The debate over corporate responsibility is not new. In the late 1990s the influential Business Roundtable defined corporate purpose this way, quote, "The paramount duty of management and of boards of directors is to the corporation's stockholders. The interest of other stakeholders are relevant as a derivative of the duty to stockholders."
But times have changed. Just a few months ago the Business Roundtable issued a statement redefining corporate purpose. Signed by 181 CEOs, it seeks more balance in companies' obligations to a diverse array of stakeholders. The companies who signed on committed to a broader mandate than generating profits alone. They pledged to deliver value to their customers and shareholders of course, but also to deal ethically with suppliers, support and respect their employees and the communities in which they work and to strive for the long-term health of our economy.
Today we will talk about what this commitment means for a modern American business and the broader impact it can have on society and the economy. We are very thrilled to have Bank of America CEO Brian Moynihan here today. He's going to talk about how a major corporation puts these principles into practice. We'll also have a discussion with the Business Roundtable executive who spearheaded this initiative.
I'd like to thank our presenting sponsor of this event, Siemens, as well as our supporting sponsor, the University of Virginia. And now I'd like to welcome to the stage Siemens USA CEO Barbara Humpton for some remarks.
MS. HUMPTON: Thank you. Hello, everyone, and thank you to The Washington Post. I've been really looking forward to today's event. You know, as you've just heard, for a long time there was the Milton Friedman school of thought that the business of business is business. But I ask you now, if you're a company that isn't creating value for society, why do you exist?
Business is integral to the fabric of our society, bringing unique resources and skills to the table. And that mindset speaks to why Siemens joined those 181 companies on the New Purpose Statement that the Business Roundtable published earlier this year. A corporate purpose that includes a whole set of stakeholders, from employees to suppliers to the communities in which we serve aligns with how we run our business.
Siemens has been around for 172 years and built a long legacy in industrial manufacturing. And as we've embraced new digital technologies over the past decade, we've reinvented ourselves into the largest industrial software company in the world.
We've actually organized our entire business strategy around how our capabilities in software and hardware can solve the world's biggest challenges. Climate change. Rapid urbanization. An aging demographic. These are the global megatrends that we are focused on.
Nearly half of our revenue comes from our environmental portfolio, helping our customers lower their carbon footprint, or helping cities reach their sustainability goals.
So you've probably heard that some companies are B2B, business to business. And I know you've heard of B2C, business to consumer. We refer to ourselves as B2S. Our model is business to society. It's not just the right thing to do. I think it's also the core to our longevity, and it's how we'll be contributing 172 years from now.
So I will leave you with this thought before we turn to today's discussion. If we were to peer into a crystal ball that showed us the marketplace 50 or 100 years from now, what companies would we see? My bet is that those we see will have been rooted in a larger mission, those that led with purpose to serve society and left our planet better than they found it. That's the business community that I want to help shape. Thank you.
MS. CORATTI: Thank you so much, Barbara. And now I'd like to get our event started and welcome to the stage my colleague Michael Duffy with Bank of America CEO Brian Moynihan. Thank you.
Profit & Purpose: One-on-One with Bank of America CEO Brian Moynihan
MR. DUFFY: Good evening, everyone. I'm Michael Duffy. I'm an op-ed editor here at The Washington Post, and I'm pleased to be joined by Brian Moynihan, the CEO of Bank of America. Thank you for coming, Brian.
MR. DUFFY: Before we start the conversation, I just want to remind everyone in the room and who may be watching online that you can send us questions at #postlive and we'll try to get to them on this device they've given me here, which I'm sure I don't know how to operate, before we finish.
Anyway, on to Brian. It's great to have you. Thank you.
MR. MOYNHIAN: It's great to be here.
MR. DUFFY: We're talking about the Business Roundtable statement. And you have managed through recession and recovery, deregulation and regulation. You run the second or third largest bank in the United States. And you've watched mergers come and go in your category for the last decade. Talk to us a little bit about what the statement means for Bank of America, and if you can, what it means for the country.
MR. MOYNIHAN: Sure. I think you heard some of the earlier commentary, but basically we at Bank of America believe that we have to drive a thing we call responsible growth. We've got to grow because that means we're successful. We've got to do it with a customer-focus, got to do it with the right risk, and it's got to be sustainable. And this is about being sustainable. This is about making producing great returns for shareholders and delivering on what society needs from us.
And if you think about the history of banking and how banks came along, we came from society up. I mean, we were formed in communities. The oldest part of our bank is the second bank in the United States, formed by some people in 1784 creating a bank. And so we've had this.
And so the BRT was important, the statement, as referenced earlier. There was an old statement that said it was all about share of a bank's organization. The team that worked on it, Al Gorsky, and the colleagues here from the BRT realized that we had to move that forward to the way we actually run the companies.
And so I think it was important for myself and my colleagues to sign that to show society that we are running these companies across a broader set of constituencies. But don't forget. We have to deliver the shareholder returns and do the good works. Because if we don't deliver the shareholder returns, some other manager's going to be put in there relatively soon. And they may take a different strategy. So these CEOs I think who run the companies this way, it codifies it and it makes it an important part of what we do. And it's part of the larger movements going on around the world, and we can talk about that.
MR. DUFFY: So you're a company with more than 200,000 employees, and all of us can see that what employees and customers expect in the last decade has evolved quickly. So what does it mean in terms of having responsibility to your customers, but also your employees in a way that it didn't perhaps in a decade or two ago?
MR. MOYNIHAN: Well, one of the things you think about--and I'm the chair of the International Business Council, which is under the World Economic Forum, which that groups of CEOs signed like principles obviously based on Klaus Schwab's work over the last 40 years, 50 years now.
