The Purpose of a Corporation: A Redefinition

The Purpose of a Corporation: A Redefinition

 

What is good for one, May not be good for All.

What may be good for a business, may not be good for the society or economy.

This is new realization by the Top CEOs of American corporations.

The systems ideas are percolationg in business/corporate strategy.

Such as,

  • Embedded-ness
  • Nested Levels
  • Hierarchy Theory
  • Parts and Whole
  • Business in Society
  • Society in Nature
  • Interacting Agents
  • Complex Systems
  • Micro and Macro
  • Aggregate Vs Firm Level
  • Boundaries and Networks
  • Networks and Hierarchies
  • Local Vs Global
  • Individual Vs Collective
  • Internal Vs External
  • Inclusive Vs Exclusive

 

Economists have to learn Finance.  Effects of Macro Decisions on Micro Performance and Decisions

And, CEOs need to learn Macroeconomics, Sociology, and Ecology.

Effects of Micro/Firm level decisions on Macro/Aggregate level Decisions and performance.  Macro-Economics, Sociology, and Ecology

Because of current focus on shareholder value, we have bifurcation in US economy – Haves and Have-nots.  Income Inequality, Stagnant wages, Less mobility and others.

Rational decisions by individual businesses to seek their own interests, that is, pursuit of Profits have effects on Macro/Aggregate trends – deindustrialization, offshoring, outsourcing, and increase in trade and globalization.  Loss of Jobs, Decline of Manufacturing, Movement of Industries/Production from Northern States to Southern States, to Mexico and China.

Emergence of extreme political left and extreme political right are the results of above macro trends.  Trade Protectionism of Donald Trump, Economic Nationalism of Steve Bannon on one end and Democratic Socialism/Social Welfare of Bernie Sanders on the other end.

In Corporate Planning/Strategy, Business Environment Scanning is about monitoring trends which are external to a company.

  • Demographic
  • Social
  • Economic
  • Technological
  • Geopolitical
  • Ecological
  • Regulatory
  • Governance (City, State, National)

Good companies seeking lasting long term value seek to internalize what is external to them.  Thats is why Corporate Planning / Development / Strategic Risk Management function is an essential part of corporate governance.

 

The redefinition of corporate purpose is a first step in self regulation.

A thwarting mechanism.

 

 

Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’

WASHINGTONBusiness Roundtable today announced the release of a new Statement on the Purpose of a Corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders.

Since 1978, Business Roundtable has periodically issued Principles of Corporate Governance. Each version of the document issued since 1997 has endorsed principles of shareholder primacy – that corporations exist principally to serve shareholders. With today’s announcement, the new Statement supersedes previous statements and outlines a modern standard for corporate responsibility.

The American dream is alive, but fraying,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and Chairman of Business Roundtable. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.

This new statement better reflects the way corporations can and should operate today,” added Alex Gorsky, Chairman of the Board and Chief Executive Officer of Johnson & Johnson and Chair of the Business Roundtable Corporate Governance Committee. “It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”

Industry leaders also lent their support for the updated Business Roundtable Statement, citing the positive impact this commitment will have on long-term value creation:

I welcome this thoughtful statement by Business Roundtable CEOs on the Purpose of a Corporation. By taking a broader, more complete view of corporate purpose, boards can focus on creating long-term value, better serving everyone – investors, employees, communities, suppliers and customers,” said Bill McNabb, former CEO of Vanguard.

CEOs work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value,” said Tricia Griffith, President and CEO of Progressive Corporation.

This is tremendous news because it is more critical than ever that businesses in the 21st century are focused on generating long-term value for all stakeholders and addressing the challenges we face, which will result in shared prosperity and sustainability for both business and society,” said Darren Walker, President of the Ford Foundation.

The Business Roundtable Statement on the Purpose of a Corporation is below and the full list of signatories is available here.

Statement on the Purpose of a Corporation

Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.

Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth.

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:

  • Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
  • Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
  • Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
  • Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
  • Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.

Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.

 

Please see my related Posts

Strategy | Strategic Management | Strategic Planning | Strategic Thinking

Shareholder Capitalism: Rising Market Concentration, Slower Productivity Growth, Rising Inequality, Rising Profits, and Rising Equities Markets

Why do Firms buyback their Shares? Causes and Consequences.

Short term Thinking in Investment Decisions of Businesses and Financial Markets

Micro Motives, Macro Behavior: Agent Based Modeling in Economics

Trading Down: NAFTA, TPP, TATIP and Economic Globalization

On Inequality of Wealth and Income – Causes and Consequences

Rising Profits, Rising Inequality, and Rising Industry Concentration in the USA

Boundaries and Networks

Networks and Hierarchies

Boundaries and Relational Sociology

 

 

Key Sources of Research

 

 

 

The CEOs of nearly 200 companies just said shareholder value is no longer their main objective

CNBC

https://www.cnbc.com/2019/08/19/the-ceos-of-nearly-two-hundred-companies-say-shareholder-value-is-no-longer-their-main-objective.html

 

 

Maximizing shareholder value can no longer be a company’s main purpose: top CEOs

Marketwatch

https://www.marketwatch.com/story/maximizing-shareholder-value-can-no-longer-be-a-companys-main-purpose-business-roundtable-2019-08-19

 

 

Business Roundtable Redefines the Purpose of a Corporation to Promote ‘An Economy That Serves All Americans’

Business Roundtable

https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans

 

 

Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations

Washington Post

https://www.washingtonpost.com/business/2019/08/19/lobbying-group-powerful-ceos-is-rethinking-how-it-defines-corporations-purpose/?noredirect=on

 

 

Move Over, Shareholders: Top CEOs Say Companies Have Obligations to Society

Wall Street Journal

https://www.wsj.com/articles/business-roundtable-steps-back-from-milton-friedman-theory-11566205200

America’s top CEOs say they are no longer putting shareholders before everyone else

Fast Company

https://www.fastcompany.com/90391743/top-ceo-group-business-roundtable-drops-shareholder-primacy

 

 

The Myth Of Shareholder Value

The Myth Of Shareholder Value

 

 

Capitalism is in crisis – and business leaders know it

CNBC

https://www.cnbc.com/2019/09/04/capitalism-is-in-a-moment-of-crisis-and-business-leaders-know-it.html

Author: Mayank Chaturvedi

You can contact me using this email mchatur at the rate of AOL.COM. My professional profile is on Linkedin.com.

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