Shareholder Value Is No Longer Everything, Top C.E.O.s Say

from NYTs

Nearly 200 chief executives, including the leaders of Apple, Pepsi and Walmart, tried on Monday to redefine the role of business in society — and how companies are perceived by an increasingly skeptical public.

Breaking with decades of long-held corporate orthodoxy, the Business Roundtable issued a statement on “the purpose of a corporation,” arguing that companies should no longer advance only the interests of shareholders. Instead, the group said, they must also invest in their employees, protect the environment and deal fairly and ethically with their suppliers.

“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the group, a lobbying organization that represents many of America’s largest companies, said in a statement. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

More here.

Posted in Business, Corporate Governance, Social Responsibility and tagged , , , , , .

One Comment

  1. I have always learned that the goal of a company is to maximize its shareholders’ wealth while maintaining corporate social responsibility. However, most companies fell off track on the second part which is maintaining corporate social responsibility. Corporate social responsibility is the company’s focus to manage the social, environmental and economic effects of its operations responsibly and in line with public expectations. Implementing a CSR program into an organization can lead to a lot of benefits that include increased goodwill from the community, increased sales and higher employee retention since it combines a commitment to good citizenship by making ethical decisions and caring about the environment. The article discusses an optimistic realization of many CEOs of S&P 500 companies that are now urging to prioritize their employees first before shareholders. For decades, companies have put a lot of pressure on their employees to maximize their profit, which included income inequality, poor working conditions, and horrible work/life balance. A study by Gallup identified that Millennials are particularly principled, with some studies suggesting they care more about purpose than a paycheck when it comes to working. A report by Hewitt and Associates indicates that corporate social responsibility can improve your bottom line, in part by giving your most engaged employees a reason to stay and work harder for you.
    The question many raised is what did corporations do with their profits if they were not investing in their workers? Simply the answer is that the money the corporations made was instead diverted to shareholders via two methods: dividends (payouts of profit on a per-share basis) and stock buybacks, which usually have the effect of boosting stock prices for existing shareholders. A focus on shareholder value can cause employment to shrink as managers seek ways to cut costs, and that the relationship between shareholder payments and employee wages is on some level zero-sum: You cannot boost one without cutting the other. According to the article above, Nearly 200 CEOs are now vowing pledge to compensate employees fairly and provide “important benefits,” as well as training and education. They have yet to determine the strategy and the specifics of their new mission to prioritize employees and the environment but it’s a step forward towards better working conditions for the employees and improved corporate governance.

    Gallup, Inc. “How Millennials Want to Work and Live.” Gallup.com, Gallup, 12 Dec. 2019, http://www.gallup.com/workplace/238073/millennials-work-live.aspx.
    Swartz, Mark. “Corporate Social Responsibility Promotes Employee Engagement.”

    Monster.ca, 16 May 2019, hiring.monster.ca/employer-resources/workforce-management/employee-retention-strategies/corporate-social-responsibility-canada/.

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