But if you think about the basic tenants of thinking about a company and how you drive it, you know, at the end of the day society has told us. We have a tag line what would you like the power to do. That's our new advertising tag line. If you ask the world that, they spoke a few years ago when the SDGs were developed by the United Nations and sustainable development goals. They asked a 100-some countries, 190, whatever it is. They came back and told you. And so we as society have to drive those changes. The problem with it is it costs $6 trillion a year. And charitable giving is about 800 billion a year. That's not going to do it. If you emptied all the foundation's endowments and everybody says, well, take all the money and just give it, that about a trillion and a half. The U.S. government budget, operating-wise, 4 trillion. They've got to spend some money on some other things. And by the way, they're running up a deficit.
So where is the money going to come from? It's going to come from aligning capitalism to the SDGs so that you can make money and produce the results and sustain it then, because then--you know, like Jim Collins says the flywheel, the flywheel turns and you just keep seeing the activity.
MR. DUFFY: What have you learned as you've tried to realign--maybe not realign, but further align capitalism towards some of these goals at Bank of America? What have you come away discovering?
MR. MOYNIHAN: The best example might be the environmental space. So if you go back to when we made our first commitment in environmental, so one of the SDGs 2006 is the environmental one. If you go back and said what we made in 2007, we committed 25 million, and then we moved it to 50 million when I became CEO. Then we moved it to 125 billion--excuse me, not million, billion. And now we just announced 300 billion, which brings us to 450 billion over basically 07 to 2030. So just step and think of that number.
So, one is what do we do to achieve that, and how do we do it? So we made the environmental commitment, and through financing we do about $20 billion a year financing for companies and things and enterprises to help them make the transition to the new energy future. That's with all kinds of companies, power companies, startup companies, and everything in between. But importantly, it's how we operate. So you start with how we operate. We decided we'd be carbon neutral, and we are carbon neutral by next year, 2020.
MR. DUFFY: The whole bank.
MR. MOYNIHAN: The whole bank. And we'll have to buy credits, and those credits will go to new great projects to create better alternative sources of fuel. But basically the idea is you're carbon neutral as an operator. Our buildings are LEED Platinum certified if we can get them there. If they're old ones, we have to wait. We gave our teammates a credit for $3,000 to buy a hybrid car. We reduced our own emissions dramatically over the last 20 years, and now we've agreed to be carbon neutral.
So it's how you operate and then how you run your business, the financings we do, and then how you actually help research to figure out answers. So we work with universities and others to fund research to help figure out some of these answers, you know, how you can do some things, commercialize some things about sequestration of CO2 or things like that. So if you think about all those things, the impact we have, how we operate, how our teammates live and operate, how we use our core business principle--and by the way, it makes money. And so it's the right thing to do for the shareholders on top of that.
MR. DUFFY: You know, somebody said to me--I was interviewing a business leader a few weeks ago and we were talking about the principles, and he said to me, you know, capitalism needs to change. And if we don't change it, we're going to find out that people who aren't capitalists will change it. Does that ring true to? And is it partly because the government isn't moving fast enough to address this, or is it also because some of your customers and your employees expect this?
MR. MOYNIHAN: Well, a lot of people are talking about capitalism and a lot of them have names begins with B. So Bono the rock star will talk about how capitalism needs to be tamed. Benioff will talk about the capitalism he knows that has changed. And Warren Buffett will talk about how capitalism is the best system, but you need to have a safety net for those who aren't going to have the same opportunity due to something, not the same education.
So the reality is we're talking about opportunity. So it's not capitalism versus socialism. It's more about can you create enterprises like ours that create opportunity for 200,000-plus teammates, the 500,000 family members that we insure and support through those teammates, the retirees we support, the communities we give 250 million of charity a year and $4 ½ billion of low- and moderate-income housing development. And you know, how can you create enterprises which have capitalism align? And that's the key, is the alignment of the investors and the operators to drive the change. And so that's what they mean by changing capitalism. But I'm not so worried about who's going to define it. I think most of us believe we can do this.
MR. DUFFY: Being a leader of a bank like this, particularly one that's at the frontlines of this, how is it--they don't teach you in CEO school that you're also going to have effect global change on a massive scale. So what is it like to wake up every morning and discover that any one of these issues might be front and center at the top of your inbox that day?
MR. MOYNIHAN: You know, you have to listen to your customers and your team and the communities we operate in, and they'll tell you that. And so whether--you know, I remember when I first became a corporate strategist, you were taught--I wrote my first corporate strategic plan in 1993 or 1994 for a company, and I got chastised because I said, you know, customers, employees and shareholders, and somebody said to me, no, banks are about communities, too.
So this is not something new. This is something literally when I wrote my first strategic plan as a corporate strategist, I had to figure through. So these are not new concepts, so you don't wake up to it and say now I'm dealing with this. You basically wake up to you've got a wonderful business, a wonderful company, a wonderful set of customers and a wonderful set of communities and a wonderful set of teammates. And so a lot of times when we think about issues, it comes through the eyes of the teammates. You're not going to be a great employer. You know, you're not going to be the best place for people to work if you don't provide great things to them, but also if you don't help them achieve what they want to achieve, which is around these types of issues.
MR. DUFFY: You also have to deal with issues you can't expect. I know last year the Bank decided to cut off credit for manufactures of military-style weapons after employees had been affected by gun violence themselves. Can you see the bank taking positions on other issues as they arise, and how do you prepare for that since it can come from anywhere at any time?
MR. MOYNIHAN: Yeah, I think this is one of the things to be careful. There are issues like that and there's issues like HB2, which is the law in North Carolina that got passed that we had to take a firm stand on, that are more about the--that are sort of one thing, and then there's business issues and how you run the company on, say, the environment or the employee practices.
