In what’s being described as a radical departure from their single-minded focus on pushing short-term share prices ever higher, a powerful group of U.S. business leaders say they are expanding their remit to include “generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.”
Traditional liberal thinkers may say that’s what free markets are supposed to do anyway.
But the fact that nearly 200 members of the Business Roundtable — a group which includes star CEOs like Apple’s Tim Cook, Amazon’s Jeff Bezos, JPMorgan Chase’s Jamie Dimon and Mary Barra of General Motors — signed the new “Statement of Purpose of a Corporation” may show they think the existing capitalist model is flawed.
That would be no surprise to social activists and politicians on the left. From leaders of the biggest companies in the U.S., it comes as an epiphany.
The new statement is merely a change in wording and by no means binding, but the world’s business news organizations seemed flabbergasted by Monday’s announcement.
The powerful group, whose history goes back to 1972, has previously fought anti-trust legislation, fought to weaken labour laws, backed favourable tax cuts and successfully lobbied to dilute restrictions on executive compensation.
The language of its mission statement has been tweaked over the years.
But every version, since 1997, “has endorsed principles of shareholder primacy — that corporations exist principally to serve shareholders,” the group said in a statement.
The new one “supersedes previous statements and outlines a modern standard for corporate responsibility,” the group said.
The new statement — especially the parts about good jobs and economic opportunity — seems to reflect the same kind of disenchantment that swept U.S. President Donald Trump to power. Even though interest rate cuts and lower taxes have sent stock prices higher under Trump, there are still plenty of complaints that shareholder wealth is not trickling down to ordinary people and to the broader economy.
It suggests even those secure in their personal wealth and position realize that a failure to share the wealth is having an impact on the wider state of the U.S. economy; that corporate leaders have finally realized that the long-term success of business depends on the long-term success of society and that, in many ways, that society is in trouble.
“The American dream is alive, but fraying,” said Dimon in a statement. “These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”
Split from Trump?
In the past, some business thinkers worried that a growing economic divide would mean large portions of society won’t be able to afford the products corporations produce, a reversal of the idea that Henry Ford made his Model T cars cheap enough for his own workers to buy them.
“What that gave us was an industrial middle class, and an economy that was driven by consumer demand,” labour economist Harley Shaiken once told U.S. broadcaster National Public Radio.
The new policy statement may show the business leaders are adopting the views of French economist Thomas Picketty who, in his 2014 book Capital in the Twenty-First Century said the survival of capitalism depended on a certain amount of redistribution of wealth from the richest to ordinary people.
Rather than just handouts, Picketty suggested one of the essential things countries must do is improve education for the poorest, something that would have a long-term impact on relative wealth. As others have said, a more widely educated population does not just create consumers, it is more likely to create wealth.
Reference to the environment may also show a split between corporate leaders and Trump, whose policies have pulled the teeth from environmental rules and withdrawn the U.S. from its Paris climate change commitments.
Many credible international studies have shown climate change and other kinds of environmental degradation are eroding the natural wealth that corporations depend upon. The new statement may show business leaders have come to a similar realization.
Skewed wealth and power
Of course critics are skeptical. Instead of actually wanting to change their ways, the statement may just be public posturing — saying “Don’t worry, we’ve got it covered,” as legislators try to force corporations into being better public citizens.
“I’m wary,” Larry Summers, the economist who served in high-profile roles in Democratic administrations told the Financial Times. “I worry the Roundtable’s rhetorical embrace of stakeholders is in part a strategy for holding off necessary tax and regulatory reform.”
It may also hint at the their fear that previous periods of skewed wealth and power, such as the gilded age of the late 19th century, ended in marginal tax rates for the rich of more than 75 per cent. In North America’s golden age of the 1950s, the marginal tax rate on the richest was more than 90 per cent.
But as the world fears a painful recession — that would likely lead to a decline in stocks and a public backlash against the business elites responsible — maybe it’s a good time to claim high share prices are not the be all and end all.
Free market critics point out the new plan flies in the face of the view that, for the sake of efficiency, companies should be single-minded in maximizing the bottom line, leaving governments to develop the set of rules corporations operate under.
But taken at face value, the new statement of purpose may represent the first step in the realization that giant corporations can’t go on eating their seed corn. Instead, long-term profits and long-term survival depend on nurturing the health of the society they depend on to survive, even if that requires being open to new government restraints.
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