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.

Seven Fixes for American Capitalism

Ideas from the Right, the Left, and across the Atlantic to mend what’s broken in our economy.

Antitrust Pivot

Many of the U.S.’s biggest economic ills—rising inequality, stagnant wages, low productivity growth—stem in large measure from corporate consolidation and monopoly power run amok. That’s the message from a new breed of policy wonk urging a return to the trustbusting days of the early 20th century.

The movement—labeled the New Brandeis School by its proponents and derided as Hipster Antitrust by its critics—is looking to ditch the Chicago School approach that’s dominated antitrust enforcement since the late 1970s. The Chicago School hews to what’s known as the consumer-welfare standard, which finds mergers anticompetitive only if they raise prices.

The new model takes its inspiration from Supreme Court Justice Louis Brandeis, who emphasized the need to restrain big companies and the concentration of economic power. Lina Khan helped galvanize the movement with a 2017 paper she wrote as a law student at Yale that made the case that Amazon.com Inc. is a threat to competition, even though it’s lowered some prices for consumers.

Any ambitious government-led project to reshape the U.S. economy usually runs into the same objection: We can’t afford it. One school of economic thought says that’s all wrong.

Modern Monetary Theory, a once-fringe set of ideas now getting some mainstream attention, says governments borrowing in their own currency have more room to spend than they think. The U.S., for example, can run deficits without having to worry about going bust, because it creates the dollars in the first place. The real constraint only kicks in when there’s too much spending relative to a limited supply of goods and services—in other words, when inflation spikes. And there’s been little sign of that in America for decades.

MMTers argue that their system isn’t so radical; it’s the way things already work, at least some of the time. Presidents, including the current one, haven’t balked at measures to boost the military or cut taxes, even when the resulting deficits run into the hundreds of billions. And emergencies, such as the 2008 financial meltdown, typically push concerns about balanced budgets deep into the background.

Now there’s a different sort of emergency on the horizon: climate change. Since the threat is arguably greater than economic depression or even war, it requires action on a suitably vast scale, argue Democrats who’ve picked up on the issue.

And MMT offers a key to unlock the financing. That’s why freshman Representative Alexandria Ocasio-Cortez, one of the first U.S. politicians to talk publicly about MMT, is also at the forefront of the drive for a Green New Deal. The maximal version of that program includes shifting the U.S. to 100 percent renewable energy within 10 years. If that wasn’t ambitious enough, the plan also calls for the government to guarantee a job for everyone who wants one—an MMT favorite that’s also a throwback to Franklin D. Roosevelt’s New Deal.

“Clearly, the environment matters more than entries on balance sheets,” says Randall Wray, a senior scholar at the Levy Economics Institute of Bard College and one of MMT’s most prominent proponents. “The environmental thing is real. It’s not financial.”

MMT’s detractors say government spending on that scale could trigger the kind of inflation that would wreck the whole economy. America’s national debt has already ballooned since the Great Recession, they warn, and adding more will erode the country’s creditworthiness and undermine the dollar’s role in global finance.

While those warnings are still frequently heard, there are signs that they’re losing their impact as the debate leans left. Several renowned economists who aren’t MMTers have recently tried to downplay the risks attached to deficits and debt. They include Olivier Blanchard, former chief economist at the International Monetary Fund, and Obama administration heavyweights Larry Summers and Jason Furman. Bank of England chief Mark Carney has made the case that action on climate change represents an economic opportunity, not a burden.

Ocasio-Cortez didn’t manage to garner enough Democratic support for her first attempt at actual legislation, a proposal to set up a Green New Deal committee. But there’s broad sympathy for the idea in principle, including among several of the party’s presidential candidates, and many of them have also endorsed a jobs guarantee. —Katia Dmitrieva

Tech to the Rescue

Amazon.com Inc. Chairman and Chief Executive Officer Jeff Bezos wishes there were a trillion human beings in the solar system. With room for that many people, there would be “a thousand Einsteins and a thousand Mozarts,” he told the Economic Club of Washington, D.C., in September. The world’s richest man is funneling $1 billion or more a year into a company, Blue Origin, that he hopes will help make extraterrestrial settlement a reality, creating places to live for all those Einsteins and Mozarts.

