On August 19, the Business Roundtable issued an open letter titled “Statement on the Purpose of a Corporation.” One of the preeminent business lobbies in the United States, the Business Roundtable includes the CEOs of leading U.S. companies from Apple to Walmart. Sandwiched between the spare title and 181 signatures was a one-page declaration that ended as follows: “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.”
As The Harvard Business Review writes, the new statement by the Business Roundtable explicitly counters the view held for decades that the sole focus of a corporation and its CEO is to maximize profits. Corporations are, according to the new statement, accountable to five constituencies, of which shareholders are only one. Customers, employees, suppliers, and communities are the others.
The primary criticism of stakeholder capitalism, which is popular in Europe, is that any purpose other than shareholder profits results in a lack of focus and, ultimately, corruption.
This debate—whether purpose and profits work together or are fundamentally at odds with each other—is central to ongoing research at Harvard that shows, so far, that having a purpose other than increasing profits doesn’t harm businesses. Harvard’s data shows that companies with high levels of purpose outperform the market by 5%–7% per year, on par with companies with best-in-class governance and innovative capabilities. They also grow faster and have higher profitability.
Read the full Harvard Business Review feature about how the Business Roundtable’s letter could affect the ways American corporations operate.
