The Business Roundtable: The purpose of a corporation is to protect the environment

CEOs from 181 of the world’s largest companies, all belonging to the lobbying group The Business Roundtable (BRT), have now declared that the purpose of a corporation is not just to serve shareholders.  (their official position since 1997), but “to create value for all our stakeholders.” This is a giant broadening of the declaration and the purpose of a corporation now also includes to "protect the environment by embracing sustainable practices across our businesses."

 

Shareholder primacy has been the core operating principle of public companies for about 50 years. The neo-liberal economist Milton Friedman once famously declared that “the social responsibility of business is to increase its profits.” These ideas have been promoted for decades by a very well-funded and wildly successful effor to make the free-market, shareholder-primacy, neoliberal philosophy the dominant global economic model.

 

"Multiple think tanks funded by the Kochs and others have made this case daily. They also have worked to undermine climate science, which is very much related to maintaining the power status quo. The death of David Koch, the same week CEO’s pushed back on narrow, shareholder-only thinking, is symbolic", writes Andrew Winston, Harward Business Review.

 

According to Harvard Business Review modern business leaders are feeling pressure to rethink the role of business in society for a number of reasons:

1.Social norms are changing and expectations from employees, customers, and even investors are rising fast.

2.A growing realization that a focus on one key stakeholder or metric is as flawed as using your cholesterol level as the only measure of your health.

3.Investors now focus more on their purpose and how they contribute to society.

 

The core reason to this change of attitudes is, of course, Climate change, but growing inequality, water and resource scarcity, soil degradation and loss of biodiversity also play key roles.

 

"These issues require systemic efforts, cooperation, and pricing of those “externalities” (like pollution and carbon emissions). The current shareholder-obsessed system is not fit for this purpose. Individual profit-maximizing businesses will not be incentivized to tackle shared global challenges", Andrew Winston, Harward Business Review.

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