Many applauded when the elite club of America’s top CEOs, the Business Roundtable, declared last month that corporations should have a sense of purpose beyond just profits—but skepticism abounded too.
On the one hand, legal experts pointed out that shareholder primacy is still deeply embedded in corporate law, so companies will be held accountable mostly by their shareholders for the foreseeable future. On the other hand, cynics fueled a debate on whether the business group’s new statement of purpose was just empty rhetoric, a response to growing economic populism.
Yet now a leading expert on giant corporations makes a cogent argument that “stakeholder capitalism”—in which big business should consider the interests not just of shareholders but also employees, customers, suppliers and community members—is not only commendable, but a much-needed corrective in today’s winners-take-all economy.
“Cynicism in the face of pious corporate proclamations can be healthy. But there is increasing reason to think that the virtuous corporation is not an oxymoron but a necessity,” wrote Tim Wu, a law professor at Columbia University and author of The Curse of Bigness: Antitrust in the New Gilded Age, in the New York Times.
Wu argues that priorities in the world of business have become badly skewed, to the point where the sole focus on profits is simply unsustainable because of what it has done to the economic environment around them. Metaphorically, they have polluted the sea in which they swim. “Unfortunately, American corporate leadership, cheered on by Wall Street, has been steeped for several decades in a culture of profit-squeezing,” he writes. “In some cases this culture brought needed discipline to bloated industries. But what began as a campaign for greater management discipline has gone far too far, robbing corporate leaders of their natural social and moral instincts—often with disastrous consequences.” He cites the pharmaceutical industry as an egregious example, whose “narrow metrics of success has led not only to outrageous prices but also to great suffering, addiction and death.”
The need for capitalism with a conscience is twofold, Wu argues: because businesses employ the vast majority of America’s workers and steer much of its economic activity, and because government has failed in many respects to build a fairer economy. Stronger laws and regulations will help as far as they go, but their more important impact will be in changing the culture. Concludes Wu: “Most of the men and women who lead corporations are decent people, yet too often they find themselves forced by the prevailing culture to ignore their better instincts.”