An important shift may be under way in corporate America. The largest US business group has replaced the long-held view that maximising shareholder value is the defining corporate goal with a more inclusive vision that takes account of other stakeholders. Explicitly elevating broader interests such as those of employees, the environment and customers is intended to set a new standard for companies across the US. This welcome, wider approach to corporate purpose should create a more sustainable and inclusive form of capitalism. Business must now show it is ready to put the change into practice.
The update of corporate purpose from the Business Roundtable on Monday encapsulates a major change in thinking. The principle of shareholder primacy has dominated US capitalism for two generations and has, for more than 20 years, been at the heart of the BRT’s governance principles. Since the BRT includes some of the largest US companies representing $7tn in annual revenues, its shift has at least the potential to trigger broader changes in corporate behaviour.
Pressure has been building for some time. Maximising shareholder returns has come at the expense of other stakeholders and created incentives to pay less tax. Investors and politicians such as Democratic presidential hopefuls Elizabeth Warren and Bernie Sanders have voiced concerns over rising disparities between profits and wages, leading to scepticism that business may simply be trying to propose cosmetic changes before more substantial reform is imposed. Jamie Dimon, the JPMorgan CEO and Business Roundtable chairman, has been a leading voice in promoting change. In his annual letter to shareholders in April, Mr Dimon set out a list of issues that needed to be addressed — including education, immigration, and tax reform, and promised JPMorgan would “take advocacy to the next level”.