Reprinted from the Delaware County Daily Times              Friday, September 27, 2019

By Joseph Batory, Times Columnist

On August 19 (2019), a shocking statement of new directions for the corporate world shook the foundations of American business. The USA Business Roundtable released a position paper from many of the most powerful CEOs in our nation.

Since 1978, the purpose of a corporation, had been periodically defined by the Business Roundtable as to “benefit the stockholders and maximize profits.” But this new philosophy states that corporations also have responsibilities to customers, employees, suppliers, communities and, not only the shareholders.

This new “statement of corporate purpose” was signed by the heads of more than 180 U.S. companies, including the CEOs of Amazon.com Inc., American Airlines, the largest airline in the world; and JPMorgan Chase & Co , the biggest American bank.

While recognizing that each company serves its own corporate purposes, the Business Roundtable has now emphasized that there should also be a fundamental commitment to all the company stakeholders. Here are the key principles:

1. Delivering product/service value in meeting or exceeding customer expectations.
2. Investing in all employees by compensating them fairly and providing important benefits. In addition, training and education that help employees to develop new skills for a rapidly changing world should eb emphasized. Finally, a corporate workforce should foster diversity and inclusion, dignity and respect.
3. Dealing fairly and ethically with suppliers, treating them as good partners to help us meet our missions.
4. Supporting the communities where companies are located by respecting the people who reside in our communities and protecting the environment by embracing sustainable practices across our businesses.
5. 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.

 “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term.” said Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and Chairman of Business Roundtable. “These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

“CEOs work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value,” said Tricia Griffith, President and CEO of Progressive Corporation.

Not surprisingly, there has been substantial criticism/push back from Wall Street over this new proposed direction for businesses. “The basic idea is to throw money away,” declared The Wall Street Journal in a recent op-ed, noting that anyone who invests with an eye toward corporate responsibility and making the world a better place is a “sucker” because profits and performance will be sacrificed.

But that premise is far from absolute. Research at Oxford University, Wharton University and Biola University found that responsible investing did not require a sacrifice of performance/output. “80% of the reviewed studies showed that prudent sustainability practices by a business can have a positive impact on investment performance.”

Whether purpose and profits can work together or are fundamentally at odds with each other—is also central to ongoing research at Harvard which shows, so far, that having a purpose as well as increasing profits doesn’t harm businesses. Harvard’s data shows that companies with high levels of purpose outperform the market by 5%–7% per year, on par with companies with best-in-class governance and innovative capabilities. They also grow faster and have higher profitability.

Although largely symbolic, the Business Roundtable’s new direction refutes the multi-decade viewpoint that corporations exist only to serve shareholders by maximizing profits. Nevertheless, some critics say that this philosophy statement is merely a defense mechanism against the rampant criticism of massive corporate profits and excessive CEO salaries. Whether or not this Business Roundtable vision gets widespread adoption and utilization from corporations and businesses across the USA remains to be seen.

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Joseph Batory writes about politics, education and history.