As we approach the year end and everybody is thinking about planning cycles and what the next decade might bring, I’d like to add as further food for thought a rather surprising statement released in August by 181 chief executives of some of the world’s largest companies. I say rather surprising because it redefines the purpose of a company, moving away from viewing shareholders as the number one priority to recognising that there are other important stakeholders who are fundamental to the long-term wellbeing of the business. This is ground-breaking stuff.
The signatories, who are all US-based, include the heads of such household names as American Express, Amazon, Apple, Coca-Cola, IBM, JP Morgan Chase, Procter & Gamble, UPS and Walmart as well as all of the Big Four and Grant Thornton. They are also all members of the US Business Roundtable which, over the past 40 years, has issued statements on principals of corporate governance. From 1997 onwards, each new version of the statement endorsed the idea of shareholder primacy. August’s statement, however, supersedes those previous statements and provides the framework for a “modern standard for corporate responsibility”. In other words, from a country that is arguably the most closely associated with capitalism, 181 captains of industry are for the first time publicly challenging the doctrine that has held sway since the 1960s that the principal – indeed, the sole – purpose of any company is to maximise shareholder earnings. They now share “a fundamental commitment” to all their stakeholders. The statement adds four other corporate priorities – to customers, employees, suppliers and the wider social community – and ranks them equally alongside shareholders. In supporting the statement, the chief executives have committed to delivering value to their customers, “furthering the tradition of leading the way in meeting or exceeding customer expectations”.
Investment in their employees will result in fair pay and benefits, and support through education and training to develop their skills for the future, while corporate policy will focus on diversity, inclusion, dignity and respect. The companies have also committed to deal fairly and ethically with their suppliers and to support the communities in which they work, including protecting the environment by embracing sustainable practices across their businesses. And last but not least, they state they will generate long-term value for shareholders and commit to transparency and effective engagement with them. “Each of our stakeholders is essential,” the statements reads.
“We commit to deliver value to all of them, for the future success of our companies, our communities and our country.” When the statement was originally published, it was largely welcomed by the US business community. Darren Walker, president of the Ford Foundation, said: “It is more critical than ever that businesses in the 21st century are focused on generating long-term value for stakeholders and addressing the challenges we face, which will result in shared prosperity and sustainability for both business and society,” he said. The US change of emphasis reflects much of the mood music that has been building elsewhere in the world. In July last year, for example, the UK Financial Reporting Council highlighted the responsibilities of boards originally set out in s172 of the Companies Act 2006 in its new, shorter Corporate Governance Code. The Code placed the relationships between companies, shareholders and stakeholders right at the heart of long-term sustainable growth in the UK economy by requiring boards to describe how they have considered the interests of stakeholders when performing their s172 duty.
As the then business secretary Greg Clark said: “These changes will drive improvements in how boardrooms engage with employees, customers and suppliers as well as shareholders, delivering better business performance and public confidence in the way businesses are run. They will help the UK remain the best place in the world to work, invest and do business.” The US chief executives’ statement is clearly going to have an impact on companies’ strategy, business models and operations – and not just in the US. As chartered accountants, with our interest in and responsibilities for governance, we need to be in the vanguard of the change. I would be interested to hear your thoughts.