A group representing the nation’s most powerful chief executives on Monday abandoned the idea that companies must maximize profits for shareholders above all else, a long-held belief that advocates said boosted the returns of capitalism but detractors blamed for rising inequality and other social ills.
“Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity,” said the statement from the organization, which is chaired by JPMorgan Chase CEO Jamie Dimon. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
The statement comes amid a growing national debate about the responsibilities of corporations at a time of stark economic inequality. President Trump and the candidates vying for the Democratic presidential nomination have taken aim at companies for putting profits before the needs of workers and customers on issues as varied as drug pricing, outsourcing and data privacy. And for decades, wages have climbed only moderately as the pay of top executives at public companies has soared.
A range of lawmakers have been trying to force companies to consider society’s larger goals when they do business or be penalized. Democratic presidential candidate Sen. Elizabeth Warren (Mass.) has proposed a plan that would require U.S. corporations to turn over part of their board of directors to members chosen by employees. Sen. Bernie Sanders (Vt.), also vying for the Democratic nomination, would prohibit corporations from buying back their own stock — a move that drives up share prices — unless they offer a certain level of pay and benefits for workers.
Trump, even as he has taken many pro-corporate actions including a big tax cut in 2017 and deregulation, has publicly shamed companies for moving jobs overseas and threatened to take more aggressive action against pharmaceutical companies.
By making the statement, said Judith Samuelson, executive director of the Aspen Institute’s Business and Society Program, “the voice of corporate America — the Business Roundtable — has now signaled how much things have already changed.”
The organization “is really playing catch-up with any number of members of their organization that have been working to dampen short-term pressures and make investments” in employees, communities and broader society. She believes the new statement will “stiffen [CEOs'] resolve to make the kind of long-term investments that benefits the long-term health of the enterprise.”
Rep. Joe Kennedy (D-Mass.) called it “a welcome step toward a more moral capitalism” while the U.S. Chamber of Commerce said it “agreed wholeheartedly with the renewed focus.”
But the firms also opened themselves up to a range of criticisms, raising questions about how much the new statement would lead to real change. Some prominent politicians said the statement may be too vague to correct for corporate failures.
“I’m glad they now seem to recognize that the American people are sick and tired of their corporate greed that is destroying the social fabric of America,” said Sanders. “But we need more than a public relations stunt. We need a concrete plan on how they will bring back American jobs overseas, pay all workers a living wage with good benefits, stop attacking unions and start paying their fair share of taxes.”
A Roundtable spokeswoman said the group welcomed a conversation on the issues.
Meanwhile, shareholder groups raised concerns that their interests would no longer be the core concern of corporations, underscoring the argument that it is the job of government — not companies — to make decisions that are in the best interests of society.
The Council of Institutional Investors, an association of pension funds, endowments and foundations, said it “respectfully disagree[s]” with the statement, adding that it “undercuts notions of managerial accountability to shareholders.”
But CEOs who favored the move said it would benefit shareholders in the long run as well.
“CEOs work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value,” said Tricia Griffith, president and CEO of Progressive Corp.
The new statement includes 181 signatures of the 192 current members of the Business Roundtable. Some companies that did not sign were not eligible to do so because an interim chief executive is in place or the company is transitioning between leaders.
There were seven other CEOs who did not sign for various reasons: Roy Harvey at Alcoa, Stephen Schwarzman at Blackstone, Larry Culp at General Electric, Bernard Tyson at Kaiser Permanente, James Robo at NextEra Energy, Thomas Williams at Parker Hannifin and Michael Tipsord at State Farm. In emailed comments, Kaiser Permanente and State Farm said they agreed with the statement but did not sign because they do not have shareholders; Kaiser is a not-for-profit hospital and health plan, while State Farm is a mutual company that “serves the interests of our policyholders.” A Business Roundtable spokesperson noted that a non-signature does not necessarily mean the CEO does not support the statement.
Some governance experts were critical of the announcement, pointing out that a focus on shareholders helped lead to governance reforms and companies could use the wider array of interests as a dodge.
“It limits accountability for these people to anyone,” said Charles Elson, who directs the John L. Weinberg Center for Corporate Governance at the University of Delaware. “You can always make an argument that no matter what you’ve done, some stake[holder] will benefit.”
The new statement puts an official stamp on a more stakeholder-driven approach to governance that some CEOs have individually advocated for in recent years. It comes more than two decades after the lobbying group, in a 1997 document about corporate governance principles that it has periodically updated, took an explicitly shareholder-first stance. “The Business Roundtable wishes to emphasize that the principal objective of a business enterprise is to generate economic returns to its owners,” it wrote.
That concept — often known as “shareholder primacy,” or a corporation’s duty to maximize shareholder value — grew to prominence in the mid-1980s and has since become a widely accepted governance norm, one that critics say has driven a fixation on short-term results and helped balloon the size of CEO pay packages, fueled by outsized stock awards.
An analysis released Aug. 14 by the Economic Policy Institute, a left-leaning think tank, found that chief executive compensation had grown 940 percent since 1978, by one measure, while typical worker compensation had risen just 12 percent over the same period.
Elson, the corporate governance professor, noted that the statement was problematic coming from high-earning CEOs.
“They talk about their great concern for the workers — well they’re the ones who’ve paid themselves so astronomically and created these pay gaps that are so dramatic,” Elson said. “I’d like each of them to volunteer to cut their own salaries by two-thirds and give it back to employees if that’s the way they feel.”
Even in more recent guidelines, the idea that maximizing shareholder value should be the primary goal of a corporation has been backed by the Business Roundtable, albeit less explicitly. In its 2016 document, the group says management’s goal is “producing sustainable long-term value creation” and calls for compensation committees to “incentivize the creation of long-term value.” While it also suggests the board “may consider the interests of all of the company’s constituencies,” it advocated doing so when it “contributes in a direct and meaningful way to building long-term value creation.”
One CEO of a Business Roundtable company, who spoke on the condition of anonymity to speak freely, said the new statement was not intended to suggest companies should weigh the concerns of all stakeholders equally with each decision, but recognizes that CEOs know they must do all of these things well to maintain long-term value and brings the group’s view more in line with how CEOs are running their companies.
Corporations are also facing increasing pressure — whether from customers, employees or public groups — to take stands on issues that affect society at large. Tech companies have had employees push back against contracts with immigration and border control agencies. Walmart has faced calls to stop selling guns after a recent mass shooting in its El Paso store, and senior corporate leaders have been increasingly vocal on social issues ranging from racism to LGBTQ rights as consumers increasingly look to spend money with companies that share their views.
Indeed, the new statement is, in a sense, a return to the past for the powerful lobbying group. In its 1981 statement about corporate responsibility, the organization said that “corporations operate within a web of complex, often competing relationships which demand the attention of corporate managers.”
It went on to list the same stakeholders as the new statement does, saying that “balancing the shareholder’s expectations of maximum return against other priorities is one of the fundamental problems confronting corporate management. The shareholder must receive a good return but the legitimate concerns of other constituencies also must have the appropriate attention.”