A joint statement from the CEOs of almost 200 of the largest corporations in the United States is always newsworthy. However, the August 19 statement on corporate governance by the Business Roundtable (BRT) was an earthmover and its aftershocks are still reverberating.
After decades of staunchly advocating a shareholder-first policy, the organization is now calling for a balance between shareholder interests and that of stakeholders, including employees, supplier, and the community. This tangential realignment of motivations reverses the conventional wisdom that was forged in a less interconnected and more hierarchical world.
Who Wins?
The BRT’s goal is evidently to foster a system where the rewards of profit are rerouted for, reinvested in, and reimbursed to the people and also the places responsible for enabling that success. Some shareholder organizations do not quite appreciate this reimagined nexus and they are pushing back.
For example, the Council of Institutional Investors, which represents pension funds, endowments, and foundations, said the BRT’s statement “undercuts notions of managerial accountability to shareholders.”
On the surface, this apprehension is rational. A pensioner looking at the rising cost of living would understandably want his or her investments to go directly into generating more profits. To them, this new notion of corporate management hemorrhages crucial funds better spent through the same channels it was previously.
Building consensus is contingent on showing skeptics that a loyal, close-knit community of stakeholders invested in mutual success is the most effective business plan. We may perhaps be on the cusp of a watershed moment in business and investor relations.
Nevertheless, the boldness of a statement is not a predictor of its real-world potency. There are questions as to how CEOs who signed it will implement this policy without contravening their respective mission statements. The BRT was bold in instigating this fundamental rethink. The onus now lies on them to garner the necessary goodwill and make it work.
What Changes?
The challenge may not be as intimidating as it initially seems. Tectonic shifts in the perception of individual social responsibility can be seen around the world. Particularly in Western countries, society is gravitating towards a more meaningful sense of purpose as opposed to personal gain. The companies that attract the best minds and generate the most excitement – ostensibly, the crucial ingredients for corporate success – are those that embody social responsibility and meaningful change.
The crux of the BRT’s statement only came as a surprise to those who have not had their ear to the ground of social sentiment. It is the inevitable result of a growing realization that no individual, company, society, or country is an island but part of an intricate and tightly interwoven fabric reliant on and relevant to all others.
This perspective is not a passing fad. It is the definitive paradigm on which the successful CEOs of tomorrow must structure their organizations. If you would like to discuss this complicated topic further, please contact me today.
