Earlier this month, the leaders of some of the United States’s biggest corporations changed their definition of what a company is all about. This revelation may not seem of interest to anyone other than accountants. But if these individuals deliver actions to match their words, it could potentially be huge. And we’ll all feel the impact.
The chief executives of over 180 companies, including those of Amazon, Apple and JP Morgan, have signed up to a commitment that changes the purpose of a corporation from one that exists to generate a return for shareholders – known as ‘shareholder primacy’ – to one that seeks to benefit all stakeholders.
More specifically, these companies commit to:
- delivering value to their customers;
- investing in their employees, compensating them fairly, supporting them through training and fostering diversity and inclusion, dignity and respect;
- dealing fairly and ethically with their suppliers;
- supporting the communities in which they work and protecting the environment by embracing sustainable practices across their businesses; and
- generating long-term value for shareholders and committing to transparency and effective engagement with shareholders.
One suspects that not all shareholders and investors are going to be wild about this, because it implies that sometimes – dare I say it – these companies may seek to follow courses of action that achieve benefits for employees or the environment but that actually cost money, rather than just doing whatever needs to be done to generate financial returns or increase their share price.
It remains to be seen, of course, whether this is anything more than hot air. But if it is, it could have a significant impact on how our economy works. Because it’s (potentially slightly nerdy and a bit boring) technicalities like this that make things happen.
Think about our own Companies Act, which promotes a similar notion of shareholder primacy. Or the rules governing our pension schemes, which make trustees think twice before divesting from fossil fuels or tobacco companies. Or our own attitudes to investing, which frequently place financial returns above the achievement of social goals.
So does this announcement herald a new era in the way we think about our companies and what they set out to achieve? I don’t know. But it’s a decent first step. And I hope that other companies, governments and regulators follow the lead of those who have taken it.