In 2019, almost 200 CEOs who make up the Business Roundtable declared that the purpose of a corporation is to provide value for all of its stakeholders—not just shareholders, but also employees, communities, local governments and more.
This vision of what a corporation should be was promptly hailed as a watershed event. Alan Murray, CEO of Fortune Media, says its great contribution was to crystallize long-running conversations about placing corporate social responsibility and accountability in the forefront of business.
But it has also been denounced repeatedly as "empty PR," "propaganda" and "another way to entrench management." Nell Minow, a corporate governance expert who is vice chair of ValueEdge Advisors in Portland, Maine, says the pronouncement is "stakeholder rhetoric" that has distracted from more urgent issues, such as tying executive compensation to quantifiable, transparent goals.
And what do businesses themselves say? Corporate officials appear reluctant to dissect the effects of the Business Roundtable statement on the record. Instead, they point to websites and stacks of glossy reports that highlight initiatives in diversity, equity and inclusion (DE&I) and other aspects of corporate social responsibility. Some of these initiatives predate 2019; many have gathered steam since then, especially after widespread protests against social injustice in 2020.
While corporate officials stopped short of saying there was a cause-and-effect relationship between the Business Roundtable statement and their subsequent actions, they insisted there is a correlation. One corporate spokeswoman said it challenged companies to move more aggressively toward an equitable workplace and raised accountability.
Taking the Pledge
The Business Roundtable statement zeroed in on the workforce with a one-paragraph pledge, part of a litany of commitments that also includes delivering value to customers, dealing ethically with suppliers, supporting communities and generating long-term value for shareholders.
It stated: "Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect."
Since signing onto the Business Roundtable statement, Corning, N.Y.-based Corning Inc., which manufactures specialty glass and ceramics, has created an office of racial equality and social unity. It has an ambitious mission: to enact and influence change at the company level; in global communities where the company operates; and at the national level, in the U.S.
Thus far, Corning has achieved pay equity globally for all salaried employees and distinguished itself in the Disability Equality Index and the Human Rights Campaign Corporate Equality Index, according to Corning's DE&I report, published in March.
Corning's office of racial equality and social unity has entered into a five-year partnership with North Carolina Agricultural and Technical State University, the largest historically Black university in the U.S. The company made a $5.5 million gift to prepare students for careers in science, technology, engineering and mathematics as well as business and education.
Mattel Inc., the global toy company based in El Segundo, Calif., points to its pursuit of DE&I initiatives when asked about its response to the Business Roundtable's call to invest in employees.
Mason Williams, senior director of DE&I at Mattel, says the company has already made "tremendous progress." Williams notes that the company has delivered on one of its most important DE&I goals: It has achieved 100 percent base pay equity for all employees performing similar work globally.
But there is more to do. For example, Mattel's DE&I data shows that women and employees with racially or ethnically diverse backgrounds are underrepresented in management, a gap it's working to close. Currently, 58 percent of its 9,288 employees globally are women, and they hold 47 percent of all management positions. Of its 4,387 U.S. employees, 44 percent have racially or ethnically diverse backgrounds, and those employees make up 33 percent of the U.S. management team.
Mattel has established diverse talent pipelines, provided hiring managers with balanced candidate slates, maintained rigor on career development and internal succession planning, rolled out "conscious inclusion" training, and leveraged its employee resource groups, Williams says.
The company also has removed education requirements from most job descriptions, launched inclusive interview training and formed partnerships to help recruit underrepresented candidates.
Mattel is at its best, he says, "when everyone can show up as themselves and do their best work every day."
From the outset, Eastman, a global manufacturer of chemicals and specialty materials, saw the Business Roundtable's approach as a natural fit with its priorities, says Amanda Allman, a spokeswoman for the Kingsport, Tenn.-based company.
"Eastman's endorsement of the Business Roundtable's statement on the purpose of a corporation was an easy decision for us because it directly aligns with our company's stated purpose to enhance the quality of life in a material way," Allman says.
The company has committed that by 2030, its DE&I efforts will focus on eliminating any differences in promotion or turnover rates across key demographics, continuing to ensure pay equity, and fostering double-digit growth in racially and ethnically diverse talent at all levels. Eastman plans to double the number of women in leadership and make sure that LGBTQ+ team members are "visible, fully accepted and empowered to be authentic in all aspects of employment," Allman says.
Deere & Co., which manufactures agricultural machinery and other heavy equipment, is working to expand and diversify its technology talent. In December 2021, it opened a new information technology office in Chicago, and in February 2022, it announced the creation of an innovation hub in Austin, Texas. Both initiatives are part of plans to bring in a more diverse technical talent pool, says Andrez Carberry, director of global HR operations at the Moline, Ill.-based company.
Wave of Change
The Business Roundtable was riding a wave, not engineering a sea change, says Fortune's Murray, who is a veteran business journalist. His forthcoming book, Tomorrow's Capitalist (Public Affairs, 2022), documents the rise of stakeholder capitalism and draws on hundreds of CEO interviews.
