Big Business and its "Stakeholders"

David Benoit notes in the newspaper:

The leaders of some of the largest US companies have long been reluctant to believe that corporate decision-making should focus on what is best for shareholders.

The Business Roundtable announced Monday that it was changing its statement on "the purpose of a company". Decisions should no longer be based solely on the potential profitability of shareholders, the group said. Business leaders should instead take into account "all stakeholders", that is, employees, customers and society.

This is a major philosophical change for the association, which includes dozens of America's largest corporations among its members. The group, led by JPMorgan Chase & Co. CEO

James Dimon,

is a powerful voice in Washington for the commercial interests of the United States.

The former Business Roundtable goal was based on economist Milton Friedman's theory that the only corporate obligation was to maximize shareholder value.

As Friedman well understands, to serve the long-term interests of shareholders, executives must necessarily attract and retain a talented workforce, provide value for money to consumers, treat equities fairly. suppliers and respect the laws and customs wherever a company operates.

On Monday, the commitment to "stakeholders" includes the following commitment:

Support the communities in which we work. We respect the members of our communities and protect the environment by adopting sustainable practices in all our businesses.

This will seem admirable to many, but what is promised exactly? Opinions seem to vary among member societies as to whether "communities" refer to areas in which they are physically present or something broader.

Some of the CEOs seem to think that their new promise is vague enough to define engagement as they wish. But a federal financial regulator sees the round table heading towards a "very dangerous place" that will invite outside groups to demand measures having nothing to do with the service of shareholders, customers or workers.

"Discussions about" corporate social responsibilities "are remarkable for their lack of analytical rigor and lack of rigor," Friedman wrote in 1970. "The first step towards clarifying the doctrine of corporate social responsibility is to ask for implies for whom. "

The future Nobel laureate elaborated:

What does it mean to say that the business leader has a "social responsibility" in his or her business? If this statement is not pure rhetoric, it means that it must act in a way that is not in the interest of its employers. For example, it is committed to reducing pollution beyond what is in the company's interest or is required by law to contribute to the social purpose of the company. 39, improvement of the environment.

The idea of ​​"stakeholders" of companies that have no direct interest in the business has been popular for many years in many companies, including Mr. Dimon's.

JPMorgan Chase
.

According to the Bank's "Corporate Responsibility Report" for 2012:

We are working with various non-governmental organizations (NGOs) interested in the environmental and social aspects of the financial services sector to better understand their views and concerns and to see how we can address them. Although we have been working with these groups informally for many years, we have recently sought to make our engagements with them more regular and formal.

Given Mr. Dimon's long-term track record in running his business, taxpayers who support his bank may not need to worry. But to what extent are these non-governmental organizations, interested in the environmental and social aspects of finance, aware of maintaining the security and soundness of a bank?

And since they are neither business owners, elected officials, nor regulators, why should these organizations be elevated to the level of the consumer or the employee? By definition, they put pressure on a company to adopt policies that it could not adopt through the normal political process. Members of these communities can speak through their elected representatives. Why would a company go beyond the wishes of the community by allowing a non-elected special interest to decide such issues?

The United States already has organizations, called non-profit organizations, that vaguely promise to defend the public good – and some of them have proven to be very lucrative for those involved. Our future prosperity depends on companies dedicated to generating income for investors by offering them to serve their customers, not an unsuccessful political agenda.

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In other news

Speaking of politics
"People do not want to be stupid twice": foreign diplomats prepare for Trump's victory in 2020, "Politico, August 18

The silent minority
"In the Seattle blue, Trump supporters are starting to come out of hiding," Seattle Times, August 17.

Not even bothering to hide the agenda
"Chicago Teachers Union group trip to Venezuela, praise of socialist leader called" propaganda tour "," Chicago Tribune, August 19

"Prosecutors have adopted a slow approach" victory of the race "
"Officers crisscross two airports and kidnap a turtle trafficker," Associated Press, August 16.

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Freeman is the co-author of Borrowed Time, available from HarperBusiness.