So on the issues like that, the employees, we had about at the time probably 120 people who were, you know, horribly lost a family member or had a family member, husband, wife, et cetera or a relative in those settings, and they kept saying we've got to figure out something we can do. And that was the decision. It was more based on that type of thing.
Same with HB2. We had employees who were diverse that would not come to the corporate headquarters for D&I award ceremony because it was scheduled to be there and they said we can't have it there because this state has passed a law. And working with the governor and the legislature, we were able to get that law pulled back and changed it. So they are a lot driven by the employees.
MR. DUFFY: One more question about the employees. There's a phrase that's in vogue in workplaces now that encourages employees to bring their whole selves to work. I suspect as a CEO you can almost never bring your whole self to work. But talk to us a little bit about what that's like when you have 200,000 employees and all the issues that could come up. This is a completely different challenge than the one we I guess experienced when we started in the workplace 40 years ago.
MR. MOYNIHAN: So I think, you know, I've been the chair of our diversity and inclusion council since before I was CEO, say 2007 I think it was. And one of the issues we had. You had diversity representation statistics, so men, women, people of color, those types, all layers in organization and how you drive that through.
But we really wanted to define what inclusion meant. And so we went out and people started saying, well, let's go out and do research that the council did. And we finally said let's just ask people what they want. And so we went out and surveyed our teammates, a select group of them, thousands, and said what do you want? And one of our teammates said the way we define inclusion at the Bank of the America is--said the following: I want to be able to come to work every day and come through the door and not leave myself on the outside and have to pick it up on the way home.
And that was a simple, articulate statement which you're trying to achieve, which is you want people to be able to do all they can do in a company and be themselves at work and be able to be successful, and never feel to hold back. That's inclusion. That is wholly different than diversity statistics. And you're seeing people move there.
And so I think the travel has been from probably when you and I started in business, started 30-40 years ago, you went from just getting the numbers of representation up. But now it's, okay, you have this diverse group. Are they really working together? Are they really seeing each other? Can they have courageous conversation about a subject of disagreement? Remember, at 200,000 people we have people on both sides of the aisle that think about it. They're all over the world, all over the country. And so they may have a difference of opinion on any issue we take or any issue that's affecting them. But how can they have that courageous conversation? So we'll have a courageous conversation about after Charlottesville. We had one in the company about the Vietnam War. We had veterans that had never talked about it, and then our teammates got to learn about it when Ken Burns did the film we sponsored. So it's really about getting people to have that discussion, and it's something that we're pretty proud of.
MR. DURRY: I know you talk to a lot of other chief executives and people in the c-suite. Since the statement has come out from the Roundtable, as you have met with other CEOs, has there been any reaction that has surprised you? Because I'm sure they talk to you about it given your role. Have you been surprised by the positive reaction? Have you been surprised by the head scratching? Anything that after spending--it's been almost exactly three months, I guess, since it was August?
MR. MOYNIHAN: I think the big thing that is going on, the BRT sort of codified a redefinition of purpose, and that was terrific. But the big thing that has been going on behind that is actually the movement to the investors and asset owners, the people who invest their money with BlackRock and various letters and things like that that everybody knows about, but the people who invest behind it, people who own our company, their view of what they want companies to do upon a rational important thing. And so that's the big change.
And I think what the BRT brought out was more discussion among CEOs that, wait, your shareholders expect this of you. And so we have a unique purview because, remember, we had the way we operate the company, but we also had the best research platform in the world. And they've done a lot of research that basically will establish that if somebody doesn't score well on the SG, if you went back and looked at the companies that didn't score well and followed them across the last couple decades, you would be able to avoid 90-plus percent of all the bankruptcies. They're still trying to see if it's a true outperformance.
Now, ironically, the 181 people who have signed the thing have outperformed the index in our industry. I actually checked that just to see.
MR. DUFFY: So it's good for business.
MR. MOYNIHAN: So it's good for business. But the interesting thing is, if you can avoid the losers, that's a big deal for an asset manager. And then so not only is it the right thing to do--and that's not a debate--the question is it also helps them, which then you can align that capitalism, that investor capital to the companies that are doing the right things so to speak around the fullest dimension. And if you get that aligned, everybody will be dragged in.
So go back to the environmental one. If we get all the companies in the world to commit their environmentally, that they have a carbon neutral commitment by some year--and that's tough for an oil and gas company, and some have committed to 2050 that they'll be carbon neutral--think about the impact it has on consumption and demand for alternative and other sources of power over the next 20-30 years if every company, all the major consumers of electricity have scheduled out when they're going to change. And so you can have triggers that the investors can look at and get that alignment that will drive them to there, and that's the kinds of things we're thinking about.
MR. DUFFY: So while we may think about customers or employees, this is a whole other realm of the statement because of investors.
MR. MOYNIHAN: Because technology allows you to have--you could walk into our Merrill team or the private bank team and say I want the S&P 500, but I don't want pick your stocks. And we can take them out of it and give you the portfolio because technology allows us to do that. You'd have a big portfolio but to have a relatively small portfolio and that's different. So people can actually almost to the micro level make decisions about, you know, ESG funds, what they're going to invest in. And so that means that capital is being channeled against these tasks. So therefore you have the interesting "and," right? Produce great returns and do well, and the investors are going to invest in companies who do well for their employees, their customers, their shareholders, and their society. And suddenly you have this nice thing that then gets you the 6 trillion you need.
MR. DUFFY: Right. Would you call that a hidden impact of the statement?
MR. MOYNIHAN: I think it's a hidden impact of the statement. And it's just--the topic is just more out there so you hear more people discussing it, and the investors are more clear about what they're expecting. And it's still coming on.
MR. DUFFY: When you have the CEO of the second-largest bank in the country, you can't get away without talking a little bit about the economy. So tell me, what are you seeing right now?
