On August 19, 2019 , the Business Roundtable, a collection of CEOs of the country’s biggest companies, at the time helmed by JPMorgan Chase CEO Jamie Dimon, announced a fundamental rethinking of what it means to be a corporate entity in the U.S. Previously, the Roundtable had held that a company’s key obligation was to increase the value of its stock for its shareholders. But the 2019 announcement, signed by 181 business leaders, committed to provide value to the full range of a company’s “stakeholders,” including their employees, their customers, and their communities—as well as shareholders. The move was praised as a monumental step in the idea of corporate responsibility but also held up as a possible empty promise. One year later, how has the commitment held up?
It depends on whom you ask. Lucian A. Bebchuk and Roberto Tallarita, researchers at the Harvard Law School Program on Corporate Governance, say it’s been little more than words. They examined promises of stakeholder governance by looking at how involved a company’s board was in the decision to adopt that pledge, and if the board’s corporate governance guidelines were amended afterward to reflect a commitment to bring value to stakeholders. If joining onto the Business Roundtable pledge was meant to change how the company operated and treated its stakeholders, they write in The Wall Street Journal, then the company’s board of directors should have been involved in the decision to sign on to that statement. When they reached out to the signatories to ask who the highest-level person in the company to approve that decision was, only 48 companies responded. Of those 48, just one said the decision to sign was approved by the board of directors. To Bebchuk and Tallarita, this means that signing on to the Roundtable’s statement was largely a PR gesture made by CEOs who had no real intention of actually changing company operations.
But Brian Stafford, CEO of Diligent, which provides governance software to half of the Fortune 1000 globally, disagrees with that metric. “The conversions around the evolving business and the need to focus on your stakeholders has already been well underway within the boardroom. This in some ways was formalizing it,” he says of the pledge. According to Diligent surveys, board members have been increasingly focused on stakeholders for the last four or five years. “So I don’t think this is a surprise to any board members, and I think CEOs actually felt comfortable communicating that given the conversation already going on within their board and the likely evolution of the board’s thinking.”
Bebchuk and Tallarita also reviewed the corporate governance guidelines of the companies whose CEOs are on the Business Roundtable board of directors. Three companies—Boeing, Stryker, and Marriott International—did amend their guidelines, but not with language that reflects that Business Roundtable pledge. Of the rest, “all except two,” they write in a presentation of their research, “contain traditional formulations of corporate purpose or even endorse the shareholder primacy principle.” Take Dimon’s company, JPMorgan Chase: Under the “Board Commitments Section” of those guidelines, it states, “The Board as a whole is responsible for the oversight of management on behalf of the Firm’s shareholders.” The term “stakeholders” does not appear in JPMorgan Chase’s corporate governance principles.
Still, the entire idea of shareholder benefits has been changing, Stafford says. There’s not necessarily an explicit trade-off between profitability and stakeholder capitalism—some actions that benefit stakeholders are good for the business’s bottom line, too. “The only place where it causes any agita is if you’re incredibly short-term focused,” he says. “[If] you’re focused on 5 to 10 years, you have to make sure that you drive activities that make your business more sustainable, that make your business more of a magnet within the communities you operate and do things that matter to your customers. If you really take a 5- to 10-year view, you can’t destroy the environment that you live in. You’re not going to be successful.”
In the 12 months since that Business Roundtable commitment, the expectations of corporate responsibility have changed even more as Americans have faced a devastating health pandemic, a drastic economic downturn, and a nationwide reckoning for racial justice. Plenty of companies released statements of support and solidarity, and even promised to keep workers employed or helped ensure employees and their families had things like internet access. Stafford thinks that the Business Roundtable’s pledge, and that new expectation of corporate purpose, helped push for more companies and CEOs to be so vocal during all of those challenges.
But taking stock of the impact a year later, it can be hard to pinpoint any tangible, measurable changes. GreenBiz chairman and executive editor Joel Makower says the Business Roundtable pledge may have even been a step back for corporate responsibility. “To the extent that it provided a fig leaf that enabled CEOs to pursue business as usual—well, it was probably worse than doing nothing at all,” he wrote.
And U.S. corporate leaders still lag when it comes to social purpose. Diligent’s research arm, Diligent Institute, interviewed 406 global corporate leaders and found that, globally, 63% strongly believe a fundamental change in capitalism is underway. For U.S. leaders specifically, only 33% strongly agreed.
Corporate leaders in the U.S. still seem to be focused on shareholders first, but after the pandemic and the push for racial justice, the line between stakeholder and shareholder benefits may blur. People want to support organizations that care about the things they care about, Stafford says, and those organizations have to realize, “If I want to generate profits long term and be a sustainable company, I need to become more representative of what customers and employees want, which is recognizing these issues that matter.”