly reinforcing the distinction between defending the bottom line and defending people from business and capitalism.
Now, as the world gets flatter and the American economy adjusts to pivotal global developments, the center of gravity of business has to shift from the “greed is good” paradigm of doing business and its fixation on stock valuation and shareholder primacy back to doing good business well in benefit of all stakeholders, not just shareholders. Yet it is a mistake to see big business as the bid bad wolf or CEOs as the enemy.
The future of business and how business is understood and done depends first and foremost on whether we, “the People”, decide to strengthen our civic engagement. The Founders made clear that the federal government was responsible for creating a stable, profitable environment for private enterprise (Waterhouse). But it is We the People who are responsible for giving or taking away the legitimacy of business practices by voting for or against the government policies that facilitate ruthlessness, greed and inequality.
Loaded business messages
In his 2017 annual letter to more than 1,000 CEOs, Blackrock's Laurence Fink called for them to do good for society by not only delivering financial performance, but also showing how their companies make a positive contribution to society. More recently, on August 19th, 2019, the Business Roundtable put out a statement enjoining business leaders to commit to balancing the needs of shareholders and stakeholders (customers, employees, suppliers, local communities).
Both have the right message but the wrong focus. Society (i.e. We the People) isn't demanding that companies pick up the slack in government roll-backs by serving a social purpose. The declining levels of trust in business is a call for corporate America to cure its amnesia by remembering its original mission: to deliver value by adding value to society first, instead of just focusing on short-term shareholder payoff.
It’s not enough to say pretty words about responsibility and delivering value for “all” with creativity, respect and dignity as part of a public relations campaign. It’s not about being liberal or conservative or lining up behind one or another candidate. It’s not about re-engaging in the public debate through statements that aim to rebuild one's flagging legitimacy.
It’s about reviving a community of interests between all parts of America by sincerely caring enough about others by conducting business in a way that builds shared value that is profitable. CEOs would do well to revisit the timeless lessons provided by Frank Capra's 1946 movie "It's a Wonderful Life" and the life of George Washington as a man of business. Not only was he America’s first president. He was also a First Entrepeneur (Edward G. Lengel, 2016) committed to the core economic principles of probity, transparency, careful management, measured risk-taking, innovation, realism, and calculated boldness. Business and commerce are still the strongest cement for bonding the United States in war and peace.