Bezos and others argue that innovation is the essential ingredient in human betterment. They have a point. Life would be pretty awful without the advances made by past generations, such as indoor plumbing, vaccines, refrigeration, and telephones. Bezos even asserts that freedom itself, not just material well-being, depends on technological progress: “I don’t even think stasis is compatible with liberty,” he told the Washington audience.

In the view of the tech-to-the-rescue crowd, innovation can solve just about every problem humanity faces. Global warming can be fixed with better electric cars, solar cells, wind turbines, and batteries. Income inequality can be solved by educating or retraining workers for the high-tech jobs of the future.

The Information Technology & Innovation Foundation, a Washington think tank founded in 2006 to propagate this philosophy, argues that using antitrust law to break up or discipline the big technology companies can backfire, discouraging innovation and harming consumers. Robert Atkinson, president and founder of the ITIF, co-wrote a 2018 book with Michael Lind called Big Is Beautiful: Debunking the Myth of Small Business.

The techies welcome a prominent role for government in paying for education and conducting or supporting research and development. But the movement is split on trade. The nationalists want to keep the U.S. in the tech vanguard and are willing to resort to tariffs and subsidies to preserve its dominance. The globalists, including some heads of multinational companies that earn lots of their profits abroad, are happy to see other countries advance technologically, figuring that the benefits of breakthroughs—say, a cure for cancer—will be shared by all of humanity regardless of their origin.

The common theme is that prosperity depends on a robust tech sector. “We’re in a 10-year productivity depression” that’s hurting living standards, says Atkinson. “Tech is really the only way we’re going to raise productivity growth.” —Peter Coy

Tariff Truthers

If there’s one thing most economists around the world today can agree on, it’s that tariffs are bad. Protect one domestic industry with an import tax, and you hurt a swath of others. Tariffs reduce choices for consumers and push up prices for goods. They stifle competition and deter innovation. And they invite other countries to retaliate, leading to the sort of tit-for-tat behavior that’s left U.S. soybean farmers watching crops once destined for China rot in their fields.

Libertarianism

Devotees of small government were stirred by candidate Trump’s vow to “drain the swamp” and pull U.S. troops out of foreign quagmires. But President Trump, with his tariffs and deficits, has proved to be “the opposite of a libertarian,” the Libertarian Party declared in March.

Still, the free-market purists aren’t giving up the fight. One of their bugbears is the Federal Reserve and its cheap money—a distortion of the market’s natural efficiency, according to Austrian economist and libertarian idol Friedrich Hayek. When Ron Paul, America’s highest-profile libertarian, ran for president in 2012, he pushed for the Fed’s abolition and a return to the gold standard. “If you want to restrain government, you restrain the power to create money,” he said. “That’s what gold does.”

The Fed can probably rest easy. Americans aren’t exactly clamoring for a return to gold, while hyperinflation and other disasters predicted by libertarians in the easy-money decade since 2008 haven’t come to pass.

Some libertarian ideas are finding a larger audience. Among them are the call for stripping back zoning rules, because they limit the construction of affordable housing, and their criticism of patents that lock in profits for Big Tech or Pharma and licensing requirements that insulate professionals like doctors from competition. A common theme of such critiques—that the economy is rigged in favor of big and established actors—commands growing support among mainstream economists.

And beyond the realms of U.S. policy, the world is evolving in ways that give libertarians hope. Those who deplore the “tyranny” of central banks are rejoicing at the explosion of cryptocurrencies. (The Libertarian Party accepts donations in Bitcoin.) Recreational marijuana use is already legal in 10 states and backed by more than 6 in 10 Americans, according to a poll by the Pew Research Center.

Paul, who outperformed most expectations during his own tilt at the presidency, says a popular Libertarian candidate could well emerge in 2020. It’s a stretch to say he’s cheerful about the wider outlook, though. “It’s a bubble economy in many, many different ways, and it’s going to come unglued,” he told the Washington Examiner. —Andrew Mayeda

Most leaders don’t even know the game they are in – Simon Sinek at Live2Lead 2016

Trust and cooperation are not standard in our organizations and yet we know they should be. There are two attributes that every single leader has the opportunity to possess that will help them create the types of organizations we would be proud to call our own. Those two attributes are EMPATHY & PERSPECTIVE.

 

Maximizing shareholder value is like a coach prioritizing the fans over the players.