What is the Purpose of Business - Business Matters 2021

we have one final session for you that you will not want to miss many of the questions we've discussed today have been about the responsibilities of business leaders to their businesses their customers employees and the larger community in times of volatility like the one we are currently facing it's easy to lose sight of these responsibilities what is the purpose of business in the first place this question gets to the heart of many of the questions we are asking milton friedman who father cirico and john mackey just referenced famously argued that the social responsibility of business was to increase its profits this view was influential for decades in 2019 the business roundtable made headlines by changing their statement on the purpose of a corporation to incorporate the language of stakeholderism which calls on businesses to look beyond shareholders and to consider other constituents such as employees suppliers the community and even broader social concerns such as environmental or racial justice but what is the role of business and society our three panel speakers will engage in a fruitful conversation on this topic illustrating the different answers one might give to the question what is the purpose of business emilia is an expert in sustainable capitalism and founded and leads the business in society institute at berkeley law the institute's mission is to define and advance a legal and policy agenda that encourages companies to account for stakeholders and the environment amelia's recent publications explore stakeholder governance and esg as a process for overseeing risk and a powerful tool for transforming corporate culture she regularly presents to audiences of corporate executives in the united states south america and europe will anderson is a senior director policy for the business roundtable in this role he is responsible for analyzing and advocating federal legislative and regulatory policies that promote u.s competitiveness economic growth and job creation before joining the round table mr anderson has served as a senior associate for potomac global partners and as an advisor to the u.s chamber of commerce's institute for legal reform dr samuel gregg is the director of research at the acton institute he's written and spoken extensively on questions of political economy economic history ethics and finance and natural law theory he's the author of 13 books including the struggle for western civilization he publishes in journals such as the harvard journal of law and public policy and the journal of markets and morality he also writes regularly for publications such as the wall street journal national review and business review weekly to moderate this discussion we have dr james otterson dr otterson is a professor of business ethics and faculty director of the notre dame deloitte center for ethical leadership at the university of notre dame he's also a visiting scholar of the fullner institute at the heritage foundation in washington d.c he specializes in business ethics political economy the history of economic thought and 18th century moral philosophy his books include the essential adam smith and honorable business among many others he has three books forthcoming including seven deadly economic sins thank you very much for that introduction chris it's a great pleasure to be with you and with the acton institute and especially with this very distinguished panel to have a discussion that we hope will be both provocative and robust but also of course civil about a topic that is extremely timely shareholder versus stakeholder conceptions of business and more generally what really is the purpose of business so my name is jim addison it's my pleasure to be here with three distinguished scholars professor miazod dr anderson and dr samuel greg and we would like to give each of them a few moments to make some opening statements so let's go in that order and we'll start with professor miyazad professor miyaza the floor is yours thank you so much um so we're here today to answer uh age-old question what is the purpose of business well in 2000 a well-known article entitled the end of history for corporate law pronounce that there is no longer any serious competitor to the view that corporate laws should principally strive to increase long-term shareholder value well here we are in 2021 and corporate purpose has reemerged as what a recent scholar called the hottest topic in corporate governance and i would agree with that now you might think that as a law professor i can just crack open a book and look up the answer to that question what is the purpose of business but unfortunately there are very few cases in delaware which is the most important jurisdiction for corporate law of course on corporate purpose and none of them are actually very definitive which happily leads to endless publication opportunities for for law professors um so let's turn to the debate on one side of the debate stakeholder governance theorists blame shareholder primacy for really exacerbating societal ills and these include things like income inequality to climate change these scholars are arguing that the purpose of a corporation is not to create profits at the expense of society but rather to solve society's problems profitably now on the other side of the debate the shareholder primacy theorists have doubled down on their fidelity to profit maximization their arguments are worthy they argue that it's the only viable north star it leads to societal benefit through wealth generation and importantly very importantly it offers a tried and true way to hold directors accountable to shareholders now these traditionalists of course concede that businesses cause grave societal externalities and they point to regulation as a remedy so there's environmental law there's labor law and corporate law should really stay in its own lane so the argument goes my work doesn't actually fit comfortably in either of these paradigms i take an institutionalist approach to corporate law and i i try to examine the corporate purpose debate not from the perspective of these theoretical frameworks but i try to observe what's actually happening in the business and investment community and there's of course a lot happening in that community today so what challenges exactly is the business community facing and what challenges face society today and why are we at this juncture where we're renegotiating the relationship between business and society at this moment so by observing corporate executives and practice a little bit like an anthropologist might observe communities what i've discovered in my work is that both the sides of the stakeholder shareholder debate i believe suffer from blind spots the business and investment community appears to be sailing swiftly towards a pro-social and pro-stakeholder-oriented view of corporate purpose now why is that happening why is there this coalescence around the idea of a pro-social or stakeholder oriented view of corporate purpose even the biden administration has promised to put an end to the era of shareholder