“Society gives each of us a license to operate. It’s a question of whether society trusts you or not. We need society to accept what it is that we do,” IBM CEO Ginni Rometty told Fortune for its September cover story. It was a notable statement of humility for a Fortune 500 chief—and it marks a turning point in the stated mission of Corporate America.
For nearly a half century, big business has operated with a singular focus on delivering profits to its shareholders, with the rest of society taking a back seat. The result has been an era of massive profit growth, soaring CEO compensation, merger mania—and growing income inequality.
But in a groundbreaking declaration published this week, the Business Roundtable, an association representing 200 CEOs of America’s biggest corporations, issued a new declaration of purpose that turned the old rule on its head. In a 300-word statement, the business leaders said they will embrace a new accountability to the larger community of stakeholders, pledging that they will deliver value to their customers, invest in their employees, deal fairly with their suppliers, and support the communities in which they work. Generating long-term value for shareholders was relegated to the last bullet point on the new agenda.
While drafting the new declaration, “there were times I felt like Thomas Jefferson,” Alex Gorsky, CEO of Johnson & Johnson, who heads the group’s governance committee, told the New York Times. (The principles outlined by the CEOs happen to be the primary focus of From Day One, which was launched last year.) JPMorgan Chase CEO Jamie Dimon, the Roundtable’s chairman, said the statement “is an acknowledgment that business can do more to help the average American.”
The new statement of purpose was driven by forces that have been building to a crescendo in recent times. “Capitalism, at least the kind practiced by large global corporations, was under assault from all sides, and CEOs were getting the message loud and clear,” Fortune chief Alan Murray wrote in the publication’s cover story, which broke the news of the Business Roundtable’s new code.
Why is this happening—and why now? The reckless financial engineering that sparked the Great Recession, the rise of socially disruptive tech platforms like Facebook and Uber, the scandals involving once-revered institutions ranging from Boeing to Wells Fargo—all contributed to a populist backlash against big-business-as-usual. It helped fuel the candidacies of not only President Trump but also his challengers from the left, Bernie Sanders and Elizabeth Warren, who’ve proposed a dramatic increase in government oversight of business. CEOs don’t need a weatherman to know which way sentiment is gusting.
Meanwhile, young people have professed a growing interest in the virtues of socialism, suggesting that this is not a short-term fad, but generational. “And here we are. Americans mistrust companies to such an extent that the very idea of capitalism is now being debated on the political stage,” observed Times columnist Andrew Ross Sorkin.
Yet as much as corporations are mistrusted, trust in government is even worse, thanks to the era’s painfully polarized politics. By default, people are looking to business to get the job done. In the 2019 Edelman Trust Barometer, a global survey, 75% of respondents said they trust “my employer” to do what’s right, a significantly higher show of faith than in other institutions or business in general.
In part, business is feeling compelled to have a social conscience because their employees and customers demand it. “We are in a transformational moment,” Seth Green, executive lecturer at Loyola University Chicago’s Quinlan School of Business, told From Day One. “Trust in government to solve major social issues is declining rapidly. Increasingly, people expect and seek to work for companies that are committed to delivering social impact alongside shareholder value,” said Green, founding director of the Baumhart Center on Social Enterprise and Responsibility.
Ironically, what the corporate chieftains are now proposing looks like a U-turn back to values espoused by big business before the shareholders-first religion took over. Corporations of the mid 20th century, as Sorkin observes, “for the most part, were run for all stakeholders. It was a time defined by organized labor, corporate pension programs, gold-watch retirements and charitable gifts from companies that invested heavily in their communities and the kind of research that promised future growth.” Even in the emerging Silicon Valley culture of that era, the pioneering tech company Hewlett-Packard espoused “the HP Way,” which codified a deep commitment to employees and society at large.
All that changed in the go-go, deal-focused business era of the 1970s and 1980s. As often cited this week, the guiding manifesto was a 1970 essay in the New York Times by the influential free-market economist Milton Friedman, who argued that corporations should focus purely on delivering value to shareholders. “What does it mean to say that ‘business’ has responsibilities? Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades,” he wrote.
However, after several decades during which shareholders and corporate chieftains thrived while workers fell behind, some forward-looking business leaders started sounding alarms that the system of shareholders-above-all was not sustainable. More than a decade ago, at the 2008 World Economic Forum in Davos, Bill Gates called for a new “creative capitalism” that would have “a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces.”
In his Fortune piece, Murray ticks off a progression of business leaders calling for a new system, from Whole Foods cofounder John Mackey propounding “conscious capitalism” to Salesforce CEO Marc Benioff writing a book on “compassionate capitalism.” More recently, Larry Fink, the CEO of BlackRock, the world’s largest money-management firm (to the tune of almost $7 trillion), has been issuing annual letters imploring CEOs to put purpose on the same footing as profits. “Purpose unifies management, employees, and communities. It drives ethical behavior and creates an essential check on actions that go against the best interests of stakeholders,” he wrote in his 2019 letter.
Well before the new approach was itemized in this week’s declaration, many CEOs have been acting as if guided by a new code. CEOs have spoken out on issues ranging from discrimination to gun safety to immigration. Corporations including Google and Microsoft have made major financial commitments to respond to housing shortages in their home regions. “In the past few years, it has become clear to met that something fundamental and profound has changed in the way they approach their jobs,” observed Murray.
To be sure, the Roundtable’s new statement of purpose met plenty of skepticism from many camps, who variously found it appallingly late in arriving, or frustratingly vague, or a transparent attempt to pre-empt the politics of reformers like Sanders and Warren. “They’re responding to something in the zeitgeist,” Nancy Koehn, a historian at Harvard Business School, told the Times. “It’s an open question whether any of these companies will change the way they do business.”
Sanders and Warren adopted a show-me attitude. “I don’t believe what they’re saying for a moment, said Sanders. “If they were sincere, they would talk about raising the minimum wage in this country to a living wage.” Said Warren in a statement: “Without real action, it’s meaningless.”
For journalists reporting on the Roundtable statement, the go-to skeptic was Anand Giridharadas, author of the bestselling Winners Take All: The Elite Charade of Changing the World. In his view, all the corporate do-gooding is just for show unless companies (and elected officials) take stock of the real impact of their businesses on society. For example, when companies lobby the government on behalf of practices that promote economic inequality or pollute the environment, it may be “overruling the good effect you’re having on the world, maybe by the factor of a thousand,” Giridharadas said in June at a From Day One conference in Brooklyn, observing the increasingly contrite CEO class.
Also scoffing loudly at the Roundtable’s declaration, but from another angle, was the Wall Street Journal’s editorial board, which saw the new code as an abandonment of shareholders. The CEOs “know they are political targets,” the editors wrote. “The CEOs no doubt want to get out in front of this by showing what splendid corporate citizens they are. Yet these CEOs are fooling themselves if they think this new rhetoric will buy off Ms. Warren and the socialist left. It may even embolden them…”
All of which seems likely to bring the role of big business into the thick of the political debate in the coming election year. Wrote Sorkin: “The fight for corporate identity is just beginning.”
Steve Koepp is a co-founder of From Day One. Previously, he was editorial director of Time Inc. Books, executive editor of Fortune and deputy managing editor of Time