MR. MOYNIHAN: Well, in the U.S. economy you're seeing basically a consumer economy that's very stable, from employment, from wage growth not as fast as we'd like but growing. You see spending. And unique view we have is of spending. So through--year to date through November 18th, the amount of money spent by our consumers is about $2 ½ trillion, and that's up 5.8 percent over the last year in the same time frame. And it's been consistently rising a little bit during the year, especially the second and third quarter and into this quarter. So that bodes well. If the U.S. consumers spend and are employed, that's a good thing for the world's economy. It's a good thing for the U.S. consumer.
On the business side, all the things that you all write about every day, whether it's the trade negotiations, whether it's Brexit, whether it's what's going on here in Washington, all that creates more uncertainty around the business side of the economy, but with a final demand from consumers in the U.S. So we feel very well about the U.S. economy in the sense that it should grow 1.7 next year, 1.7 the year after is our early estimates, and be in the low twos this year. Now that's down from 3 to 2.3 to 1.7. In a world, we have it about 3.1, and it's much more complex because Europe is still sorting out things and China and India and Brazil and places. But the reality is the world is not growing that fast and it will grow in a quarter, probably be okay.
MR. DUFFY: So this is the longest recovery in history. Is there anything that worries you in particular? And can you just talk a bit about negative interest rates since there's something like 17 trillion in negative debt out there, which I know isn't happening in this country? But talk to us about what the implications of that are, if you can.
MR. MOYNIHAN: Well, we don't need negative interest rates in this company because our economy is stronger. I mean, that's the thing. We are in kind of a place where we have Fed funds rate that's come down by 75 basis points to be more accommodative to help us push the economy forward when you saw some bumping around.
But the reason why we have positive interest rates is our economy is growing at 2 percent plus. And other economies of the world are not, and that's why they need negative rates. And so I think a lot of people come at it a lot of ways. But the reality is that people need those things because they're very unusual and in countries that have very difficult growth problems. And so, yes, there's seven trillion in bonds that would theoretically trade with negative rates, but the reality is those economies that they're attached to are growing at slow rates.
And so we should feel good that the U.S. has positive rates. We should feel good that the rate structure is positive. And negative rates have been true in Europe for the last five years, and their economy is basically growing less than 1 percent every year. And in Japan it's a different story. So the question of whether it's a proven strategy--and you're seeing that debate start to emerge, whether it works for lack of a better term. So we feel it's not a wise way to go about trying to establish there needs to be fiscal spending, which we're doing a good job in this country. But other countries need to push harder on the fiscal side.
MR. DUFFY: There's been a lot written in the last couple of weeks about the prospect of a new kind of competitor out there for banks, whether it's a Google or an Amazon or who knows what else, are thinking about these platforms. Have you got your eye on those? Do they worry you? I know there was a survey today in American Banker about community bankers being concerned. You're not exactly a community banker, but talk to us a little bit about what that holds, and whether you welcome it or worry about it or what.
MR. MOYNIHAN: Well, in the end of the day we look at all competitors and try to figure out what they're doing, what their appeal would be, and what they see in the customer versus what we see. But you really need to step back. At Bank of America today, we have about 1.6 billion of consumer interactions a quarter and 1.5 billion of them are digital today. We have 38 million digital banking customers today. Thirty-odd percent of our sales are all digital. So we're a huge--you know, the logins to our website, the mobile banking application, these are huge numbers. So we're already a big digital place, especially on the consumer side, but people talk about it. So we study all, whether it's fintech, small, big or large, what they're doing, thinking about the structure.
But I think that the key is that you do step across a line when you have the trust, you have customers' money. And so that's why this industry has a set of regulations around it that are not--these have been going on for years. Before the Fed existed there was banking regulation, and before the OCC existed there was banking regulation. So the idea of regulating banks and stuff--so I think one of the things we have to be careful is, with all these competitors, that we make sure we don't forget the basic principles. If you take deposits, make loans, society wants regulation around you because you end up with a lot of people's money. And if something goes kablooey, it's a problem.
MR. DUFFY: Do you think there will be a time when there are no sort of brick and mortar banks, that this will all just move into the ether, into the cloud?
MR. MOYNIHAN: Not if the customers don't change. So as much as we do all digitally--you know, by this time tomorrow 850,000 people come into our branch, the wonderful branches and the wonderful teammates that serve them, what you've seen that's changed dramatically is the nature of what goes on at a branch. There are less of them. They're bigger. They have more relationship management because a lot the routine tasks 20 years ago, where somebody would hand a check for deposit, have been taken to the mobile phone or the ATM. And so the teammates there, you know, my mom is sick, I need to figure out how to handle her accounts, I need a notary, things are much--I need a home loan, I need a car loan.
When I first became a strategist--I talked about it earlier--you know but, people came in and said all the bank branches will be gone in 20 years. Well, it's more than 20 years, 23, 24 years, and we still have 4,100 of them. So they're a critically important structure. But you have to be both. You have to be digitally high touch, high tech, as we call it.
MR. DUFFY: Let's go back and finish on the Roundtable, on the statement. Let me turn the question around a little bit. Was there something that has come out of them and the support by 180 different CEOs that you didn't expect and that you've seen in the first three months, particularly in the way of initiative or an application that perhaps even you didn't and the rest of the people didn't really anticipate?
MR. MOYNIHAN: Yeah, yeah. One of the things we've been doing is sharing a lot more what we do. So you saw sharing what we do is best practice stuff. So what you see is around people. And so the big discussion in society now is how do we train people for the next jobs, the fourth industrial revolution, you know, the impact of AI and all kinds of technology, which has been true for years. So in 1969 the U.S. had 70 million people working. Now there's 150. And there's a lot of technology deployed during that. So you can do this. The question is what the jobs are going to be.
