Top CEOs Release Statement Declaring End of Shareholder Primacy, Saying Corps Must Bring Value to All Stakeholders

Chris Gaetano
Published Date:
Aug 19, 2019

The Business Roundtable, an association of the country's top CEOs, has released a statement saying that the purpose of the corporation is to deliver value to all stakeholders, not just its investors, according to the Washington Post.

While paying homage to the free market capitalist system as "the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all," it noted that corporations have a responsibility to more than just their shareholders. The CEOs behind the statement said they also have a commitment to their customers, their employees, their suppliers and the communities in which they work. 

"Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country," concluded the statement. 

The statement itself is relatively short, one page, compared to the 11 additional pages filled with signatures from 181 chief executives such as Amazon's Jeff Bezos, Bank of America's Brian Moynihan, BlackRock's Larry Fink, and JPMorgan Chase's Jamie Dimon. It calls to mind the language of sustainability accounting groups such as the Global Reporting Initiative, which develops standards "with true multi-stakeholder contributions and rooted in the public interest." 

The Washington Post noted that this viewpoint is vastly different from the one expressed by the same group in 1997, which explicitly stated that "the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders." This was an echo of the thinking behind the 1919 Michigan Supreme Court case Dodge v. Ford Motor Co.which held that Ford must value the interests of its shareholders over that of its own employees or customers.

This view maintained strong currency in business and economic circles, with the economist Milton Friedman eventually laying out a doctrine saying a corporation has responsibility only to its shareholders, and that appeals to the social good are effectively using someone else's money for purposes they never approved. The shareholder primacy paradigm has become so strong in fact that the fiduciary duty of a corporation to its shareholders is commonly interpreted as meaning that the company must work to maximize shareholder value, despite the fact that there is no legal statute dictating this be so. However, the absence of such a statute has not stopped courts from upholding the common interpretation, such as in a Delaware case, eBay Domestic Holdings Inc. v. Newmark, which held that firms have a duty to promote the value of the corporation for the benefits of its shareholders.

It is currently unknown, then, whether these CEOs putting their money where their mouth is will serve to provoke shareholder ire and draw litigation in response. If so, these firms may be helped by recent research finding that sustainable business practices are linked with higher profitability. 

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