Construction workers carry material down a staircase while working on a new mixed-use development in Atlanta, Ga.

The Business Roundtable, a longtime lobbying group boasting the nation’s leading chief executive officers, recently issued a remarkable statement reversing decades of corporate ethos.

“We share a fundamental commitment to all of our stakeholders,” stated 181 business titans, citing duties to employees, the environment and suppliers. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

Of course, the CEOs have been in the crosshairs of politicians from Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass., on the left decrying low wages to President Donald Trump on the right, lashing out against outsourcing.

But it still is a far cry from the game plan propounded in a 1970 New York Times essay by conservative economist Milton Friedman as U.S. businesses were being competitively bashed by Japan, particularly in the automotive and electronics sectors.

“What does it mean to say that ‘business’ has responsibilities?” he argued. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Friedman rejected any contention a business should “take seriously its responsibilities for providing employment, eliminating discrimination, avoiding pollution and whatever else may be the catchwords of the contemporary crop of reformers.”

In 1997, the Business Roundtable concluded that “the paramount duty of chief executive officers and the boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders.”

The ideology of “shareholder primacy” — “Greed is good,” as declared in the 1987 movie “Wall Street” — led to the era of corporate raiders taking control of companies, slashing what were perceived to be (and often were) bloated payrolls and outsourcing jobs.

CEOs were richly rewarded for making quarterly goals. According to data compiled by Bloomberg News, the ratio of CEO pay to the average worker among the S&P 500 firms is 280-1. (But they also paid a price —— an average of only six years in the position.)

Corporations transformed pension into less burdensome 401ks, and health care was often left to the most competitive industries, public sector jobs and where unions existed.

U.S. businesses rebounded, but it left in the dust the 1952 declaration by General Motors CEO Charles Wilson, “For years, I thought what was good for our country was good for General Motors, and vice versa.”

You have free articles remaining.

Become a Member

What was good for investors — individuals (from the wealthy to those with 401k plans) and institutions (insurance companies, mutual funds, college endowments, etc.) — had its downsides.

The preoccupation with short-term profits could mean putting aside ethical and practical concerns (Enron, the 2008 mortgage crisis) and long-term planning (research and development) and quality considerations.

From a societal standpoint, it contributed to growth of the “safety net” and bloating of the national debt — now $22 trillion ($479 billion in annual interest).

A University of California study found that “73 percent of people who benefit from major public assistance programs live in a working family. … From 2003-2013, inflation-adjusted wages fell for the entire bottom 70 percent of the workforce. Over the same time period we have also seen a large decline in the share of Americans with job-based health coverage.”

While the Business Roundtable statement was a welcome development, the parameters for achieving its goals is still in the formative stage and the commitment in question. And it’s not without blowback.

The Council for Institutional Investors, which represents many corporations and pension funds, countered, “Accountability to everyone means accountability to no one. It is government, not companies, that should shoulder the responsibility of defining and addressing societal objectives with limited or no connection to long-term shareholder value.”

But venture capitalist Peter Cohan doesn’t believe profitability and social responsibility are mutually exclusive. His concept of Value Leadership bridges that divide with “happy employees” and “better products and better service.”

“Companies that follow the seven principles of Value Leadership … outperformed their peers on variables that investors care about,” he wrote in Forbes. “For example, Value Leaders grew sales 35 percent faster and earned 109 percent higher net margins than their peers and they boosted their stock prices almost five times faster than the market.

The driving force behind the Business Roundtable statement was Larry Fink, CEO of the $7 trillion Blackrock investment, which holds portfolio companies “socially responsible.”

He gets it right.

“Stakeholders are pushing companies to wade into sensitive social and political issues — especially as they see governments failing to do so effectively,” adding, “Companies must demonstrate their commitment to the countries, regions, and communities where they operate, particularly on issues central to the world’s future prosperity.”

Get News Alerts delivered directly to you.

* I understand and agree that registration on or use of this site constitutes agreement to its user agreement and privacy policy.

Load comments