Back to the '80s: Business Roundtable's 'Purpose' Statement Redux.

Author:Bresnahan, Kristin

The group's 1981 statement called for corporations to be "a positive force in society." What's different this time?

The Business Roundtable issues this statement out of a strong conviction that the future of this nation depends upon the existence of strong and responsive business enterprises and that, in turn, the long-term viability of the business sector is linked to its responsibility to the society of which it is a part.

The statement above wasn't from the Business Roundtable's August announcement. It's from a 1981 statement from the same group espousing similar stakeholder-governance goals. The nearly 40-year-old proclamation titled "Statement on Corporate Responsibility" ran 14 pages and actually included seven action steps for boards and corporate leaders.

So what happened, what have we learned, and will this time around be different?

The Roundtable's recent "purpose" statement revised its "Statement on the Purpose of a Corporation" to recognize a fundamental commitment to all "stakeholders" rather than just to "shareholders" and it made a huge splash. And for good reason--every year since 1997, the Business Roundtable's Principles of Corporate Governance have explicitly stated that corporations exist principally to serve their shareholders.

"Shareholder primacy," as the doctrine is known, was famously espoused in 1970 by Milton Friedman, a member of the "Chicago School" of economics, and has been the guiding rule for corporations and the boards and managers that run them over the past several decades.

But "shareholder primacy" has been identified by a growing number of commentators as the cause of many of the ills American society currently faces.

It has been plausibly identified as the major contributor to a wide range of crippling issues, from rising income inequality and economic insecurity, brought on by stagnant wages and globalization, to growing environmental harm and climate change. By focusing only on returning shareholders profits, the argument goes, other "stakeholders"--employees, suppliers, creditors, communities, the environment, etc.--get squeezed. If the company is aiming only to give shareholders more, there's nothing left for everyone else.

The Business Roundtable leaders knew that in 1981. They wrote:

A corporation's responsibilities include how the whole business is conducted every day. It must be a thoughtful institution which rises above the bottom line to consider the impact of its action on all, from...

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