By Jason Lim
Granted, all politics is local, but the myopic and overwhelming focus in Korea on Cho Kuk and his daughter has been pretty blinding. Fortunately for Korea, the world doesn't revolve around Cho, the Seoul National University professor turned senior presidential adviser nominated for the post of justice minister, and the alleged abuses of privilege. Just in the last week or so, there was the G7 Summit, a still-raging Amazon fire, the latest in the Brexit saga, a floating pumice island and so on.
But the most momentous event might have been the August 19 press release by the influential Business Roundtable, a group of 181 chief executives of major U.S. companies who oversee 15 million employees and more than $7 trillion in annual revenue.
The press release states, "Since 1978, the Business Roundtable has periodically issued Principles of Corporate Governance. Each version of the document issued since 1997 has endorsed principles of shareholder primacy ― That corporations exist principally to serve shareholders. With today's announcement, the new statement supersedes previous statements and outlines a modern standard for corporate responsibility."
Let that sink in. CEOs of major American companies are moving away from their collective baseline mission statement ― nay, raison d'etre ― of their existence as publicly traded companies: shareholder primacy. In other words, to make money for their shareholders.
Rather, they now "commit to lead their companies for the benefit of all stakeholders ― customers, employees, suppliers, communities and shareholders." Let this sink in more deeply. They put customers, employees, suppliers and communities on a par with shareholders as equally deserving of consideration when running a major company. In short, stakeholders have been elevated to the status of a shareholder. Or vice versa, depending where your interest lies in this horizontal leveling of relative importance. In fact, the last sentence of the statement says, "Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country."
To break this down further, they commit to five principles, for the lack of better words, that will guide their corporate behavior. These are:
Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Of course, as with everything, the proof is in the pudding. Culture is a very difficult thing to change. As Peter Drucker said, culture eats strategy for breakfast. But this is a promising start. Corporations have become so powerful and influential in the globalized world ― acting as de facto states with far reaching powers amid opaque decision making ― that a more inclusive vision of their roles has to be welcomed. Of course, there have been countless others who have walked the talk already in promoting and actualizing a vision of businesses as positive change agents. But this is the Business Roundtable, an association of major U.S. companies. You can't get much more mainstream that this.
Cynics will say that this is just PR spin to protect their companies from public blowback from the inequalities that the companies have created. Others will say that this is an inevitable strategic pivot to survive in a rapidly changing world by creating a more sustainable business environment. Well, I say, so what? The CEOs apparently decided that being more inclusive in their definition of value and expansionist in the target beneficiaries of the said value is good for business.
The most interesting question for me now is, "how will they measure value in this context?" When shareholders held primacy, it was all about stock prices and dividends. But now what? How do you measure "diversity, inclusion, respect?" Even more difficult, how do you measure "dealing fairly and ethically" or "supporting communities?" One of the most difficult tasks for any organization is to come up with a quantitative metric for a qualitative and subjective outcome. So, what exactly are the new consensus Key Performance Indicators for stakeholder value in this new paradigm? And would they make sense enough to the majority of the CEOs to be adopted?
I might even volunteer to transform myself into a fly just to listen in on that conversation the next time the Business Roundtable meets.
Jason Lim (jasonlim@msn.com) is a Washington, D.C.-based expert on innovation, leadership and organizational culture.
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But the most momentous event might have been the August 19 press release by the influential Business Roundtable, a group of 181 chief executives of major U.S. companies who oversee 15 million employees and more than $7 trillion in annual revenue.
The press release states, "Since 1978, the Business Roundtable has periodically issued Principles of Corporate Governance. Each version of the document issued since 1997 has endorsed principles of shareholder primacy ― That corporations exist principally to serve shareholders. With today's announcement, the new statement supersedes previous statements and outlines a modern standard for corporate responsibility."
Let that sink in. CEOs of major American companies are moving away from their collective baseline mission statement ― nay, raison d'etre ― of their existence as publicly traded companies: shareholder primacy. In other words, to make money for their shareholders.
Rather, they now "commit to lead their companies for the benefit of all stakeholders ― customers, employees, suppliers, communities and shareholders." Let this sink in more deeply. They put customers, employees, suppliers and communities on a par with shareholders as equally deserving of consideration when running a major company. In short, stakeholders have been elevated to the status of a shareholder. Or vice versa, depending where your interest lies in this horizontal leveling of relative importance. In fact, the last sentence of the statement says, "Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country."
To break this down further, they commit to five principles, for the lack of better words, that will guide their corporate behavior. These are:
Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Of course, as with everything, the proof is in the pudding. Culture is a very difficult thing to change. As Peter Drucker said, culture eats strategy for breakfast. But this is a promising start. Corporations have become so powerful and influential in the globalized world ― acting as de facto states with far reaching powers amid opaque decision making ― that a more inclusive vision of their roles has to be welcomed. Of course, there have been countless others who have walked the talk already in promoting and actualizing a vision of businesses as positive change agents. But this is the Business Roundtable, an association of major U.S. companies. You can't get much more mainstream that this.
Cynics will say that this is just PR spin to protect their companies from public blowback from the inequalities that the companies have created. Others will say that this is an inevitable strategic pivot to survive in a rapidly changing world by creating a more sustainable business environment. Well, I say, so what? The CEOs apparently decided that being more inclusive in their definition of value and expansionist in the target beneficiaries of the said value is good for business.
The most interesting question for me now is, "how will they measure value in this context?" When shareholders held primacy, it was all about stock prices and dividends. But now what? How do you measure "diversity, inclusion, respect?" Even more difficult, how do you measure "dealing fairly and ethically" or "supporting communities?" One of the most difficult tasks for any organization is to come up with a quantitative metric for a qualitative and subjective outcome. So, what exactly are the new consensus Key Performance Indicators for stakeholder value in this new paradigm? And would they make sense enough to the majority of the CEOs to be adopted?
I might even volunteer to transform myself into a fly just to listen in on that conversation the next time the Business Roundtable meets.
Jason Lim (jasonlim@msn.com) is a Washington, D.C.-based expert on innovation, leadership and organizational culture.
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