In a 1970 New York Times Magazine article, economist Milton Friedman said corporations exist solely to serve their shareholders and must maximize shareholder financial returns to the exclusion of all else. Moreover, he maintained, companies that did adopt "responsible" attitudes would be faced with more binding constraints than companies that did not, rendering them less competitive. This has been the dominant interpretation of capitalism for nearly 50 years. 

In summer 2019, CEOs of 181 of the world’s largest corporations did an about-face with an updated “Statement on the Purpose of a Corporation” from the Business Roundtable (BRT). This statement aligns with the intent and purpose of what social, environmental, and governance (ESG) shareholder advocates have been asking companies for decades. 

The outdated Friedman philosophy emphasized short-term returns rather than long-term value, sacrificing much. The As You Sow resolution this year at BlackRock and McKesson, and the Harrington Investments resolution at Bank of America, Citigroup, Goldman Sachs and Morgan Stanley, ask how each will implement the new Statement of Corporate Purpose.  The statement says that to achieve maximum value, companies must consider all stakeholders including employees, customers, suppliers, and the communities in which they operate, on equal footing with shareholders. All these stakeholders need a sustainable climate, breathable air, drinkable water, edible food, and social justice; to address these needs, companies must act.  The questions are, by signing the Statement saying that all stakeholders are now on equal footing, does the BRT mean to demote shareholders or elevate the other four groups, and will the 181 BRT signatories enshrine these responsibilities in their bylaws?

Recently, corporate trade associations have tried to block implementation of these ideas, arguing that shareholders who raise ESG issues are wasting the time and money of corporations and investors. In addition, for decades, the BRT has been spearheading efforts to deny shareholders the right to raise the very concepts that it now has adopted. If the BRT’s new statement is to be taken seriously, its members should stop trying to eliminate shareholders’ rights and engage to address their needs.  

Companies can implement the BRT statement by internalizing environmental costs and working with shareholder proponents.  The antiquated notion that corporations exist for the sole benefit of shareholder returns was long overdue for a rewrite given its basic conflict with data on long-term value creation. The new “Statement of the Purpose of a Corporation” presents a golden opportunity for major companies and shareholders. Together we can reshape the definition of capitalism to accommodate all stakeholders, including those increasingly left behind.  Together, we can create a safe, just, and sustainable world.

Andrew Behar
CEO, As You Sow