Business Roundtable Says it is Not all About Profits

Posted by Joseph M. Phillips on Thursday, September 12, 2019 at 4:44 PM PDT

Recently the Business Roundtable introduced a revised statement on the purpose of corporations.  The Roundtable consists of nearly 200 CEOs from many of the major corporations in the US, including local companies such as Amazon, Boeing, and Microsoft.  The statement marks a significant shift in thinking, since it says that corporations are not just about maximizing profits for shareholders, but should also factor in the interests of customers, employees, business partners, and the community.

The 1997 version of this statement first introduced the concept that business organizations should be all about maximizing returns for shareholders.  This is a view popularized by Milton Friedman beginning in 1960’s.  It’s a simple and thus alluring concept, made attractive by its measurability (profits).  The best interests of customers, employees, partners, and the community are harder to measure and sometimes “messy.”  It’s important to remember the focus on shareholder returns has not been around all that long, and while it became a conventional wisdom for many, it’s not necessarily a compelling view.

The Albers School has long advocated that a business should consider its multiple stakeholders and not single-mindedly pursue profit maximization.  The ultimate purpose of business is to meet human needs.  It does that in two ways.  First, to provide goods and services to customers and, second, to provide employment and opportunity to those involved in the enterprise.  Giving primacy to shareholders does not align with that.

It’s inspiring to see the Business Roundtable reverse its thinking and adopt a view that is more in keeping with common good.  Let’s see how these business leaders and their organizations go about making this new statement a reality.  In doing so, they will allow the business sector to play a more vital role in helping to solve the many challenges facing our society.