The Business Roundtable (BRT) is a group of over 180 CEOs who represent the most powerful companies in the world. Companies, the likes of which are Amazon, Apple, and others. They are taking an extraordinary position reflecting new business principles that include more inclusive ways of doing business, as a result of their meeting in the fall of 2019.
A new term called ‘inclusive long-term Growth’ is intended to not only embrace the shareholders of a company but also the suppliers, employees, customers, and, in effect, our entire society, when it comes to dealing with the profits of a company.
The concept of inclusion is a variation of the original position taken by the Roundtable, namely, the purpose of a corporation was to maximize value for the shareholders. That original position was in alignment with the views of conservative economist Milton Friedman, a very popular individual who heavily promoted and justified the cause of free enterprise and capitalism during the 1970s. Friedman summarized his feelings when he said “the social responsibility of business is to increase its profits.” By the 1990s, the position of the Roundtable business principles included benefiting society in general, as a result of the most recent 2008 recession. It has been expanding those principles ever since.
In a recent release to the Associated Press, the Business Roundtable leaders said “we know many Americans are struggling. Too often hard work is not rewarded, and not enough is being done for workers to adjust to the rapid pace of change in the economy. If companies fail to recognize that the success of our system is dependent on inclusive long-term growth, many will raise legitimate questions about the role of large employers in our society.”
The nature of inclusion is apparently intended to level the playing field of financial inequality between higher wage earning management and lower level employees. Furthermore, several recent democratic presidential candidates have taken the position of creating board seats for employees, as well as seeking more parity with pay between workers and management. In addition, there is more pressure being applied in the area of the environmental impact of a business, with regard to climate change.
As the past Chairperson and CEO of PepsiCo, Indra Nooyi took an interesting position on corporate citizenship in a recent article for the Harvard Business Review. She went on to say that PepsiCo was one of a small number of world class companies that not only generated superior financial results, but also met the needs of all their stakeholders in a socially responsible manner. Specifically, she credits the company program entitled Performance with Purpose (PwP) as their vehicle for sustainability and social responsibility. The PwP is “based on four pillars: delivering superior financial returns (financial sustainability); transforming the product portfolio by making more healthful, more-nutritious foods and beverages while reducing the sugar, salt, and fat in PepsiCo products (human sustainability); limiting environmental impact by conserving water and reducing the company’s carbon footprint and plastic waste (environmental sustainability); and lifting people up by offering new types of support to women and families inside the company and in the communities it serves (talent sustainability).”
Clearly, the purist model of capitalism promoted by Friedman is feeling pressure this day and age from many directions, all around the world. Nooyi goes on to comment about the recent Business Roundtable. It is “commendable and courageous indeed. But the truth is that change is tough for well established companies. Most are not start-ups that began with a social purpose, as Whole Foods and TOMS Shoes did. Nor were they set up, as Grameen Bank was, to solve social problems. At companies that have performed well, sometimes for decades, it’s natural for employees to continue the behaviors that have led to strong results. Success, more often than failure, prevents a company’s transformation.” She puts PepsiCo front and center in the race to become more socially responsible by being more socially sustainable. “PepsiCo is one of the few established global companies that have produced superior financial returns while meeting the needs of all stakeholders. It has always invested for the long term and delivered results in the short term.”
Overall, with the recent position taken by the Business Roundtable, it can certainly bring clarity to the purpose of a business. Time will tell if the new purpose espoused by the Roundtable evolves to bring shareholder value to the stockholders, serve society, and be conscious of the environment, or all three.