One of the lessons on why communism doesn’t work that I brought from my childhood is that when something belongs to everyone it belongs to no one (and people will treat it accordingly). You can say the same thing about accountability: when you are responsible to everyone, you are responsible to no one. So we can call this new development the “tragedy of the corporate commons”:
The Business Roundtable said Monday that it is changing its statement of “the purpose of a corporation.” No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.
It is a major philosophical shift for the association, which counts the chief executives of dozens of the biggest U.S. companies as its members. The group, led by JPMorgan Chase & Co. CEO James Dimon, is a powerful voice in Washington for U.S. business interests.
The Business Roundtable’s old statement of purpose espoused economist Milton Friedman’s decades-old theory that companies’ only obligation is to maximize value for shareholders.
“Each of our stakeholders is essential,” the new statement says. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
Whatever you thought of the Friedman’s formulation, at least both the chain of accountability and the performance assessment criteria were pretty clear. Now, not so much. It sounds great on paper, this corporate social responsibility on steroids; we take everyone’s interests into account: shareholders, employees, customers, the society in general; everyone is a stakeholder. But what does it mean in practice? Previously, boards were accountable to people whose investment in the company made the company’s existence possible. That the company should have a good workforce, satisfy the customers, and obey the laws of the land all went without saying, being the necessary conditions for successful operations. Now, the Business Roundtable recommends everyone and everything has to be taken into consideration and companies need to “deliver value to all of them”. What if you can’t? What if the interests of the nearly infinite number of stakeholders conflict with one another? How do you gauge all these interests? How do you prioritise? How do you assess “value for all”?
What this initiative seems to me to be about is giving the official blessing for corporations to be political and social actors, to pursue every trendy cause and campaign for issues that have nothing to do with the actual business conducted or business in general, and to do so without the fear of any negative consequences for the management. It’s a great way to avoid any responsibility and accountability, particularly if the bottom line suffers as a result. “Sure, our revenue is way down, but our campaign for separate toilets for each of the 32 separate genders is what the society needs and expects from us”. Previously, you assessed the management on their stewardship of the company and its commercial performance. But since now that’s only one of the criteria to be taken into consideration, it will become more difficult to sanction bad and underperforming directors. They might suck at business but they’re woke enough so, hey, it balances out. Or more than balances: after all, why should the interests of a thousand shareholders be privileged over the interests of the amorphous but clearly much numerically bigger community? Satisfying the interests of shareholders is an objective exercise, delivering value to the country as a whole – or to the whole world – is so vague that it’s impossible to disprove; it’s unmeasurable and very much in the eye of the beholder. Which is how the new corporate class wants to keep it; if you are answerable to everyone, you are answerable to no one.
This sort of corporate behaviour, of course, is not new. From Hollywood churning up commercial flops that are politically sound, to Gillette campaigning against toxic masculinity and Nike taking the knee against the racist AmeriKKKa – not to mention everyone under the sun trying to save the planet and legalise same-sex marriage – the practice has been rampant. What’s new is the confidence on the part of the corporate leadership to come out and officially sanction and sanctify the new way of doing business.
My problem is with lines being constantly blurred. Want to affect change? Join a political party or a lobby group. In your own time. Otherwise, whether you are a corporation or a charity or a sports team or a stamp collecting club, stick to your mission and reason for your existence. Alas. People used to be worried that government might become too much like business; in reality it’s business which is becoming more like government.