Is the purpose of a corporation wider than creating wealth for shareholders?

Is the purpose of a corporation wider than creating wealth for shareholders?


Happy Monday everyone. I don’t know if
you’ve been watching the news this week, but there’s been a bit of a fuss in the
media about the role of social responsibility in business. What
happened is there’s a group in the United States called the Business
Roundtable, and that’s made up of a number of the most powerful business
figures in the United States. Represented on there is JP Morgan Chase,
American Airlines, Amazon, so there’s some pretty heavy
hitters involved. What they’ve done is they’ve released a statement and it’s
called a Statement on the Purpose of the Corporation. What the fuss is about
is that this statement says that profit for shareholders is no longer the most
important task for companies. Now the reason that’s created such a fuss is
that that turns around about 60 years of economic thinking dating from Milton
Friedman. What this statement says is “while each of our individual companies
serves its own corporate purpose, we share a fundamental commitment to all of
our stakeholders. We commit to deliver value to all of them for the
future success of our companies, our communities, and our country. So that’s a
pretty radical statement given that the central tenet of corporate life for the
last 60 years odd has been that creating profit and wealth for shareholders is
the task of the corporation. It’s kind of a big thing. Now I’ve been thinking about this and
reading a lot of the subsequent media commentary, and it seems to me that
there’s a couple of different ways that we can look at this. First of all we
could look at it as just a giant PR stunt by the largest corporations in
America and the world. We know that Millennials are now very reluctant to
work for corporations that don’t have a social purpose. We know that
approximately 25 percent of the global investment dollars are chasing socially
responsible investments. So maybe this is just a giant PR stunt to overcome those
issues that those corporations are going to face. Maybe it’s really bad news. We
can look at it as really bad news. If corporations are going to take a
social socially responsible attitude, who’s going to decide which issues need
to be dealt with? Perhaps it’s going to be the same 180
business roundtable members that have put out the statement. So instead of
dictating just the economic agenda they would now dictate the social agenda as
well. Or we could look at it as really good news. You don’t have to look far
to see some very, very ordinary corporate behavior. The GFC when corporate leaders
were flying into Washington on their private jets seeking bailouts, or the
Australian Banking Royal Commission, where we seem to have plumbed the depths
of ethical behavior of charging dead people fees for banking advice. So which
one of these is it? The answer is I don’t know, but I do know that we’re
going to hear an awful lot more about this topic. So I encourage you to read
this. I will put a link in the comments on
this post. I would encourage you to read it, consider it, and consider your
attitude to it and your reaction to it. Because it’s not just the 180 members of
the Business Roundtable that this is going to affect and who have a social
responsibility. Have a great week everyone.

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