& Securities

On August 20, 2019, the Business Roundtable (BRT) issued a new Statement on the “Purpose of a Corporation,” available here. The Statement departs from BRT’s long-standing adherence to the concept of “shareholder primacy” under which corporations exist principally to serve and increase shareholder wealth. Instead, in what BRT calls a “modern standard for corporate responsibility,” the Statement embraces a “fundamental commitment” to all corporate stakeholders: customers, employees, suppliers and communities, as well as shareholders. Specifically, the commitment calls for Corporate America to:

• Deliver value to customers, “further[ing] the tradition of American companies leading the way in meeting or exceeding customer expectations”
• Invest in employees by compensating them fairly, providing important benefits, training them in skills for a changing world, and fostering diversity, inclusion, dignity and respect
• Deal fairly and ethically with suppliers
• Support communities and “protect the environment by embracing sustainable practices”
• Generate “long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate,” coupled with transparency and engagement

BRT’s Statement was endorsed by the CEOs of 181 prominent U.S. companies. In contrast, the Council of Institutional Investors (CII) expressed concern, available here, that the Statement places shareholders, the owners of the corporation, last in the litany of stakeholders and “undercuts notions of managerial accountability” to them. In CII’s view, Government is the appropriate arm for addressing concerns that do not lead directly to the creation of shareholder value.

Questions of “corporate purpose” and the responsibility of directors and managers to stakeholders other than shareholders, including to society at large, have intensified in recent years in the business and political realms. BRT’s Statement helps make more “mainstream” the efforts many companies have already undertaken to increase transparency and address the interests of other constituencies in the context of sustainability and human capital management.