The New Stakeholders

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

This announcement by leading CEOs has certainly been a hot topic as of late. I have been asked my opinion a few times. If you haven't been following along, the issue at hand is that 50 years ago modern corporations took the Milton Friedman view that all activities of the business must be in service of the shareholder. This meant that profit was to be serviced above all else.

Since that time we have seen a reduction in union representation, an outsourcing of many tasks, and the extreme rise in CEO pay. Also, we have seen tremendous share growth.

Capitalism is fraying, however, as the income gap grows and social mobility lessens.

I believe in the American Dream. I think you can get ahead with lots of hard work, and lots of luck, and lots of advantages. If you are a minority, or come from a poor background, or many other factors, you will have a much tougher time transitioning through social and economic strata.

We have made this worse over the past 50 years with the uncertainty of workers and with outsourcing. Companies do not employee custodial staff, customer service, or many other functions any longer. All of these are outsourced to lowest cost providers, who often pay employees very poorly.

Will corporate leaders follow-up this change in stance by bringing services back in house? Will they demand that their outsourcers provide benefits for their employees and living wages?

There are a few examples out there of how companies wreck themselves in pursuit of shareholder value. I like to pick on Home Depot. They crushed staffing and wages to save money and destroyed what made them successful. People went to Home Depot for help, but when you let go your most experienced employees to save money you lose sales. Home Depot has turned this around. Many companies don't figure this out fast enough.

In my world of software development, we would never fire our most experienced employees to save money. We know that experience is valuable and the value of a great employee vs. the switching, training, and knowledge cost of new more junior folks.

I think there is an argument to be made that you can maximize shareholder value through paying employees well and providing benefits. Less stressed employees who can afford their needs will produce better work. It seems simple, but big corporate America has long disagreed. Either they know something I don't know (quite possible) or they just haven't cared as the short term profits drive executive compensation.

I'm looking forward to the possibility this change means something for real. In the meantime, I am quite cynical of the care these CEOs really have for their stakeholders like communities, customers, and employees, vs. shareholders.