So in our company we hire about 25,000 people a year. We retrain 17,000 people that get retrained in the new jobs and move in the company. So I think what you're seeing is the CEOs and the Business Roundtable and otherwise, you'll see a lot of best practices that are displayed around whether it's on environmental practice, whether it's employment practice while on training, whether it's on skills, skill development, pushing for changes. And like in our industry it's more unique to us than others. We had a restriction that just is getting lifted as we speak of the inability to hire somebody with any kind of criminal past. You know, people thinking about the check the box, things like that. You're seeing these CEOs seeing that in the context of the statement as opposed to a bunch of a series of one-off initiatives.
MR. DUFFY: You also had an announcement a few weeks ago about minimum wage.
MR. DUFFY: Talk to us about that. It was more than a few weeks, actually.
MR. MOYNIHAN: Yeah. Well, we've now announced that by next quarter, first quarter '20, will be at $20 an hour as the minimum starting wage in the company. And we were going to do that by next year, but we had to move it a year forward.
MR. MOYNIHAN: It really is that we, going back to the thing, our efficiency ratio is strong. Our ability to invest is strong. We want to share the success with our communities and our teammates. And it's the reality of the labor market is tight that we also have to attract 20,000 people a year and you need to pay them. And so between that and our benefit structure, you know, our living wage equivalent you hear talked about, it is like another $15 or $20 for benefits. And we feel very proud of that. So we've gone from basically over the last seven, eight years we've gone up eight dollars an hour for starting wage since 2010, I think.
MR. DUFFY: A tour de raison in 30 perfect minutes. Thank you, Brian. That's all the time we have right now. Thanks for coming. Thanks for talking. Thanks for doing also a great job of kind of interviewing himself. I really appreciated that. And thank you all for being here. We'll be right back.
MR. DUFFY: Okay, we're back. We weren't really going to leave. We just had to move some stuff. Okay. So I'm here with a panel to talk about the statement. And this is the best group you could possibly have together, Kristen Silverberg from, in fact practically the boss of the Business Roundtable.
MS. SILVERBERG: Don't tell my actual boss.
MR. DUFFY: Don't tell Josh. I promote everyone.
Daryl Brewster, who is the CEO of the Chief Executives for Corporate Purpose.
And Jill Schlesinger, who's an author and a business analyst with CBS. Thank you all.
MS. SCHLESINGER: Great to be here.
MR. DUFFY: Okay, so you have to start since they're kind of yours, right? I mean, you pretty much are the one who put them together. Congratulations. It certainly turned the world on its ear. So tell me, how come you did it? Why now? And what was sort of the impetus of the statement?
MS. SILVERBERG: Well, I should say the CEOs ran this process, which is the way BRT works. The issue really started, our discussion really started in 2018 when a number of corporate critics--I'm including your own Steven Pearlstein--wrote that '97 statement on shareholder primacy was the beginning of the end for capitalism. And, you know, we thought that was an overstatement, but we had some really candid conversations with the critics. We talked to dozens of corporate governance experts. And most importantly, we talked to our own members. And to a person, our members said shareholder primacy isn't the way that I try to run my company, that of course I want to be--generate value for my investors. That's just common sense. But I also want to be a good employer. I want to be a good member of my community. And in fact, in order to return value to shareholders, I have to do all those things. And so their basic view was over the long-term the interests of my various stakeholders converged.
MR. DUFFY: You got 180 CEOs to do this. How long did it take you to put that together if you had to sort of bracket the process?
MS. SILVERBERG: Oh, you know, start to finish was maybe a year. It was 183 CEOs in the end. And we started out with just some conversations about what we were trying to accomplish and the CEOs, led by Alex Gorsky, really kind of weighed in on the parameters. We did some drafts and circulated, and they edited those. Alex and Jamie described it to the entire membership, and they were on board. And so we moved ahead.
MR. DUFFY: Daryl, you've been a CEO of Krispy Kreme. You've also kind of wrangled other business leaders now sort of to the cause. Does what Kristen say ring true to you, and was there a broader desire to redefine what it means to be, you know, a company and a manager and steward of these interests?
MR. BREWSTER: Yeah, I mean, I think the world from--I think Barb earlier talked about Milton Friedman back in 1970 responding to the 1960s in his statement, that the one and only social responsibility of business, quote, within the rules of the game was to increase profits. And I think the rules of the game have changed. Sixty-nine of the largest 100 economies in the world are companies. Walmart's revenue every year is bigger than GDP of 180 countries. I mean, these are enormous institutions, and the responsibility has changed.
And expectations of business have really risen over the last number of years. Business trust is higher than that of the government, even higher than media, which is kind of hard to imagine. But you know, trust is up in business. And those expectations are that business can both make a profit and also contribute in positive ways to society. So in many ways I think this is a reflection of what companies are thinking about. I think particularly big companies and a lot of smaller companies--entrepreneurial companies have thought about it. And I think the opportunity now is how does that extend to other parts of the market. But I think this is what a lot of companies have been talking about, having those discussion, and kind of the changing narrative of the role of business in society.
MR. DUFFY: I suspect this statement probably helps with credibility also.
MR. BREWSTER: I think it does. Certainly there's been pushback on different sides. We've heard about that. That's a good part of the discussion of the narrative, and there's action that now needs to be taken. But it's kind of an interesting step in the right direction.
MR. DUFFY: Okay so you and I have the hard question, Jill. How do we keep track? How do we monitor the progress? Is it our job to monitor the progress of these companies as they try to keep up with Kristen's metrics, or are there metrics? Is it their job? How do you come at that as a reporter?
