The Nobel laureate economist Milton Friedman once stated, “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits”. So powerful and well-received were his free-market attitudes, US legislation was changed to enshrine the shareholder primacy doctrine. But things might be about to change.
US Business Roundtable Announcement
On 19th August 2019, the highly influential Business Roundtable, an association of CEOs for some of America’s largest companies, publicly announced a modern standard for corporate responsibility, committing to:
- Delivering value to customers – by meeting or exceeding customer expectations.
- Investing in employees – focusing on fair pay and benefits, providing training and education to develop new skills for a rapidly changing world, and fostering diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with suppliers – acting as good partners to the other companies they work with.
- Supporting the communities in which they work – respecting people and protecting the environment by embracing sustainable practices.
- Generating long-term value for shareholders – including a renewed commitment to transparency and effective engagement with shareholders.
The statement was approved and signed by many heads of America’s most powerful corporations, including, Amazon, Boeing, Apple, and Coca Cola.
A publicity stunt or genuine intent for sustainable practices?
On face value, the above statements of intent provide nothing particularly radical. Surely all corporations support the communities in which they work and aim to pay fair wages, or at least say they do. That this should be an improvement on the prevailing stakeholder philosophy of business may come as a surprise to some. On the other hand, the words ‘sustainable practices’ in the context of the environment would certainly seem to represent a semblance of new and more ethical thinking.
The announcement does have its detractors, especially due to the absence of any reference to the fair payment of taxes. A Project Syndicate article by Joseph Stiglitz makes the point that many of the signatory corporations are well established to use tax havens to minimise their tax liabilities. Stiglitz also says that the tax money saved by Donald Trump’s 2017 tax legislation has not made its way into workers pockets, but into share buybacks and stock-incentive schemes.
However, wholesale cynicism is not necessary. There are several examples of sustainable corporate decision making, including many of the largest car manufacturers taking it upon themselves to back more stringent environmental regulations than the current US authorities’ mandates require. Indeed, modern consumers, especially millennials, are conscious of sustainability and will remain loyal to companies who operate in an environmentally-friendly way. We should embrace the Business Roundtable’s commitments to sustainable and ethical practices, even if the underlying motive is to attract a new generation of consumers. One thing we know for sure – today’s young consumers will expect real action, and will not tolerate insincere and undelivered intentions merely designed to attract their custom.
Legislating for change?
While some are circumspect about the true intentions of CEO’s regarding their desire to promote an economy that serves all Americans, others see it as a move in the right direction. It might be that traditional US-style corporations are finding they need to compete with progressive international companies in emerging economies and those with social missions. What is missing, and what will prevent their words from coming to fruition is the need for legislative reform to roll back the Friedman principles and mandate sustainable, ethical, and fair working practices. Given the clear and present danger of global warming and the social impact of business practices which have kept an ever-increasing proportion of wealth in the hands of those at the very top, the need for a greater business conscience has never been more pressing. In all likelihood, the decision to adopt an ethical, sustainable, and fair approach will no longer be optional.
BDBF is a specialist and leading employment law firm based in the City of London.
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