The bosses of 181 of the US’s biggest companies have changed the official definition of ‘the purpose of a corporation’ from making the most money possible for shareholders to “improving our society” by also looking out for employees, caring for the environment and dealing ethically.
The radical change to the mantra of corporate America comes after decades of following Nobel Prize-winning economist Milton Friedman’s philosophy, which dates from 1970, that “the social responsibility of business is to increase its profits”.
Big business bosses signing up to the change by the influential (United States) Business Round Table (BRT) lobby group include Jeff Bezos, the founder and chief executive of Amazon (and the world’s richest person), the Apple boss, Tim Cook, and Jamie Dimon, chairman and CEO of Wall Street bank, JP Morgan.
In the UK, the Labour leader, Jeremy Corbyn, has also called for a shake-up on boardroom pay and financial regulation to help address inequality and the “profoundly unbalanced economy”.
“It could not be clearer, business as usual is not working,” Corbyn said last year. “And when the rules of the game are not working for the overwhelming majority, the rules of the game need to change.”
Carys Roberts, chief economist at the UK’s Institute for Public Policy Research (IPPR) think tank, said: “Shareholder primacy is a worn-out theory that does not serve the long-term interests of firms, the economy, and the people an economy should work for”.
“This is an important intervention from US business leaders in recognition of the failure of shareholder primacy: but the real test will be in deeds not words.”
Carys added: “It’s notable that this intervention follows political debate about the state of modern capitalism on both sides of the Atlantic, business leaders are waking up to the fact that the public won’t stand for business as usual.”
However, the bosses of eight of the US BRT’s member companies did not sign up to the new principles. The companies that declined are Alcoa, Blackstone, GE, Kaiser Permanente, NextEra, Parker Hannifin and State Farm.
The five new principles at a glance:
- Delivering value to our customers
- Investing in our employees. This starts with compensating them fairly. We foster diversity and inclusion, dignity and respect
- Dealing fairly and ethically with our suppliers
- Protecting the environment by embracing sustainable practices
- Generating long-term value for shareholders