MS. SCHLESINGER: So let me just be the typecast person, as the cynical person who comes from the financial services industry, now in media, and really came at this and looked at it and said, well, that's nice, but. And I said the same thing. Like, how are we going to hold people accountable? And I think that the challenge is that it's all well and good to put this out on paper, but the proof is in the pudding, in the actions.
So the Business Roundtable comes out--and these are great values and very wonderful. And then we see a whole bunch of corporate executives trot off to the desert, suck up to Saudi Arabia, try to get a piece of an IPO of a country where they murdered a United States journalist. And to that to me was sort of the quintessential moment where I said to myself, well, not sure exactly how this lines up with these principles. And I feel like when I read these principles I'm all in. But I gotta see a little bit more action.
MR. DUFFY: Are we talking about--anybody can answer this one--should we think of this as a five-year window? A 10-year window? I mean, when should we start making judgments? And maybe you're a good person to ask this of because you probably had a timeframe in mind.
MS. SILVERBERG: Look, I think it's a process and I don't think there's a one-size-fits all for any company. I think that the kinds of things that Walmart has to do to invest in its employees is going to be very different from the kinds of things that Bank of America has to do.
For me, the bigger picture isn't the sort of metrics. It's broadly how can we get corporate America around long-term thinking. So the principle, the theory behind the statement again was that over the long-term the interests of various stakeholder converge. That if you're going to be a successful company over the long-term, you have to have the trust of your customers. You have to invest in your employees. You have to be a good member of your community. And that doing all those things will help you generate more value for shareholders. And so to me that's the real question. The tension for our CEOs isn't really between shareholders and employees. The tension is really between short-term and long-termism.
MS. SCHELSINGER: But I mean, is it really that, because if you look at a whole bunch of folks on Wall Street right now who are preparing for a bad bonus season, you're right, it's short-termism. But what they are unwilling to do is say, you know what, we are not doing a reduction in force. We are keeping everybody on board and the shareholders are going to have to take it on the chin. And they don't make that choice and they have never made that choice.
MS. SILVERBERG: Look, actually, I think we have lots of examples of companies making--so we have one member who made a decision to raise their minimum wage and lost 21 billion in market value overnight. And again, that was a decision that clearly in their long-term to keep them competitive on hiring people and it was clearly something that investors punished them for. So to me, actually that's the big issue, is when companies make those kinds of decisions, how do you make sure that investors are bought in, that they are participating in the process.
MR. BREWSTER: I think it's a fair point. First of all, companies, like people, are going to make mistakes. There's going to be companies who do that. I think, though, this statement has really raised a new standard by which you can judge a company and say, hey, that's not consistent with it. I think to expect it to happen overnight is crazy. But--
MS. SCHLESINGER: But would it be a big change from last year to this year where none of them went to the desert, none of them went to Doha in the desert, and this year they went, after this was released.
MR. BREWSTER: Again, it was a limited number of companies. And I think we can hold those companies accountable appropriately.
MR. BREWSTER: I do think the short- and long-term piece is big. And our market, particularly Wall Street is run--you know, quarterly is long-term, right? It's a daily kind of a place. I think that's where we're going to need to see some shift. I mean, even if you go back to Milton Friedman, he talked about increasing profits, increasing over time, not just a one-time hit. And I think this notion of focusing in on long-term sustainable value versus short-term gains is a big piece. That's going to be a big change for Wall Street. It's starting to happen. I know some of the major investors like Vanguard are changing the way people are being incented. That's going to be a big shift. We know what that's like in our offices just down the street. It's going to be a big change. It's not going to happen overnight. But I do think this notion of companies sharing their long-term plans, what their purpose and values are is something that we're doing at CCP that can provide a context for their short-term behavior. And whether that's an investment into a short-term area because I'm going to make money over time, Walmart's the great example, right? And they've outperformed the markets since they did that. Mark Bertolini at Aetna did the same thing. Brian Cornell at Target. They made short-term decisions that many of the traders hated, but have turned to be good. In fact, if we move from investing, toward investing from sort of short-term trading, that may help us in this whole thing.
MS. SILVERBERG: I think there's a lot of evidence actually that those companies are going to outperform. And to me, there's a question of kind of everything in the ecosystem that pressures companies to think about short-termism. I mean, some of it is the investors, sell-side analysts who are looking at, kind of, you know, quarterly earnings rather than the big picture. I think the media can play a role, so the sort of breathless coverage of quarterly earnings rather than looking at the company's value over the long-term. So to me there are a lot of things we can bring together.
MR. BREWSTER: And I don't think this has to be an either/or. I think right now the either has been all about short-term. And so I think it's going to take some while to balance out. You can, in short-term is, you know, there was metrics and millstones along your long-term approach and your sustainable business plan.
MS. SCHELSINGER: It's easy, right?
MR. DUFFY: This is the best panel I've ever had. I was going to ask you, Jill, you may have seen this all coming, but is there something that has happened since the statement that came out that has given you reason for optimism? I mean, it's easy to--the corporate world divides into many camps, and some companies are just ahead of others here, and some are woefully behind.
MS. SCHLESINGER: I think that it is great to have the long-term goal and aspiration. Maybe eight or nine years ago I interviewed Kip Tindell, who was the CEO of the Container Store, like just all-around great guy. And he told me a really funny story. He said, you know, I was with my investment bankers. I was invited to a big conference. And this must have been probably in the 2000s-ish.
And he said, you know, they were sort of running around the room and asking about shareholders and what we do. And he says, well, you know, I've got three constituencies. I've got my shareholders. I have my employees. And I have my customers. And he goes, and I hear you guys all talking about shareholders, but the way I look at is my employees come first, they do their job really well, my customers are happy, they shop more, and my shareholders are happy. And I want to be a good citizen in my town. And he was never invited back. And I think that just the change in, say, 15 years is pretty awesome.