capitalism and from wall street to main street to the beltway pro-social the pro-social corporation appears to be reigning triumphant but importantly this isn't the first time that the business community has championed a more compassionate version of capitalism i mean we've had the whole corporate sustainability movement the corporate responsibility or csr movement the sustainable investment movement that took place in the 80s and the 90s as far back as the 50s howard bowman the considered the father of csr was making very similar arguments well i argue that this rapid ascendance of the pro-social corporation has coincided with two parallel developments and they both relate to externalities and they relate specifically to a recalibration of these externalities now shareholder activist robert monks astutely observed that the corporation as an is an externalizing machine and he famously compared it to the same way that a shark is a killing machine things like fossil fuels provide a paradigmatic example of an industry that has successfully externalized its negative externalities from profit maximization perspective that's because the true cost of the environmental degradation from from gas is borne by the rest of society now until relatively recently companies have mostly been incentivized to externalize these negative impacts and to take ever more risk and corporate law is really oriented around incentivizing that risk-taking but today there's a widespread consensus that the gig may be up because of the increased impacts of climate change and this is no longer importantly deemed a progressive argument the pentagon has identified climate change as a national security concern and of course even insurance companies are building this into their underwriting process so this story also plays out on the social side of the equation companies are recognizing that human rights abuses and racial and gender discrimination is hurting the long-term sustainability of their business but the important question is why why are investors pushing companies to be more pro-social now that seems a little odd um and here's where the story gets really pretty interesting it arises out of an unexpected plot twist that has placed systemic systematic risks such as climate change income inequality in the financial sector spotlight and the reason for that is because there's been a concentration of capital due to the rise of index investing capital has become concentrated in a few small asset managers now to put this phenomenon in perspective the big three asset managers blake blackrock state street uh um and vanguard collectively uh hold over 20 of the s p 500 um and in addition to the large asset managers there's been a growth in pension funds and so this group of asset managers is commonly referred to as universal owners and universal owners have portfolios that are so large that they're economy mirroring and i mean let's think about this for a moment because they're so diversified they cannot diversify away from idiosync from systematic risks so they can diversify idiosyncratic risk but not systematic risks and in this way it brings the incentives i argue of the large mass asset managers in closer alignment with the risks that are facing society and that explains statements made by larry fink and that explains statements that from the business roundtable you know because those directors are really feeling the pressure from the investment community now corporate law as i mentioned before points to regulation to address these systematic risks but regulation is not able to do so uh for a number of reasons with sufficient speed uh or sufficient specificity if at all and so as a result these universal owners are filling this vacuum to address these systematic risks and stakeholders i'm sorry companies are responding to this pressure how they're responding to this pressure through stakeholder governance by taking into account the impact of their business on stakeholders companies are managing and mitigating risks and understanding this institutional perspective sort of makes the accountability critique fall away in many ways the pressure for companies to be more socially minded importantly is coming from shareholders for very sound economic and risk oversight reasons so at this point i of course haven't directly answered the question what is the purpose of business uh so to answer that question i i'm going to borrow a definition from jonathan charkham and ann simpson which is the purpose of business is to meet society's needs and wants ethically and profitably this definition captures wealth generation for shareholders but importantly that wealth generation is a byproduct and it accounts for the impact of business on stakeholders thank you thank you very much professor miyazad um we will now turn to will anderson who is the senior director for the policy for the business roundtable mr anderson thank you chris and jim and thank you to the acton institute for the kind invitation to join today to talk about the purpose of business i am a senior director of policy at the business roundtable which is an association of ceos of america's leading companies based in washington dc um business roundtable represents all sectors of the us economy we've got well over 200 ceo members who lead companies with more than 15 million employees who provide health care and retirement benefits to tens of millions of americans and generate more than 480 billion dollars a year in revenue for small and medium-sized businesses with that said i i want to note i'm here in my own capacity and the opinions that i share of my own and not necessarily that of our association of or of our members ceos but it's a real privilege to be here and to be hosted by the acton institute our ceos see very much like your institution the need to speak out in defense of free enterprise and a strong private sector business roundtable ceos have been active in supporting pro-growth tax and trade policies and arguing against successive regulation and were were firmly opposed to intrusions into business decision making that would stifle innovation or growth or that would handicap the free markets or u.s competitiveness and these topics will always be central to brt's agenda but in recent years our ceos have begun asking whether defending capitalism and free enterprise in this era will require something more you're all aware of the challenges that free enterprise faces including the growing skepticism among many americans about the benefits of capitalism and i would say the act of consideration by many members of congress of policies that would move key economic decisions into the public sector according to one national survey that we did at the round table about 27 of registered voters have a favorable view of socialism now that's obviously a lot less support than for capitalism but still it's remarkable uh given socialism's pretty dismal track record around the world but within brt we've had long discussions about the reasons for this discontent right the press normally attributes it to anger and inequality then that's certainly part of the issue but