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Why America’s CEOs Are Talking About Stakeholder Capitalism

When the US Business Roundtable recently renounced shareholder primacy, the shift – by an organization representing companies with combined annual revenue of more than $7 trillion – prompted a wide range of reactions, from welcoming to dismissive. But the move is primarily an attempt to keep activist shareholders and populist politicians at bay.

CAMBRIDGE – Back in August, the Business Roundtable, which comprises the chief executive officers of America’s largest companies – with combined annual revenues of more than $7 trillion – updated its long-standing statement regarding corporate purpose. It’s not just about shareholders, the CEOs say; their firms must be committed to all stakeholders, including customers, employees, suppliers, communities, and the environment. In fact, shareholders came in last on the CEOs’ new list. And the statement’s principal author, in his apparent exhilaration, is reported to have said that he felt like Thomas Jefferson drafting the Declaration of Independence.

The August announcement generated three main strands of reaction. First, some liberal commentators applauded US business leaders for finally getting the message. They criticized not the goals, but the lack of a proposal for how stakeholders can hold CEOs directly accountable. More skeptical observers said that the statement differed little from previous Business Roundtable pronouncements on corporate purpose: boards and executives need, or at least want, discretion to balance the interests of various stakeholders other than the company’s owners. For these critics, this latest declaration offered nothing new, but was a restated manifesto of CEO and board discretion and power to run their companies as they see fit.

The third strand of reaction came from business realists, who pointed out that successful firms cannot run roughshod over their customers, employees, suppliers, and communities. Even a company that is laser-focused on shareholder value must gain the loyalty of other stakeholders and avoid making enemies of them. Suppliers will not rush a delivery if they fear they won’t be paid, sullen employees will not produce a quality product, and irate customers will buy elsewhere.

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