Is the purpose of a company to enrich shareholders by maximizing profit? Or must a business also enrich the lives of its customers, employees and communities it serves? Both, America's CEOs say.
The Business Roundtable on Monday said America's corporations are responsible for improving society by serving all stakeholders ethically, morally and fairly. It's a departure from the business theories of Milton Friedman, the Nobel-Prize-winning economist who said society benefits most from companies that grow their profit and serve one master: shareholders.
The Business Roundtable, led by JPMorgan's Jamie Dimon, represents CEOs and tries to influence policymaking. Since 1978, it has occasionally released principles of corporate governance, and in each of the last 22 years, the company has said the primary responsibility of companies is to their shareholders.
The new statement is banal: It's an updated mission statement for a Washington advocacy group. At the same time, it's a powerful new direction that evokes some of America's more progressive voices, including Democratic candidate for president, Senator Elizabeth Warren.
"The American dream is alive, but fraying," Dimon said in a statement. "Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term."
On the campaign trail, Warren and some other progressive candidates contend corporations have a responsibility to better society by paying their employees living wages. For example, Warren frequently tells a story about her mother saving the family home by getting an entry-level job at Sears.
The Business Roundtable agreed, saying investing in employees begins with fair compensation and benefits. The CEOs also committed to worker training so employees could develop new skills as automation and other disruptive technologies take hold. And the group pledged to foster diversity, inclusion, dignity and respect for their workers.
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In many ways, the change reflects broader and powerful shifts inside the American workplace. For reasons of technology and demographic shifts, corporations have been forced to become responsive to more than just their investors.
America's companies that pay low wages for entry-level jobs have increasingly worked with employees to grow the base-level paychecks, improve benefits and give workers opportunities to go to college and take parental leave. Although some of those benefits have been hard-fought by workers, the economic realities of historically low unemployment have also forced companies' hands, ensuring they remain competitive.
The new mission statement also includes customers, suppliers and communities to the list of stakeholders America's businesses must serve. Making and using sustainable products and resources to protect the environment is one of the commitments to society the Business Roundtable pledged Monday.
For years, companies have given back to communities through investments in local education, health care, urban development and funding for the needy. Recently, many corporations have worked to lower their carbon footprint to combat the climate crisis. Those goals will benefit society, but they also serve a business purpose: Companies depend on natural resources that are under threat from global warming. When prices for raw materials increase, companies' profits decrease.
CEOs continue to include shareholders in their list of masters too. The Business Roundtable noted companies rely on shareholders to supply capital, which allows companies to make investments and grow.
"These modernized principles reflect the business community's unwavering commitment to continue to push for an economy that serves all Americans," Dimon said.