The Business Roundtable, America’s most influential group of corporate leaders, regularly reviews its principles of corporate governance. It has done so since 1978.
On August 19th of this year, they’ve published their latest update.
What makes it an important one, is that it transformed the existing definition of the purpose of a Corporation to one that now promotes ‘an economy that serves all Americans’.
What it does is move away from the idea of concentrating on profits for shareholders and acknowledging a broader responsibility of companies to society.
It’s a move from shareholders to stakeholders.
Interestingly it is described as a move away from Milton Friedman’s theory. It certainly rejects the idea, that seeking profits for shareholders would be sufficient for the company. I’m less sure that it rejects the idea that it would allow that company to prosper, keep people employed, and fuel the economy.
What the new purpose does, is acknowledge principles of a broader responsibility to society. An idea which has been shared by a lot of organizations in the last 10 years, but not necessarily lived. Broader responsibility includes customers, employees, suppliers, the communities and shareholders. The environment can be found as part of the work with communities.
I’m an optimist and I like the idea of seeing and acknowledging a broader responsibility as well as a shift to long term value for shareholders.
But here people are invited to change a habit, the one to judge things by results and not by intention as Milton Friedman suggested. In a world driven by performance and speed, how will they adapt to not only find the patience needed for themselves but also invite participants in the stock market to become patient?
How can business leaders who’ve taken 10 years to change this definition of purpose build their next growth on the stated intentions?
It does raise the question if this step was a proactive building the future one or a reactive save the existing one.
And, by all means, acknowledging a broader responsibility is a step forward.