Traders work on the floor of the New York Stock Exchange as stocks tumbled following Standard & Poor's downgrading of the AAA credit rating of the United States. (BRENDAN MCDERMID/REUTERS)

This piece is part of a leadership roundtable on unemployment and restarting America’s jobs engine — with opinion pieces by former Treasury Secretary Paul H. O’Neill, Harvard Business School professor and author Bill George, leadership expert Katherine Tyler Scott,Wharton School professor Michael Useem, and Woodrow Wilson Center scholar Amy M. Wilkinson.

With more than 9 percent of Americans unemployed, and with the chance of Washington intercession close to none, now is the time for big business to make employment a business of its own. To do so, corporate leaders need to reset the business mindset: making people a priority, not just earnings.  

For executives, directors and owners of large, publicly traded companies, total shareholder return – TSR – has been the era’s dominant mantra. Improved shareprice plus cash dividends have come to define the currency of the realm. For company executives, corporate directors and portfolio managers to think otherwise is to violate their oath of office, to fall short of their fiduciary duty.

That is the formulation that has dominated the executive suite and board room for the past two decades. And little wonder. Institutional investors – pension funds, investment companies, hedge funds and other professionals that oversee giant portfolios – now control two-thirds of America’s publicly traded shares. This has given them the clout to force company leaders to focus on delivering near-term shareholder value above all else. Executives and directors who repeatedly fall short can find their careers cut short.     

But what might seem an idée fixe of the American way is really a moment’s artifice, a prescription that served a past era but less well the current one. The rise of investor capitalism helped force out self-serving and poorly-performing executives, and bolstered boardroom prevention of executive malfeasance. Yet in doing so, it created two byproducts that have become increasingly dysfunctional for both companies and the country.

The first is an unrelenting pressure of the equity market on company leaders to meet quarterly TSR expectations, regardless of the impact on the domestic workforce. Many companies have consequently streamlined their rosters at home and expanded their operations in China, India and other fast-growing markets abroad. 

The second is an incessant equity-market demand on company leaders to focus on their own advantage whatever the disadvantage for others. Fewer executives and directors have thus been able to step forward to advocate what is required for a vibrant economy, not just what is required for their own prosperity. 

But with domestic employment stalled and U.S. growth imperiled, now is a good time for executives, directors and owners to revise the rules of investor capitalism, placing long-term collective growth and employment security back in their mission statements. 

If Fortune 500 companies, for instance, each added just 1,000 Americans to their payrolls, they could jointly expand U.S. employment by half a million and cut national unemployment by a third of a point. The culture of investor capitalism would discourage if not prohibit such an action, but that is precisely why it is time for the past era’s mindset to give way to a revised attitude. 

Revising the widely accepted rules of investor capitalism, however, will require self-conscious and collective intervention by all the key actors.

One premier player is the Council of Institutional Investors, an association of pension funds and other investors with combined assets of more than $3 trillion, 60 percent of which is held in stocks and bonds of U.S. publicly listed companies. Although serving as a “leading voice” for “strong shareholder rights,” its members include public pensions such as the California Public Employees’ Retirement System and unions such as the United Auto Workers, and it could step forward to provide a leading voice for employment growth.

Corporate directors have no comparable coalition, though many look to the National Association of Corporate Directors with its more than 10,000 members. For company executives, a leading organization is the Business Roundtable, representing the CEOs of America’s largest companies, from American Express and General Electric to Procter & Gamble and Wal-Mart. With combined revenue of $6 trillion and employment of 13 million, the Business Roundtable’s voice may be among the most influential of all since it represents those who most directly lead the nation’s largest enterprises.  

Even more impactful would be a united voice of all three of these coalitions – along with the U.S. Chamber of Commerce and other premier business groups. Even though they often differ on issues such as governance, they could find common ground in employment growth at a time when government is paralyzed. 

Working together, an inner circle of leading executives, directors and owners could help rewrite the rules most tangibly through direct actions. Two come quickly to mind: 1) Creation of 1 million new U.S. jobs within the next year by the companies they lead or in which they invest. 2) Creation of a research and development fund for innovative ways to expand employment among companies they represent or own. Given the billions in cash that many companies have accumulated at home and abroad, the wherewithal for both is already in the bank. 

A research study that we at Wharton conducted last year on Indian business leadership revealed that while Indian executives and directors are certainly committed to shareholder value, many also embrace a broader calling to serve the community and build the country. While that way of doing business may sound odd to the Western ear, it finds a parallel in China, where companies and their value are viewed as public, not just private, goods. This may be the time for American business leaders to embrace the same.

When it comes to growth in employment, the American way certainly needs a jump start. And a mobilized leadership of those who own and oversee the apex of the private sector can help provide it at time when Washington seemingly cannot.

Michael Useem is a professor of management and the director of the Center for Leadership and Change Management at the Wharton School of the University of Pennsylvania.

From the roundtable:

Paul O’Neill: Only presidential leadership can restart America’s engine

Bill George:Enough talk about jobs—where’s the action?

Michael Useem: Revising investor capitalism’s mantra

Katherine Tyler Scott: A moral imperative on unemployment

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