At the end of August this year, members of the Business Roundtable, a group made up of the United States’ leading CEOs, announced that they “share a fundamental commitment to all of [their] stakeholders”, not just their shareholders, and stated a pledge to start delivering value “to all of them” (1). Public support for these statements was strong, but many questioned whether these CEOs could walk the walk, not just talk the talk. That’s where the B Corp community came in and made a huge offering that could change business-as-usual forever. Before we jump too far into the story however, let’s go through a short history lesson so you can fully understand the true significance of these statements and events.
Introducing the Father of Corporate America
Prior to the 1970s, businesses were managed to benefit all stakeholders. This means the aim of businesses was to bring value to customers and to their employees (2). All of that changed in the 1970s however when an economist named Milton Friedman argued “that the fundamental obligation of managers is to return profits to shareholders- not to invest corporate funds in endeavors that they find socially beneficial…” (3). As a result, top executives were incentivized to focus solely on their shareholders while their responsibility to care for their stakeholders- including employees, customers, and even the environment, was compromised as a result.
Enter business as a force for good
Over the next 50 or so years, the international community felt the impact of Friedman’s philosophy in the form of poor social and environmental sustainability practices by businesses worldwide. Meanwhile, the rise of climate change awareness transformed the perception of sustainability from an idealized tree-hugger ideology to a business case for managing risk. For example, in the largest study on climate change data and corporations, 72% of the companies surveyed stated “that climate change presents risks that could significantly impact their operations, revenue, or expenditures” (4). In short, businesses were receiving increasing external pressures from the environment and from societal demands, to return to the traditional responsibility of business which valued all stakeholders.
During this time, the B Corp Certification came to life! The B Corp Certification has encouraged thousands of businesses, like Spud, to expand the responsibility of business from just shareholders, to all stakeholders. You can read more about it here.
An unlikely offer
Although Certified B Corps continue to grow, the majority of businesses still follow Friedman’s mantra from the 70s. That being said, the recent announcement made by the Business Roundtable was the first time in over twenty years that the CEOs at the Business Roundtable did not endorse “principles of shareholder primacy – that corporations exist principally to serve shareholders” (5). On the contrary, the Roundtable affirmed the need for: “meeting or exceeding customer expectations”; “investing in our employees” ; “dealing fairly and ethically with our suppliers”; “supporting the communities in which we work”; and “generating long-term value for shareholders” (6).
Although this is exciting news, Certified B Corps know it takes a lot of work to integrate sustainability into all levels of a company. To ensure that the CEOs of the Roundtable follow up on their promises, the B Corp community launched this full-spread ad in the New York Times, offering their support to help businesses adopt sustainable practices.
It is thanks to you
This moment could be huge as we see the corporate world finally understanding the need to change business-as-usual, and it is thanks to you that this moment has come. Thank you for supporting Certified B Corps, like Spud, and using your dollar as a vote for the kind of world you want to live in.
Sources
1) Wartzman, Rick. “Ameria’s top CEOs say they are no longer putting shareholders before everyone else.” Fast Company. https://www.fastcompany.com/90391743/top-ceo-group-business-roundtable-drops-shareholder-primacy.
2) Sorkin, Andrew Ross. “How Shareholder Democracy Failed the People.” New York Times. https://www.nytimes.com/2019/08/20/business/dealbook/business-roundtable-corporate-responsibility.html?action=click&module=RelatedLinks&pgtype=Article.
3) Smith, H. Jeff. “The shareholders vs. stakeholders debate.” MIT Sloan Management Review 44.4 (2003): 85-90.
4) Fink, Carly and Tensie Whelan. “The Comprehensive Business Case for Sustainability.” Harvard Business Review. https://hbr.org/2016/10/the-comprehensive-business-case-for-sustainability.
5) “Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans.'” Business Roundtable. https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans.
6) Wartzman, Rick. “Ameria’s top CEOs say they are no longer putting shareholders before everyone else.” Fast Company. https://www.fastcompany.com/90391743/top-ceo-group-business-roundtable-drops-shareholder-primacy.
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