we think there are additional factors that are uh worth including like the decline and econo economic mobility in the united states right i mean i i think there's this idea that hard work won't be rewarded and that regardless of someone's efforts uh you know they won't be able to get ahead and the conclusion that we've reached within brt is that despite overwhelming evidence that free enterprise and capitalism are the best systems for sustaining broad prosperity many americans have legitimate concerns about the way our economy is working for them and they've concluded you know that one way to help preserve the timeless benefits of capitalism is to demonstrate that the benefits of our economy are broadly shared in addition we've concluded at our companies uh each of which employs a lot of americans and has influence in communities around the country has a role to play in outlining the practices and policies that can help address some of the anxieties that are being felt by average americans so as a first step uh we took a look at our own business roundtable statement on the purpose of a corporation and so here's some background on that since uh 1978 brt has put out a statement that outlines the purpose of a corporation in the early years the statements that we published addressed the importance of company investments in workers and communities and other stakeholders but in 1997 our rhetoric shifted brt adopted language that really emphasized that the principal objective of a business enterprise was to generate economic returns for its owners and so over the years that language had been used against ceo ceos of brt and really to say that big business and chief executives care only about shareholders and um we heard from critics that uh the 1997 language uh was the beginning of the end for capitalism which struck us as an extreme overstatement of course but you know in early 2019 we began interviewing uh corporate governance experts on the implication of the language we had been using most importantly we began interviewing our own ceos who consistently said look you know of course we want to generate value for shareholders but at the same time we are also focused on being good employers and and good members of our communities and you know some of us some of the ceos told us that taking care of stakeholders you know was common sense and frankly the way that the best run companies had been operating for a long time and so in the end we concluded that the 1997 language didn't accurately reflect the ways that our ceos were trying to run their companies and so after a number of months of discussions among our ceos we adopted new language that was endorsed by our membership which says first off we believe the free market system is the best means of generating good jobs and a strong and sustainable economy innovation a healthy environment and economic opportunities for all but second of course companies should continue to try to generate returns for their shareholders but they should do so while focusing on their customers and investing in their workers and the communities in which they operate now uh as many of you know uh since uh its endorsement in in 2019 the statement's been subject to i think pretty vigorous debate uh it's received tens of thousands of media mentions the wall street journal has uh published multiple very critical op-eds uh and we've welcomed this debate i mean there's plenty of room for principled opposition to the approach we've adopted and we fully recognize the difficulty of these issues but i i do want to respond to one particular criticism and that's that you know some commentators have suggested that we're attempting to walk away from business obligations to shareholders or to diminish fiduciary duties and we're not right boards have to make decisions that they believe in their reasonable business judgment or in the long term interests of their shareholders however there's nothing in delaware law or any state's law that says a ceo or you know that he or she should not also be a good employer a good member of his or her community and in our view to succeed in 2021 and beyond companies have to be able to do both and so the ceos have sort of rejected this idea that meeting the reasonable long-term expectations of multiple stakeholders is impossible in fact they've said at the time of enacting our statement that the long-term interests of a company stakeholders including shareholders are inseparable a few years ago father sirico a founder of the acton institute put it i think very well when he said if you know anyone in business you know that consumers must always be the first concern the second concern is the workers who make production possible a capitalist who serves himself the first fruits just isn't going to last very long in the market capitalist actions that are successful in the long run always are other directed and look we couldn't agree more because running your companies uh in the interest of shareholders and your stakeholders is in conflict because shareholder value in the long term is lost if you don't strive to serve your customers treat employ employees fairly or if you're not being a responsible member of your community thank you thank you very much mr anderson uh that was terrific so our we'll now turn to our third panelist that's uh dr samuel gregg sam thank you jim uh thank you for uh invitation to be here it's good to be with you amelia and will today and everyone else of course who's watching this session well i think until the 1950s i think if people had asked what's the purpose of business i suspect the answer would have been more or less the same but that hasn't been the case as i think emilia pointed out for quite some time and presently much of the discussion oscillates in terms of milton friedman's article about what he thought corporate social responsibility was contra stakeholder theory and i think in both cases there's a lot of misquoting and misrepresentation of both positions but i'd like to answer the question that we've been posed today what is the purpose of business from another perspective so i'd like to ask what type of organization a business is and what is it about business that allows it to make its distinct contribution to the overall flourishing of individuals and communities in a given society in other words the classic definition of what's called the common good to answer that question we need to identify a few criteria the first i think is that businesses are voluntary associations second like any voluntary association the scope of their activity is determined but also restricted by the goal that's specific to business as a voluntary association and the third thing i would say is that businesses serve this wider common good by pursuing what happens to be their particular common good when you think about it i think any voluntary organization whether it's a business an ngo or a charity they all have a particular good that they're created to realize in general i think this means they shouldn't pursue goals beyond that particular end because i think things start to go wrong when voluntary associations