What’s the purpose of a business? For a long time, the textbook answer to that question has been purely “to make as much money as possible for its shareholders”. But business leaders – who often themselves get huge payouts from this model – are beginning to challenge this orthodoxy.
Or so it seems. The influential Business Roundtable association of top US business leaders, which includes CEOs of Apple, Boeing, Walmart and JP Morgan, made a landmark statement in August. They committed [businessroundtable.org] “to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders”. Maximising profits, they said, would no longer be their primary goal.
For many, it was seen as an historic [prweek.com] moment [fortune.com] for business. Markets, however, greeted the news with a yawn. Both the Dow Jones [yahoo.com] and the S&P 500 [yahoo.com] in the US increased marginally on the day of the announcement.
[...] This brief history has us lurching back and forth between the ideas of shareholder versus stakeholder primacy that have waxed and waned over the decades. Are we doomed to pontificate on this endlessly?
As a way forward, I would advocate for a modest approach to end this interminable debate. A Hippocratic oath for corporations, based on seven principles:
1. Do no evil.
2. Pay taxes and adhere to laws and regulations.
3. Avoid interfering in politics.
4. Do not deny science.
5. Focus on core competencies and embrace competition.
6. If invested in the stakeholder model, ensure that stakeholders are represented in your governance structures.
7. If concerned about inequality, start at home.
This approach can help restore faith in corporations, protect their brands and reputation, and avoid accusations of hypocrisy, while focusing their attention on what they truly do best – producing goods or services. To paraphrase the writer Anand Giridharadas [anand.ly]: “Avoid virtue signalling and virtuous side projects; do your day jobs more honourably.”
And to quote Milton Friedman [amazon.com], business “should engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.
The rise, fall and rise again of businesses [theconversation.com]
What do you guys think ??