jamie-dimon

Move Over, Shareholders: Top CEOs Say Companies Have Obligations to Society

The leaders of some of America’s biggest companies are chipping away at the long-held notion that corporate decision-making should revolve around what is best for shareholders.

The Business Roundtable said Monday that it is changing its statement of “the purpose of a corporation.” No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.

It is a major philosophical shift for the association, which counts the chief executives of dozens of the biggest U.S. companies as its members. The group, led by JPMorgan Chase & Co. CEO James Dimon, is a powerful voice in Washington for U.S. business interests.

The Business Roundtable’s old statement of purpose espoused economist Milton Friedman’s decades-old theory that companies’ only obligation is to maximize value for shareholders.

“Each of our stakeholders is essential,” the new statement says. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

A company’s position on the question of corporate purpose can influence issues as diverse as worker pay and environmental impact. It plays a central role in discussions about stock buybacks, corporate spending and how companies respond to activist investors agitating for moves meant to boost returns.

The change formalizes a stance taken by a number of executives in recent years. Mr. Dimon, for example, has challenged the shareholder-profit focus as too narrow and an impediment to executives’ ability to focus on long-term goals.

The leader of the nation’s biggest bank writes shareholder letters that touch on a range of topics, from corporate governance to politics to economic inequality. In 2016, Mr. Dimon, along with BlackRock Inc. CEO Laurence Fink, Warren Buffett and other executives, pledged to follow a set of “common sense” corporate principles meant, in part, to redirect the focus from short-term gains.

Democratic presidential candidate Elizabeth Warren has argued that the primacy of shareholder returns has worsened economic inequality, enriching wealthy investors at the expense of workers. Last year, she proposed legislation that would require the directors of big companies to consider stakeholders beyond the shareholder when making decisions.

Still, the idea that companies have an obligation to society isn’t universally popular. Some activist investors and academics have said encouraging companies to focus on a range of stakeholders amounts to grandstanding that misdirects resources. They argue that shareholders, not companies, should be the ones influencing society.

In 1970, Mr. Friedman spelled out their views in his article “The Social Responsibility of Business is to Increase its Profits.”

“The businessmen believe that they are defending free enterprise when they declaim that business is not concerned ‘merely’ with profit but also with promoting desirable ‘social’ ends; that business has a ‘social conscience’ and takes seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.” Mr. Friedman wrote. “In fact they are—or would be if they or anyone else took them seriously—preaching pure and unadulterated socialism.”

JPMorgan Chase Seeks to Prohibit Card Customers From Suing

The change, which affects about 47 million accounts, including those for Chase’s popular Sapphire cards, reflects a broader effort by Wall Street firms to prevent customers and employees from engaging in class-action lawsuits that can result in large settlements and bad publicity. Unlike court cases, arbitration cases do not leave a trail of public documents and they cannot be brought by groups of aggrieved customers.

JPMorgan — the country’s largest bank — is far from alone in increasing the use of arbitration clauses. Seventy-two percent of banks used such clauses in 2016, up from 59 percent in 2013, according to a report from the Pew Charitable Trusts.

The notifications said the arbitration agreement would apply not just to the customers’ current accounts but “all claims or disputes between you and us,” including “any prior account.”

The policy change turns back the clock in another way by bringing back the kind of arbitration clauses the bank and others agreed to temporarily drop in 2009 as part of a class-action lawsuit. The bank agreed to remove such provisions for three and a half years, starting in 2010, to settle a lawsuit that alleged large banks were working together to push customers into arbitration.

Arbitration provisions once seemed unlikely to make a comeback. In 2016, at the tail end of the Obama administration, the Consumer Financial Protection Bureau issued rules that prohibited the inclusion of mandatory arbitration agreements for financial products, including credit cards, because it believed such provisions deny groups of consumers their day in court.

But the following year, President Trump signed a congressional resolution that overturned those rules. The Office of the Comptroller of the Currency, JPMorgan Chase’s primary federal regulator, called it “a victory for consumers and small and midsize banks” that would help prevent “expensive frivolous lawsuits.”

The change also benefited the country’s biggest financial institutions. JPMorgan’s chief executive, Jamie Dimon, and the leaders of six other major banks were asked at a congressional hearing in April whether their institutions allowed customers to sue in the courts. Mr. Dimon said the bank’s agreements allowed some customers to go to small-claims court. When pressed, he added: “We prefer arbitration.”

In the past, class-action lawsuits against big banks have helped push them to make changes that help consumers. In 2012, for example, JPMorgan agreed to pay $110 million to settle a class-action lawsuit over its procedures for charging customers overdraft fees. It was among more than a dozen big banks sued by their customers for reordering debits from their accounts to maximize the possibility that the accounts would become overdrawn, which would generate more fees.

