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By Judy Samuelson
In August 2019, the 200 CEOs of the Business Roundtable declared the end of shareholder primacy. These executives, representing many of our most influential corporations, agreed that for business leaders to be effective it was important to be attuned to the needs of many constituents—the so-called “stakeholders.”
At the time, Alex Gorsky was CEO of J&J and chair of the BRT’s Corporate Governance Committee. He described the intentions of the signatories this way:
“This new statement…affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”
Spoiler alert: I avoid, best I can, using the word “stakeholder.” I think the term is too generic and the concept is both too facile and hard to grasp as a starting point for real change.
I hope that Chief Communications Officers can help define what each company means when it calls out its stakeholders, and the priorities for the executive. I want to know who the CEO will invite to the table to assure that this moment proves to be a real turning point in the give and take between the extraordinary capacity of business, the consequences of business-as-usual, and the health of society on which business depends.At the Page Spring Seminar, where I was honored to engage with members in the closing session, I said that I believe language matters—a lot. Words, carefully considered, reveal the mindset of a company’s leaders, and can set a new direction. The public commitments are the root of accountability.
“Stakeholder” is shorthand for a host of business impacts and affected parties that require interrogation and explication to have any meaning, and the term sets up a tired debate—the duality of stakeholders vs. shareholders (another term that needs parsing—that confounds real investors and mere traders). The word stakeholder fails to capture the dynamism of changing expectations of business and the complex challenges that put both humans and institutions at risk—challenges that corporations have to examine for the business’ relevance, and then translate into governance policy and management protocols to make progress.
For the BRT’s proclamation to matter begins with greater clarity within each business about the costs of its business model, and where the company has real leverage. CCOs have an important role to play here. They are a bridge between demands on companies from the outside, and from the inside—from employees themselves.
We also need to recognize that, language aside, the scaffolding of shareholder primacy is still firmly in place. Over the last decade, 93% of profits have been paid out to shareholders through dividends and repurchasing shares, and the pace of share buybacks—a practice that was deemed stock manipulation and was illegal until the 1990s—continues to grow. For the current year, 2022, public companies are on track to retire over $1 trillion in shares – a record. Tax avoidance, another byproduct of shareholder primacy, continues apace. Yet boards still pay the CEO mostly in stock, tethering the executive to the stock price, even as they add other targets, like climate and DE&I goals to pay goals.
Meanwhile, in many enterprises, “essential workers” and hidden contractors earn barely enough to cover basic expenses. Inequality is winning in a rout.I think the Page Principles, like the BRT statement on corporate purpose, speak to this moment. But the hard work still lies ahead. Otherwise, the call for executives to be attuned to stakeholders will continue to make the eyes of CEOs and board members glaze over – or, like the BRT statement, will allow too many executives to sign on with “yup – doing that already.”
Here are three specific concerns that can use the help of Page members.
Executives think they are already attuned to stakeholders. To manage effectively in the global, polyglot, complex, media-obsessed world, executives already consider a host of relationships. But real progress requires a keen sense of which of these relationships matter most. What is on the critical path, and who needs to be at the table to succeed? The answer will be different depending on the needs and inputs of a specific business, e.g., the nature of its supply chain, whether the enterprise is regulated or not, or is part of a “clean” or “dirty” industry.
Productive stakeholder management requires those who lead to understand the connections between growing global challenges and unintended costs of the business model—who is affected, what is at risk—and to work with colleagues and affected parties to drive change and assure the commitments have staying power.
Do employees have a stake in the business? Yes, of course, but employees are even more important for other reasons. Employees have know-how and a keen understanding of both business risk and opportunity. Employees are different from other stakeholders—they are key allies in figuring all of this out—and, importantly, they want the same thing that many executives want: for the business to flourish, while respecting the human and natural ecosystems on which the company depends.
The pandemic has laid bare the consequences of placing profits and customers ahead of the health and well-being of employees. No company today can ignore the desire of workers to be heard on their own terms. It is about wages and benefits and quality of life, but much more. Employees relate to and are keen to elevate the unintended consequences of the business for communities and the planet.Great companies see employees as key to quality products, customer service, risk management and innovation. I am hard pressed to think of another so-called stakeholder who matters as much, day-in and day-out. Call it accountability from the cafeteria. We need new protocols for soliciting and listening to employees to bring this capacity to bear on problems of real consequence.
Since the storming of the Capitol on January 6 democracy has edged onto the plate of corporate obligations, but who is the stakeholder? Government? All our citizens? And how about the people of the Ukraine? Where does the responsibility to those who are greatly removed from the business begin—and end?
The health of the system itself—whether we are talking about democracy or climate change, is paramount. Professional associations, like the Page Society, can help with this puzzle. What needs to be true to assure the long-term health of our democracy, and where do individual companies have a role to play? Is this about ensuring employees access to the ballot box? Maybe. But how about investigating if the lobbying and political spending of the company (and its trade groups) are aligned with corporate purpose statements and values? Is that part of the CCO’s job, too?
Time is running out. The bottom line is this: the solutions to our most pressing problems are not found within an individual company; collaboration and co-creation are now required to make progress. Whether we are talking about the human condition or precarious natural systems at risk from industrial pollution, the changes needed will require business investment and entirely new ways of thinking and operating.
We begin by clearly stating our intentions, understanding the path forward and the need to reset priorities. Can the language of “stakeholders” become useful? Maybe—but only if we understand that the most important stakeholders are those who will come after we are long gone.
Judy Samuelson is executive director and founder of the Aspen Institute’s Business and Society Program, and author of “The Six New Rules of Business: Creating Real Value in a Changing World.”