He traces this wave to an address that Microsoft CEO Bill Gates made to the World Economic Forum in January 2008. Gates called on businesses to adopt a new way of thinking that he called "creative capitalism," Murray recalls.
Still, he says, "Ten years ago, if you tried to get most CEOs to comment on a politically or socially controversial issue, they would hide under their desks." He believes that started to change around 2015, when Salesforce CEO Marc Benioff became a leading voice in opposition to Indiana's Religious Freedom Restoration Act, which would have permitted businesses to discriminate against LGBTQ individuals.
Murray believes another significant force for change was what he describes as a dramatic shift in the way corporations operate. In the 1970s, he says, 80 percent of the balance sheets of Fortune 500 companies consisted of "physical stuff—plant, equipment, oil in the ground, inventory on the shelf." By the 2010s, "more than 85 percent was intangibles such as intellectual property and brand value. Those are all things that tie you to your employees. So if your employees walk out the door, assets disappear.
"Today it's all about who has the best employees, so people have become much more important in the value equation."
The progress corporate executives point to isn't seen in the same light by everyone.
Harvard Law School professor Lucian Bebchuk has been a persistent critic. He has argued in academic writings that expectations of a new era in stakeholder capitalism are misplaced and that the Business Roundtable statement was "mostly for show." Corporate bylaws, governance and compensation are aligned with shareholder interests, not stakeholder considerations, he has maintained.
A significant obstacle is that legal constraints generally favor shareholders, Bebchuk says. He has noted that about 70 percent of U.S. companies that joined the Business Roundtable statement are incorporated in Delaware, "which is widely viewed as a state with strong shareholder-centric corporate law."
Minow, the corporate governance expert, believes the Business Roundtable's vision statement is "primarily motivated by concerns that future performance would not necessarily match past performance, and they have wanted to have something to blame it on."
Asked about the steps many companies have highlighted—such as improving pay equity and accommodating people with disabilities—Minow replied, "I'm not going to give them a gold star because they did something that's required by law. They're good at coming out with beautiful, colorful brochures with smiling employees at the company picnic, but they're terrible at putting their money where their mouth is."
While employers are touting progress in the workplace through marketing, Minow says many practices are designed to keep workers in their place and advance the goals of management. For example, she says, "Some of the most notable atrocities inflicted on employees by HR are forced arbitration and nondisclosure agreements, which massively inhibit the ability of employees to raise legitimate concerns about abuse. It took legislation to change that."
President Joe Biden on March 3 signed into law the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021, which enables plaintiffs to pursue claims through court proceedings and class actions even if they previously agreed to mandatory arbitration.
Minow also cites political contributions as an example where employers are not putting the interests of stakeholders first. She pointed to the controversy in Florida over the Parental Rights in Education bill, which critics have dubbed the "Don't Say Gay" bill.
The Walt Disney Co., a signatory to the Business Roundtable statement on the purpose of a corporation, has come under public pressure from both advocates and critics of the bill. Critics rebuked the company for not opposing the bill publicly—especially after it was revealed that it had donated to some of the bill's backers in the state legislature. After employees walked off the job in protest, Disney CEO Bob Chapek spoke out in opposition of the bill, saying Disney was opposed from the outset but chose to work behind the scenes.
"That's a great example of missing the boat and only doing something that's too little, too late," Minow says.
Disney is now feeling backlash from the Florida legislature, which passed legislation on April 21 to dissolve the special district that enables the company to self-govern its Orlando-area theme park by establishing its own zoning, fire protection, utilities and infrastructure, among other services.
Meanwhile, businesses say they're taking the corporate social responsibility initiative to heart and doing their best to live by its principles.
"We're proud of the progress we continue to make" and proud to endorse the Business Roundtable's statement, says Allman, the spokeswoman for Eastman.
The Business Roundtable declined to provide an interview but pointed to a 2021 statement by its president and CEO, Joshua Bolten. It concluded: "Two years in, Business Roundtable CEOs have strongly demonstrated a commitment to the Statement. They know there is more work to do, and I am confident that they will continue to rise to the challenge."
Debra Cope is a freelance writer based in the Washington, D.C., area.
Corporate America's track record on living up to the Business Roundtable's statement on the purpose of a corporation has supporters and detractors. But President Joe Biden played it down the middle when he raised the topic during a March 21 speech to the Business Roundtable at its Washington, D.C., headquarters.
"It wasn't a do-gooder statement; it was a capitalist statement," the president told the audience of CEOs. "We're all capitalists in this room. And you did the right thing, in my view, in the assertion of that statement."
He called on the CEOs to reaffirm their commitment to stakeholders.
"We can't afford to prioritize shareholders at the expense of your stakeholders, the environment, your workers, your customers, your communities where they live and work. And you're not doing that," he said, although he noted that some might be inclined to do so on some occasions.
"Instead, now's the time to invest in your people," he said. "You can hire and retain the best-trained workforce in the entire world, which you've been doing." —D.C.
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