Rethinking corporate governance: Too few suits

Ryan Kambich is a second year graduate student in the Private Interest and the Public Good master’s program. He is a copy editor from Deerfield, Ill.

Earlier this month, the Business Roundtable, a lobbying organization representing the CEOs of many of the nation’s largest corporations, issued an update to its “Statement of the Purpose of a Corporation.” The document, revised periodically, serves as a manifesto outlining how the CEOs of some of our nation’s largest companies conceive of the place of the American corporation within society.

The August 12 update to the statement is particularly notable in that it broke with the Roundtable’s longstanding position on the role corporations ought to play — insisting that corporations should seek to serve stakeholders generally, rather than shareholders particularly, with their practices.

Since 1997, the Roundtable’s Statement of Purpose has held that the primary objective of the corporation is to produce value for shareholders — with other desirable outcomes for associated stakeholders such as improved conditions for workers entirely set aside. In this way, the manifesto has long argued that the American corporations, perhaps the country’s most powerful social force when measured in terms of determining the day-to-day lives of millions of Americans and billions more abroad, held no responsibilities save the single-minded pursuit of profit for a select few individuals.

This previously held position was nothing new, originating in the 1980s style of “greed is good” corporate governance that saw the rise of predatory investors, union busting and the unchecked pursuit of increased stock prices sweep through Wall Street. Following such a mentality, corporations and their CEOs have sought to serve the needs of shareholders first and only for the last three decades, the consequences of which have been various and malignant: the stagnation of wages and benefits for workers, the acceleration of ecological disaster and a period of wealth inequality the likes of which we have not seen since the Gilded Age.

But last week’s announcement signaled a change in that attitude, at least in tone. The updated statement now lists the delivery of value to customers, investment in employees, ethical dealing with suppliers and support for local communities ahead of the long-held primary objective of producing shareholder value.

Signed by 181 CEOs of some of the nation’s largest corporations — including Jeff Bezos of Amazon and Tim Cook of Apple — the new outlook would be an encouraging sign if it were anything more than a cynical PR ploy. It is difficult to see this update as little more than a calculated press release designed to assuage the fears of workers and consumers worldwide in a period of unprecedented economic and social upheaval.

Take, for instance, the case of the Council of Institutional Investors (CII), an industry group who represents many of the same corporations whose CEOs signed on to last week’s statement. One week after the Roundtable’s update, the CII issued a response that forcefully rebuked this new corporate manifesto, stating in head-scratching terms that “accountability to everyone means accountability to no one.”

To bring about meaningful change and realistic commitments to social welfare beyond short-term shareholder interests, we cannot trust the old guard that brought us here in the first place. The prevailing mode of corporate governance sees a few of the company’s largest shareholders direct the livelihood of millions of workers while simultaneously tipping the scales of global finance, offering those select individuals far greater power than any elected body we might have recourse to. In such a business environment, greed and short-termism will inevitably flourish — an orientation anathema to the commitments spelled out in the Roundtable’s latest Statement of Purpose.

To truly commit to changing the very nature of the corporation in society, our nation’s corporate bodies must commit to fundamentally changing the way the American corporation is run. How to do that is a separate piece in itself, but it starts with level-headed and serious reflection on the path we’ve taken — which for too long has seen too much power vested in too few suits.