Under the bank’s new rules, such a case would be all but impossible. Each customer with a problem would have to work it out alone, in private, with the bank.

JPMorgan, which said in its annual report that it had 99 million open credit and debit card accounts, did not make a formal announcement about the change. But politicians and customers took notice.

She said in an interview on Tuesday that she would normally not have paid much attention to an email like the one she received from Chase on May 29. But after she noticed the word “ARBITRATION” — in all capital letters — she read the entire agreement and came away alarmed.

She said she was concerned that arbitration too often favors of the company. Customers find themselves “in forums where they don’t have rules of evidence that are the same, and no right of appeal,” she said.

Ms. Haji said she was also surprised by how difficult the bank made it for customers who want to reject the agreement. Customers must mail a letter to the bank that includes their account numbers, addresses and handwritten signatures.

She said she warned her loved ones: “If you don’t sign, it doesn’t count.”

Two Capitalists Worry About Capitalism’s Future

James Dimon and Ray Dalio are among the most successful capitalists in the U.S. today. So when they worry aloud about the future of capitalism, it’s worth listening.

“I believe that all good things taken to an extreme become self-destructive and that everything must evolve or die. This is now true for capitalism,” Mr. Dalio, founder of hedge-fund manager Bridgewater Associates, writes on LinkedIn.

Mr. Dimon, chief executive of JPMorgan Chase & Co., writes in his annual letter to shareholders: “In many ways and without ill intent, many companies were able to avoid—almost literally drive by—many of society’s problems.”

Captains of industry have always opined on the issues of the day. Still, these latest missives are noteworthy for three reasons.

First, the authors: Mr. Dalio anticipated the financial crisis; his systematic management and investment style has made Bridgewater the world’s largest hedge-fund manager. Mr. Dimon is arguably the country’s most successful banker, having steered J.P. Morgan clear of the subprime mortgage disaster to become the country’s most valuable financial institution.

Second, the timing: They are speaking out at a time when the free-market capitalism that has served them so well is questioned by many Americans, including prominent Democrats.

Third, the content. Mr. Dalio and Mr. Dimon love capitalism and aren’t apologizing for it. But they recognize the system isn’t working for everyone, and they have ideas for fixing it, some of which might require rich people like themselves to pay more tax. Yet they fear the federal government is hamstrung by intensifying partisanship. So they are putting their money and reputations where their mouths are by speaking out, backing local initiatives and hoping like-minded business leaders join them. In effect, they are breathing life into the shrinking nonpartisan center.

In an interview, Mr. Dalio says many business leaders “don’t want to get into the argument. I can understand that. I say to myself, Should I get in? I do think if everyone keeps quiet, we’re going to continue to behave as we’re behaving, and it’s going to tear us apart.”

Mr. Dalio’s essay was inspired by a longstanding interest in the parallels between the 1930s and the present:

the growth of debt and

the relative impotence of central banks, the

widening of inequality and the

rise of populism.

Capitalism, he says, is now in a “self-reinforcing feedback loop”:

companies develop labor-saving technologies that enrich their owners while displacing workers.

The haves spend more on child care and education, widening their lead over the have-nots,

whose predicament is compounded by underperforming schools,

the decline of two-parent families, and

rising incarceration.

Mr. Dalio thinks inequality has fueled populism and ideological extremism, which he fears means capitalism will be either abandoned or left unreformed.

His solutions start with taking partisanship out of the mix. He would like government to join with business and philanthropic leaders with proven track records to find, fund and evaluate projects with high potential social returns, such as early childhood education and dropout prevention. The rich might have to pay more taxes, provided the money is used to raise the productivity and incomes of the bottom 60%, or establish a minimum safety net.

Mr. Dimon is less introspective about the flaws of capitalism than Mr. Dalio and more impatient with the recent fascination so many Americans are showing with socialism. His letter, written in the blunt, combative style in which he speaks (it should be read aloud in a Queens accent for full effect), reiterates familiar complaints about excessive postcrisis regulation.

But, like Mr. Dalio, he worries partisanship has crippled the country’s ability to enact basic reforms that elevate economic growth and strengthen the safety net, such as

improving high schools and community colleges’ provision of useful skills,

more cost-effective health care,

faster infrastructure approval,

more skilled immigrants coupled with legalizing illegal immigrants, and

requiring fewer licenses to start a small businesses.

“Can you imagine me saying, I can do a better job for the Chase customer if I don’t get involved in details, the products, the services, the prices, how we treat people, how call centers work?” Mr. Dimon asks in an interview. “Policy has too often become disconnected from the analytics; we got slogans instead. It’s driving people apart.”

