The "stakeholder" CEOs – WSJ

"The Business Roundtable redefines the goal of a company to promote" An Economy at the Service of All Americans, "the title said after a press release issued on Monday. "The updated statement moves away from the primacy of shareholders and includes a commitment to all stakeholders."

And of course, the 300-word "corporate purpose statement" does not mean "shareholders" before the penultimate paragraph. The statement rather underlines "a fundamental commitment to all our stakeholders", which it defines in the order indicated as customers, employees, suppliers and "the communities in which we work". Shareholders abide by the principles of the new corporate purpose code.

In practical terms, this is largely symbolic, at least for the moment. To succeed, any company must serve its customers, adequately reward employees, retain suppliers and maintain good relations with the communities where it operates. At the general level of the business round table, who might not agree?

There is also more than a whiff of preventive policy here. Executives – The Business Roundtable is led by the CEO of JPMorgan

Jamie Dimon

I know that they are political targets.

They see socialism on the rise, with the senator

Elizabeth Warren

proposing to redefine corporate governance in law with an explicit directive to serve the "stakeholders". Its goal is to reorient business capital to serve the political goals advocated by unions, environmentalists and trial lawyers. CEOs certainly want to be more forward in showing who they are as corporate citizens.

Yet these CEOs are fooling themselves into thinking that this new speech will redeem Mrs. Warren and the socialist left. It may even embolden them by suggesting that corporate rules that require a focus on creating value for shareholders are morally inadequate. The CEOs of the round table could sell Mrs. Warren the political rope to suspend them.

Politics aside, the moral and practical superiority of the stakeholder model is unclear. The CEOs are themselves employees hired by directors who are supposed to be custodians of the capital that shareholders have invested. One of the advantages of the shareholder model is that it focuses the company's mission on measurable financial results.

A poorly defined stakeholder model can quickly become an authorization for CEOs to waste money on projects that could turn them into local or political heroes, but that would serve the same stakeholders poorly in the event of a business failure. . Corporate governance students have spent years analyzing the "agency problem" of holding CEOs accountable to business owners. So-called activist investors who challenge poor performers are a market response.

Consider the long and slow decline of

General Electric
,

who, for decades, helped the shareholders of the parent company to retire. Former CEO

Jeffrey Immelt

It was the model of the stakeholder executive, presenting itself to Vanity Fair as a spokesman against climate change, issuing statements after the panic of 2008 on the failures of capitalism.

Yet, Mr. Immelt has failed in his fundamental duty to find a post-panic business model that enhances profits and shareholder value. This failure has served neither customers, employees, suppliers, communities nor shareholders. From a moral standpoint, GE did a lot more social and economic good when it was extremely profitable and its retired shareholders could sleep better at night by having confidence in the dividend.

***

CEOs are not popular these days and it is not easy to defend profits. Of course, CEOs should talk about the general benefits that accrue to the entire company if their business succeeds. But sooner or later, they will also have to defend the morality of free markets as the greatest source of prosperity for most people in the history of humanity. Platitudes about stakeholders will not prevent President Warren from aligning them first for the gallows.