Why the Exciting New Business Definition from the Business Roundtable Is Really a Yawner
No new ground broken, they only put a new wrapper on existing practice.
The Business Roundtable recently came out with a statement of purpose-;which was signed by 181 CEOs of prominent companies-;where they signaled that they would be valuing the "stakeholders" in their business: customers, employees, suppliers, and communities, in addition to their shareholders. In short, their joint statement said that their purpose was to create, "An Economy That Serves All Americans."
Many people, the media in particular, applauded the statement-;perhaps fueled by their archaic and accepted viewpoint that the sole purpose of every businesses was to make a profit, as Milton Friedman from the Chicago School of Economics stated. Perhaps the statement from the Roundtable was a bit of a public relations move designed to head off the growing sentiment espoused by Hollywood, politicians and others that profit is somehow evil.
But the truth of the matter is that the Roundtable's statement, at least in my opinion, was a big giant yawn.
Because any CEO worth his or her salt was already running their business with all of their stakeholders in mind.
I acknowledge that there will always be bad CEOs and leaders who prioritize profits over everything else, the ones that abuse the environment and their employees. But this is small set of leaders. The majority of CEOs, I'd wager in the very high 90th percentile, understand that you can't run your business that way. Part of the reason for that is that business schools have been teaching a more enlightened view of business for at least the past few decades. I know, because I got my MBA a long time ago and that's exactly what my professors taught me.
The key lesson has been that if you intend to survive for any amount of time as a business, you can't afford to shortchange any of your stakeholders. Let's dig into the ones highlighted by the Roundtable.
How can any business survive if it doesn't take care of its customers by providing them value? Sure, there might be an example of a fly-by-night criminal organization that takes advantage of people. But in this era of extreme transparency, where customers can make or break a company by their social media ratings, every company has the incentive to take care of their customers if they want to stick around. It is simply too easy for the first few you shook down to warn everyone else.
Any organization who has ever suffered through a period of high turnover understands how devastating that can be to your operation. That's why no company can afford to take advantage of its employees and expect to prosper in the long run. With sites like Glassdoor, where employees rank their employers, companies will find themselves without a workforce in short order if they abuse or underpay their people. In today's environment, that means building a higher purpose into your business mission.
We can have the same conversation when it comes to suppliers. Every business leader understands that your best supplier relationships are built for the long term-;five to ten years, or longer. While you might be able to squeeze out a few more dollars by pressing your suppliers to lower their prices, you might be destroying the foundation for a symbiotic relationship you need to grow in the future. If they don't make a profit, they won't be there next year when you need them. Every enlightened CEO should understand this, even if just by instinct.
While there are examples of bad actors ignoring their impact on their neighbors and communities over the years, the truth is that a company is doomed today if it doesn't prioritize being a good member of its community. That means both not doing harm as well as giving back. Failing to do so not only will that impact your ability to recruit and retain a workforce, it can also bring about penalties and scrutiny from governmental agencies.
It wasn't an accident that the Roundtable listed shareholders last on their list. But the truth is that the interests of shareholders have always come after those of the other stakeholders-;Milton Friedman's views notwithstanding. Yes, companies need to make profits to survive. But they need to do so in a sustainable way-;which is something that every responsible shareholder should understand as well. The real win is in the long game-;not in short term gains.
The statement by the Business Roundtable elicited a big yawn by most of the progressive business community. But perhaps it was a needed message to remind the general public that business are a force for positive change in the world-;and not just self-serving entities that are driven to make a profit at all costs. The truth is that most businesses have been run in this enlightened way for at least a generation-;and that's something we can all celebrate and pass on to the next generation of business leaders.