There’s a chicken-and-egg problem with these well-intentioned calls for nonpartisan problem solving: It requires a level of nonpartisanship that doesn’t exist; otherwise the problems would, presumably, have been solved.

If business leaders can’t persuade with words, they may by example. Mr. Dalio and his wife, Barbara, have donated $100 million to the state of Connecticut, to be matched by the state and other philanthropists, to create a $300 million partnership devoted to reducing dropout rates and promoting entrepreneurship in underserved schools and communities.

For its part, J.P. Morgan has under Mr. Dimon combined commercial and philanthropic resources to finance affordable housing, small business and infrastructure and job training in Detroit, announced $600 million in workforce development grants since 2013, and boosted salaries for lower-end employees. Mr. Dimon, in his shareholder letter, called on fellow CEOs to “take positions on public policy that they think are good for the country.”

It doesn’t always work. The Business Roundtable, which Mr. Dimon chairs, successfully pressed Congress and President Trump for lower business taxes, but unsuccessfully for more infrastructure and legalizing illegal immigrants. Says Mr. Dimon: “We should give it the best shot we’ve got.”

From Wall Street to K Street, Companies Gauge the Risks of Doing Business With Saudi Arabia

One of the roughly 10 lobbying firms that represent the Saudi government, the Harbour Group, has dropped it as a client, and others are considering following suit, according to people familiar with discussions, as Saudi Arabia struggles with a backlash over allegations that it murdered the journalist, Jamal Khashoggi.

The lobbying firms are privately discussing how to proceed, these people said. But some have already decided that the prospect of continued paychecks from Saudi Arabia — once a prized and profitable client — is not worth the risk to their reputations.

But for financial and technology companies, several of which have multibillion-dollar ties to Saudi Arabia, the calculus is more complicated. Few executives have backed out of the conference, which is called the Future Investment Initiative but is known colloquially as Davos in the Desert.

Uber’s chief executive, Dara Khosrowshahi, was one of the few to announce that they would back out.

.. The Public Investment Fund, a large Saudi sovereign wealth fund, invested $3.5 billion for a 5.6 percent share in Uber in June 2016.

The fund’s managing director, Yasir Al-Rumayyan, took a seat on Uber’s board. Prince Mohammed is the chairman of the Public Investment Fund.

.. Blackstone’s chief executive, Stephen A. Schwarzman, remains an advisory board member and is expected to speak at the conference, which is held at the Ritz-Carlton hotel in Riyadh, where Prince Mohammed locked up hundreds of wealthy Saudis last year in what he called an anti-corruption campaign but critics said was an effort to crush dissent.

.. Jamie Dimon, the chief executive of JPMorgan Chase, is also still planning to attend

.. Peter Thiel, the technology venture capitalist who was once an ally of President Trump and is known for his independent streak, is still a member of the event’s advisory board but had never planned to attend the gathering, according to a person close to Mr. Thiel.

.. Richard Branson, the billionaire British entrepreneur, said that he had suspended his directorship at two tourism projects near the Red Sea and that his space ventures would halt their discussions over proposed investments from the Public Investment Fund.

.. Treasury Secretary Steven Mnuchin is still planning to attend

.. It is notable that the queasiness about Saudi Arabia has spread to K Street, the lobbyists’ corridor, since even clients with the most toxic reputations are normally able to secure representation if their checks clear.

.. Saudi Arabia has been a coveted client, thanks to its reputation for paying above-market rates and its status as one of the United States’ most reliable allies in an unstable region, which seemed cemented by the ties between Prince Mohammed and the Trump administration.

.. The debates about dropping the Saudi account also reflect the skittishness of the lobbying industry at a time when it has faced mounting scrutiny from federal investigators, including the special counsel Robert S. Mueller III, about how foreign interests try to shape American politics and policy.

.. The highest-paid firms representing the Saudis in Washington are the international public affairs consultancy

Qorvis MSLGroup, which is being paid $279,500 a month, and the

Glover Park Group, which was started by former Clinton administration officials and is being paid $150,000 a month

.. Another two firms are being paid $125,000 a month —

Hogan Lovells, which has Norm Coleman, a former senator of Minnesota, as its point person for Saudi work, and

Brownstein Hyatt Farber Schreck, which has a bipartisan team composed of Marc S. Lampkin, a former aide to the former House speaker John A. Boehner of Ohio, and Alfred E. Mottur, a top fund-raiser for Hillary Clinton’s presidential campaign.

.. Not all of these firms will drop the Saudis. Some are leaning toward maintaining their contracts, in part because they predict that if they were to abandon the country en masse, it could lead to reduced cooperation from the Saudi government.