America is experiencing record growth which has provided abundant jobs, wage growth and wealth generation for a majority of Americans. Yet income inequality and wealth disparity are alarmingly high, bringing into focus the challenge of attaining fair, equitable and sustainable growth as well as placing focus on the fundamental purpose of a corporation and the primary role of the board. The liberal left, notably Elizabeth Warren, a U.S. senator running for the Democratic presidential nomination, are contending that our corporate governance system has lost sight of its purpose, namely sharing gains from corporate profits with the workers who create them and the communities which enable them. They are advocating for a sweeping overhaul of American capitalism.
Last fall, Directors & Boards convened a forum of corporate governance thought leaders to debate whether corporations can and should attempt to balance corporate profit and social purpose by embracing environmental, social and governance principles (ESG). Echoing through corporate boardrooms is a new model of capitalism based on the overarching themes of purpose, inclusion and sustainability which encompass the interests and needs of a broad array of stakeholders.
By renouncing the decades-old doctrine of shareholder primacy, the Business Roundtable (BRT) seems to have embraced a new standard for corporate leadership. Portrayed as one part affirmation, one part aspiration, this standard takes into account the interests of all corporate stakeholders. BRT's "purpose" proclamation may represent a significant shift in corporate chieftains' attitude toward their responsibility to society on many hot-button topics like economic inequality, social justice and climate change.
However, many of our forum participants were not buying into this shift in priorities. By allowing the corporation's primary purpose to slip away from its shareholder-value moorings, they fear that the loudest and most passionate activists would set the agenda for the allocation of corporate assets. Not surprisingly, for many of the business leaders who attended our forum, a Warren presidency is a terrifying prospect.
As our forum speakers and panelists underscored, balancing profit and purpose is tricky. They noted that ESG criteria have increasingly come to play a greater role in decisions regarding the allocation of corporate resources, with CEOs asserting that their ESG initiatives would enhance bottom-line performance...