Are We Looking at a New Era of Stakeholder Capitalism?

I’m revisiting a topic I wrote on earlier in the week: the news that the Business Roundtable is redefining businesses’ purpose as being larger than just shareholders. Their purpose should encompass all stakeholders, not just shareholders: the customers, employees, the community.

There have been quite a few responses to this news and most people seem skeptical that the CEOs really mean to change the purpose from shareholder first to stakeholders. A lot of people are taking a wait and see approach and I think that’s reasonable, considering that I think the businesses should have realized the deleterious impact of their shareholder ideology after the Great Recession. Or after research showed that we have a widening inequality. Or after we saw such appalling behavior from pharmaceutical CEOs such as Martin Shkreli or the Sacklers (of opioids infamy). Or after the Trump earthquake. There were too many signs that the shareholder creed was not working for most people and they should have seen them.

One person on LinkedIn commented that after 60 years of making themselves exceedingly rich, they finally feel rich enough to think they can afford to think about the greater good:

“Peter Drucker said this over 60 years ago; why has it taken so long for top CEOs to “get” it…oh, yeah, they first had to rape and pillage the corporation, feather their nest, and find that they might just barely, with their hundreds of millions of $$, have enough and so now, just now, they can pretend to be concerned about the impact of their rapacious practices on society. BARF”

Cecily Drucker on LinkedIn

So yeah, it was interesting to read everybody’s responses.

Harvard Business Review also brought up this news briefly when discussing purpose. The article was largely saying that you can’t have sustainable profits without purpose.

Talking about purpose, I’m reading a book Brave New Work by Aaron Dignan and there is a section on purpose which alluded to the impact of the shareholder ideology:

“In 1970 Milton Friedman famously said, “The social responsibility of business is to increase its profits.” To put it bluntly, the business of business is business. In the decades since, (…) organizations have internalized this to an astounding degree. As we’ve seen, this maxim has led corporations to optimize everything in society – the market, the law, even our attention – in order to drive short-term gain. At the same time, the cost to humanity and the environment has been profound. Unchecked growth has created the conditions for a climate crisis that is unfolding in real time. This singular focus has also led to rampant inequality and a level of worker engagement that is pathetic at best. A mission statement that places shareholder value as the definition rather then the result of success is uninspiring.”

Brave New Work, Aaron Dignan, 2019, p. 59 hardcover.

Then a really interesting article showed up in the New York Times:

This sarcastic article talks about how CEOs are really worried because the game will be up in the next recession: people will up rise because that great economy over the last decade never really trickled down to them – and the CEOs know it. So, they want to head off revolutionary change a la Elizabeth Warren by coming out with their new understanding of business purpose. Except the author is not buying it.

There was even a section on the Bill Maher show on August 23rd, where he talked about the new stakeholder values with Katie Porter. Katie Porter was the Congresswoman who basically took down Jaime Dimon on how his people can not live on the salary they are paid. This woman is extremely smart and is the one to watch because she can ask questions that will make you squirm.

So, with all of this understandable skepticism, the CEOs have a lot of work ahead of them. They are going to have to work on proving that they really mean to expand the benefits to everyone in society, not just shareholders.

The question is: will the shareholders let them? I doubt it. That’s why I think the shareholders are a big part of the problem, not just the CEOs. That’s going to be the next battle. Because those shareholders are not going to give up their riches very easily.