The evolving role and purpose of the corporation in society today—the focus of the recent Business Roundtable (BRT) statement that has garnered much publicity—merits careful consideration by the business community and is an important topic for boards.
The Statement on the Purpose of a Corporation purports to redefine the purpose of a corporation to promote “an economy that serves all Americans.”
Signed by 181 CEOs who committed “to lead their companies for the benefit of all stakeholders—customers, employees, suppliers, communities and shareholders,” the statement concludes by saying: “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.”
For decades, business leaders have adopted a shareholder primacy model of governance where corporations exist principally to serve shareholders. With the BRT statement, companies are committing to a stakeholder model of governance. Since 1997, each version of the BRT’s Principles of Corporate Governance has endorsed principles of shareholder primacy.” The new Statement of Purpose, which supersedes previous statements, outlines a modern standard for corporate responsibility.
Boards should find time on their agendas to discuss the BRT statement and its implications for their oversight and governance.
This article suggests some key areas for board focus. Boards should, however, also contextualize the statement, recognizing that it was issued amid a climate of public distrust that questions whether corporations serve a societal purpose and concern that shareholder primacy motivates the wrong behavior, such as short-termism.
This article was originally published in the November/December 2019 issue of NACD Directorship magazine.