The Purpose of a Corporation

On Monday of this week the Business Roundtable, an organization which “represents chief executive officers (CEOs) of America’s leading companies,” published a new statement on the purpose of a corporation. The new statement, which was signed by 181 executives, explicitly states that “we share a fundamental commitment to all of our stakeholders” (emphasis mine). This is an important departure from the singular focus on shareholders as the focus that has dominated the American corporate landscape.

Now of course it is easy to say one thing and do another and it is entirely possible that this is simply a cynical ploy to improve the public perception of large corporations. But in the Gallup poll of public confidence big business has been on the upswing for some years, and so I am taking this as a cautiously optimistic sign that we may have gotten past the peak of the focus on shareholders at all cost capitalism.

This is an area that I have spent a fair bit of time and attention on, such as being involved with the creation of the benefit corporation statute in Delaware and speaking at the first conference on steward ownership. It is important to remember that corporations have been around for quite a long time going back to the 15th century. For the longest time it was understood that corporations had a broad set of responsibilities to society in return for the many rights and protections that were afforded to corporations by society. The narrowing of purpose down to shareholders was a relatively recent phenomenon and one that we are hopefully starting to leave behind.

While the big corporations that signed on to this will have a lot to do to actually meaningfully live up to it, we are seeing many startups and growth companies already taking a broader approach. One area in particular where I believe corporations can and should be taking more responsibility as governments continue to drag their feet is the climate crisis. I will write more about that in the coming weeks.

Posted: 21st August 2019Comments
Tags:  corporation company purpose society markets

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