And I think it's good that it comes from the community, and I think it's great. I'd love to--there are so many things that probably could be on here. And so I'm happy that these are here.
And I'm happy that there are companies like Salesforce that are talking about gender pay equality. I'm happy that there are people like Mark Benioff, you know, sort of pushing the needle a little bit.
MR. DUFFY: But, Daryl, take Jill's question about what happens when a CEO comes to you and says this is all great but, you know, my Board and my shareholders are going to kick me out if I don't return a certain profit this year. What do you tell them?
MR. BREWSTER: Yeah. One of the things we're really encouraging companies to do is to--and actually some of that came from Kip Tindell, at the Container Store. He's also leading an initiative now called Conscious Capitalism. And so we see a lot of this activity happening for small companies. So I think the Business Roundtable is great to come with large companies.
And one of the things we really suggest is to be able to sit down and to craft your long-term plan. This is what Larry Fink has asked for at BlackRock. Very few companies have delivered on it thus far. And we've created a platform. So companies will have that. We've had several dozen CEOs share their long-term plans. It starts with their corporate purpose, their values, the macro system they're going in.
And we've gotten those questions from investors. And I will just note that, you know, the investor community is not one community. There's a lot of different groups. Some are very focused in on trading, you know, electronically today not even sure what company they own, and then there are others who are investing for the long haul. We think a lot of the time and attention in communication has been really with very short-term oriented. They play an important role in liquidity in the market, but maybe overstated in terms of the community corporate communication. So we've really had these companies, dozens of CEOs representing nearly 3 trillion in market cap have shared plans to investors representing 25 trillion-plus, big numbers in assets under management. And it's really started to create a dialogue, and we think that's going to be important, because it now sets a context. And it address your significant stakeholders, your material ESG-type risks. And it starts to have dialogue.
Now if you have a tough quarter, here's why we're having that. You have seven or eight tough quarters in a row, maybe it's time to change the plan or change some other things, but at least it provides some runway to do it. Some of the tech companies have done a great job on that, and they've been able to really drive incredible value over time without making money. Now eventually I think you have to make money, and then how do you continue to progress that, but I think there are some tools that are emerging now that can really help companies to address that.
MR. DUFFY: Kristen, one of the critics of the mission statement was the Treasury Secretary. I'm not sure he's a critic. He was a skeptic maybe. Maybe he was a critic. He said it was simplistic. And I think he said he wouldn't have signed it, although we weren't asking the Treasury Secretary in that role to sign it. So what was he missing, and what was that about?
MS. SILVERBERG: You know, I think there was some misunderstanding from the statement. So when we put out, we heard, you know, there was high-profile criticism from another editorial board--not The Washington Post--that we had put shareholders below other stakeholders, which wasn't true. Actually, we said that if you're going to be a good CEO, you have to be able to do a lot of different things. You can't just generate value for shareholders. You have to do other things as well. But of course we think it's important to provide a good return on investment for shareholders. And I think Secretary Mnuchin may have been reflecting that point of view.
And I think the other point was maybe some idea that this was kind of a nod. One of the criticisms was that this was an attempt to kind of placate criticisms of--you know, critics of capitalism, and of course that's not true at all. The statement started with mentioning that a free market economy that provides economic growth is a prerequisite to broader economic opportunities. So I tend to think it's that kind of thinking.
MR. DUFFY: I want to get each of your thoughts about--we talked about this with Brian just for a few minutes--where I said, you know, capitalism is certainly a lively conversation these days. And I quoted someone saying that if capitalists don't change it, someone else will. Your thoughts about that conversation at the moment, is it helping this process? Is it partly perhaps driving this process? Or is it separate? Just I would be interested in hearing from all of you on that.
MS. SCHLESINGER: Well, I mean, I think that clearly the public is frustrated with the system. And I think the roots are in the financial crisis, where trust was eroded. And you know, I always like to describe the financial services--are there a lot of people here from financial services? I presume some, a few, anyway? I always like to describe financial services to me is like a beloved drunk aunt. I come from this industry; I've been in it all my life. My first job on Wall Street, I was a trader on the floor of the commodities exchange.
MS. SCHLESINGER: Okay? It's family. And so when your family misbehaves, you tend to be more critical, right? So when my aunt misbehaves and gets, you know, drunk at Passover, it's embarrassing and horrifying. So when the financial services industry was just so awful in the aftermath of the financial crisis, I think that that really eroded trust for people. I think that there was this sense that, you know, people didn't really understand why banks needed to get bailed out but people didn't, and that that fomented so much anxiety and so much distrust.
And I do think this is a good course correct from that period. And obviously the conversations around people demanding more of corporations and the c-suite to be more responsible to the community, to be more responsible to employees and to not put making money the number one/only thing we care about. And I never really think that was the only thing, but it sure was a big driver. So I think it was coming from there.
MR. DUFFY: Do you agree with the cultural shift?
MR. BREWSTER: Yeah, I think so, I think so. Yeah, I think what was that great country song at the time? "They're still driving limos in New York town while the rest of the country is burning down," right? I mean, that was kind of the environment we're in.
But one of the great parts of capitalism is its ability to flex and to change and to innovate and to come up with new ideas and new thoughts. So I think it is really the responsibility of capitalism, which has developed, you know, so much of the wealth creation we've had, is to evolve as it's gone through. And that's why I think that the statement is so powerful. You know, I think for too long people were using the Milton Friedman statement to basically justify all sorts of questionable short-term behavior. And I think as we have a statement that focuses on sustainable value over time, we see money moving into index funds and out of some of the hedge funds in other areas because they perform better over time. And the research is increasingly clear that companies run for the long-term and take care of their employees, their customers, their communities, the planet as well, they outperform. I mean, they do better over time. So this is not like an either/or. This is an and.
