Some of America’s most influential CEOs aren’t backing down from their assertion that a company’s purpose is to serve "all of our stakeholders," reaffirming a major philosophical shift that jolted the business world five years ago.
The Business Roundtable, a powerful association of more than 200 CEOs, posted a new essay on Medium on Friday that offered a fresh endorsement of the group’s “purpose of a corporation” statement last updated in August 2019.
That statement argued that companies should act in the long-term interests of "all of our stakeholders" — including shareholders, customers, employees, and suppliers, along with the communities where a company operates.
It was a step back from a statement that had been in place since 1997 asserting that a company's "paramount duty" was to its stockholders, a decades-old philosophy made popular by Nobel Prize-winning University of Chicago economist Milton Friedman.
"We’re proud of the statement and our members stand by it," Joshua Bolten, Business Roundtable’s CEO and a former chief of staff for President George W. Bush, told Yahoo Finance. The group is chaired by Cisco (CSCO) CEO Chuck Robbins.
The idea that broader purpose and profit go together represented a major shift for a group that includes many of the corporate world’s best-known figures, from Apple’s (AAPL) Tim Cook to JPMorgan Chase (JPM) CEO Jamie Dimon to GM’s (GM) Mary Barra.
It remains a notable stance in 2024 as companies take more political heat for any support of policies that place heavy emphasis on environmental and diversity goals.
But Bolton said the Roundtable’s shift was never meant as an endorsement for so-called ESG (environmental, social, and governance) policies.
"Right from the beginning, there's been a fair amount of misunderstanding about what the statement was about," he said.
It was misinterpreted by the ideological left and right to mean that companies had decided to commit resources to solving every societal ill, he added.
"I think, properly interpreted, the statement was an endorsement of support for the long-term shareholder but perhaps not the short-term shareholder. Maybe not the hedge fund that dives in to take advantage of quarterly earnings."
The Business Roundtable’s new essay posted Friday offered evidence of ways in which member companies are living up to the philosophy, citing initiatives from PepsiCo (PEP), Google (GOOG, GOOGL), Cisco (CSCO), JPMorgan (JPM), and Walmart (WMT) designed to benefit employees, students, and US suppliers.
"When the Business Roundtable statement was announced in 2019, Fortune ran a headline, 'Profits and Purpose: Can Big Business Have it Both Ways?’' the Roundtable members said in their collective post.
"The answer is yes — companies can and must."
Yet shareholders are increasingly withholding support for proposals that would impose new ESG and DEI (diversity, equity, and inclusion) policies at many companies.
These policies have also attracted a lot of political heat in an election year. Former President Donald Trump has promised to banish ESG-minded retirement account investments "forever," while a top Trump ally has called DEI "bigotry" against white men.
Republican-led states are also pushing companies to rescind race-based employee quotas, piggybacking on the Supreme Court's decision in 2023 to strike down race-based admission policies at Harvard University and the University of North Carolina.
The current political environment creates challenges and dilemmas for all companies, including those that are part of the Business Roundtable. That includes rural retailer Tractor Supply (TSCO), run by Business Roundtable board member Hal Lawton.
In June, under pressure from shareholders, Tractor Supply announced that it would retire its DEI goals and stop sponsoring "nonbusiness activities like pride festivals and voting campaigns."
"We have heard from customers that we have disappointed them. We have taken this feedback to heart," it said in the announcement.
Bolten said Roundtable members are committed to being good citizens on issues that range from climate protection to workforce diversity.
"The important thing to us as a collective is that the statement is a statement about what they think best practice is, and if anything, call upon themselves to do better."
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
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