MR. DUFFY: Right. Do you want to–
MS. SILVERBERG: Yeah, we feel strongly that free markets, economic freedom, capitalism, whatever you call it, is the only system that's going to promote economic growth and innovation and competition and all the things that we're going to need in the decades ahead. But obviously it has to be a system that works for everyone, where you have a fair shot that your hard work is going to get rewarded. And we think that companies have a big role to play in making sure that's true principally by investing in their employees, helping them navigate changes in the economy, investing in their communities.
But we'll say government has a role too, that that's got to be part of it. And so part of what we've been doing at Business Roundtable is weighing in on some things that we wouldn't have weighed in on before. So for example, earlier this year we endorsed an increase in the minimum wage because we really think that it hasn't been raised in a long time and that that's got to be part of the puzzle. We've endorsed changes and, you know, have been calling for changes in the way that people get access to financial aid for education, to make sure that people have it kind of throughout the course of their career, including mid-career employees have to go back for training. So things like that.
MR. DUFFY: Yeah, I think it's hard to underestimate the extent to which the economic crisis that you talked about and a broader feeling of inequality has really shifted the expectations, particularly among people who are younger, in a very short period of time. And I think a lot of people missed it, but if you really go looking for it in the polls, it's easy to find.
MR. BREWSTER: And I think we've seen that's going to continue here as we see money moving from really to more women are going to own more assets and to millennials, and that's going to make sure we have a real big increase. And with our four millennial daughters, I can assure you some money is going their way. And they're just thinking about these issues in some different ways than quick gains. They're looking at, you know, what am I going to be investing in for the longer term.
MR. DUFFY: I think this one's for you, Kristen. Brian talked a lot about climate. And this has been a piece of the statement that has gotten a lot of people's attention. Do you guys provide any guidance to companies about how to approach that, because--and I think perhaps this many have been some of the administration's objection--they read it and they think, oh, this is about climate?
MS. SILVERBERG: Yeah, I mean, companies are tackling in lots of different ways. We've had lots of companies announcing sort of endorsing the Paris goals, talking about their role in kind of reducing their carbon emissions and also talking collectively about what position we want to take on both climate legislation and kind of sustainability. I think this is absolutely going to be the kind of heart of what our members want to do in terms of pursuing the statement.
MR. DUFFY: So I handed out before we came out here to everybody just a copy of the statement because I told them I was going to ask them a question about what piece or line or phrase that they thought would be the most either difficult or controversial--or you can interpret the question anyway you want--challenging for companies to meet. And so I thought I'd just--Jill, you go first. I'm sure you have--
MS. SCHLESINGER: I never have an opinion. How could you come to me first?
MR. DUFFY: It can just be a few words.
MS. SCHLESINGER: It's going to be a few words. The second bullet point is investing in our employees. This starts with compensating them fairly and providing important benefits. It includes supporting them through training and education, developing new skills, rapidly changing world. And the last sentence, "We foster diversity and inclusion, dignity, and respect."
I think the employee part is really going to be hard. I think that all these companies have made huge strides. So I'm a lesbian, I'm out, and I think that the strides that have been made in the last just 10 years are mind-blowing to someone like me who came out a hundred years ago.
But that said, I still think that the employee piece is incredibly difficult. Employees are the first thing that gets cut in the next downturn. And we still have a really big problem getting women representation on boards and in senior levels in senior management in the c-suite. So I think that's the hugest challenge on this list for me.
MR. BREWSTER: Good. Two things that came out. One is how do we take this purpose of a corporation as a general statement down to the individual company? How can each company have its own purpose that it can really lead and drive on? And I think we're seeing on a number of issues, while it's not perfect, it is businesses who are really leading more so than partisan politicians on a lot of these issues, really stepping up climate accord and rights of population and the rest.
I think the other one is this notion of really aligning the capital markets. The capital markets, you know, we have laws built in to make, you know, requiring quarterly reporting and all those. The Wall Street piece, it's been set up for many, many years. Lots of reengineer, overengineering the financial markets. And I think that's going to have to change that balance. I think that's going to take time.
But when you have signees from the two big asset owners in the world--BlackRock and Vanguard--who have signed this, that conversation's happening. It's a discussion. And I think it's real focus there on kind of sustainable value over time versus just short-term gains I think is going to be an important part.
MR. DUFFY: I'm going to rephrase the question a little bit for Kristen, because it's not fair to ask her to critique her own stuff, although I'm sure she can do it. So I'll say, as you look at it now with three months' hindsight, what do you think is the biggest lift that you've put at the feet of the people who signed it? And since you've--or alternatively, what is the part that you've seen people rise to the challenge more than you expected?
MS. SILVERBERG: I think the training. I think the training is a place where there really--
MR. DUFFY: Explain that. Sorry.
MS. SILVERBERG: So, you know, as Jill was saying, one of the things the statement really talked about is that we have this rapidly changing economy, and part of the responsibility of employers is to help employees navigate that, which by the way is also in their business interest because they're going to need employees who have a whole new skillset. And that's where I see our CEOs really animated and excited and really creative.
And so I actually have a lot of optimism in that piece of it. These investments, you know, Amazon is investing $700 million in helping to sort of teach people how to code. Walmart is training 600,000 people a year through their academies. They're going to be the largest education provider in the country before too long. And so anyway, that's the part where I feel like, you know, I have kind of a lot of optimism and enthusiasm about what's ahead.
MR. DUFFY: Thank you. Thank you, Daryl. Thank you, Jill. Thank you, Kristen. Thank you guys for coming in and listening. This was the best possible briefing you could get on this statement. And we appreciate you coming to hear us. Thank you all.