start pursuing objectives that are more properly the responsibility of other groups so we don't want businesses acting like chess clubs or political parties or vice versa for that matter so to avoid these problems i think we need to identify what is this specific good that's served by business and i think the deceased natural law philosopher jermaine grise he offers a very good definition he says this he says the common end of every voluntary association is determined by its participants mutual understanding and consent he then says a profit-making business is a voluntary association of the persons who cooperate in the specific activities for which it was organized in order to realize various economic benefits input so these economic benefits from this standpoint are the good that's primarily realized through a business association so what does a private business association do well it brings together investors owners managers and non-managerial employees and they freely cooperate together to organize monetary capital technology skills labor and entrepreneurial insight to realize certain economic goals now the reasons why individuals associate themselves with a particular business they vary some people want to learn more about the particular business that they're involved in the particular sector others simply see the same very same business as a means for them to derive an income but whatever people's reasons for freely involving themselves in a company i think everyone has to be committed to realizing the specific economic benefits that the business exists to realize because that's the good that binds all these people together now this understanding of business it's not a license for any participant in the company to treat others solely as a mains to economic ends but this understanding of business also grounds and limits the authority of those in the enterprise who have the responsibility for coordinating all the activities that allow a business to realize its specific end so it's on this basis for instance that ceos may terminate employees if a manager is consistently failing to perform up to the required standards compromises the company's ability to realize its goals so while there's room for the discussion about how you let an employee go the ceo's authority to terminate that manager comes from the ceo's responsibility to ensure that the company achieves its specific goods i also think that the same good also puts some restrictions around ceos and boards from involving business in the pursuit of genders that are agendas that have little to nothing to do with the firm's primary goals now there are of course many charitable cultural political activities that people involved in the business can and sometimes should be involved in but i think if such endeavors have no immediate bearing on the company's ability to realize its particular common good and sometimes that bearing can be very wide and sometimes it can be narrower but if these endeavors don't have that type of immediate bearing i think these individuals should do so in a private capacity in other voluntary associations and certainly not with company resources now some might ask don't private companies have responsibilities that go beyond these boundaries isn't it the case that businesses have for example duties to their customers and in recent decades particularly since the 1980s many have argued that businesses have obligations to literally anyone or anything affected by their activities now depending on which theorist you read and there are many stakeholders can range from relatively easily identifiable individuals and groups to whom there clearly is an obligation for example like your clients or your local environment but there are also some who argue that stakeholders embrace catch all universals such as those identified recently by the head of the world economic forum and he said it's all about four p's prosperity people planet peace that's pretty broad criteria now i happen to think that anyone in the business should follow all the moral principles that binded everyone else so that among other things means you don't kill you don't steal and you don't lie to customers or anyone else i think it's also very clear that businesses must obey all the just laws all the just regulations that legislators deem necessary for society's common good and i think that the principal ways in which businesses fulfill their duties to all those entities that might qualify as stakeholders the last thing i'll say is this there's a very specific way in which business contributes to this broad common good and i think that's by pursuing the specific good that businesses are designed to realize now as a society's common good consists of all those conditions that assist all members of the society to flourish as they children different organizations have primary responsibility for these various conditions the military for instance they promote national security the judiciary administers justice and i think the condition that's specific to each entity reflects its particular competence judges don't fight wars and generals don't administer justice for civilians so i think from this standpoint one primary condition of society's common good realized by business is of course the creation of the wealth that provides for people's material needs and wants now governments can assist businesses accomplish this through for example providing public works protecting property rights maintaining courts devising just regulations etc but i think we need to keep in mind that the organization that most often creates wealth and societies that take human freedom and justice seriously is private business now to be sure this goal this end isn't always at the forefront of the minds of people in business for some entrepreneurs it's all about the satisfaction they get from deriving creating new product or service others work in the private sector because they're willing to trade off less employment security in return for higher salaries but a side effect of all these free choices i think is that they allow businesses to drive the type of economic growth that over time raises living standards and provides for society's material needs and that's i think the primary way in which business contributes to a society's common good and that's how i think the purpose of business serves society as a whole thank you very much thank you very much sam and thank you to the uh to our other panelists so this was a terrific way to begin our discussion um so maybe now we can turn to um a little bit of question and answers so i have questions that i'd like to ask and um in the interest of making this interesting for all the people who are watching or maybe even more interesting i'll be a little provocative so i'll ask questions uh first one for amelia and then will and then sam but so i'll turn to you emilia so you've argued for encouraging companies to account for as you put it stakeholder not just stakeholders but even a little bit more specifically things like the environment taking the environment into consideration various other um social ends and i think that's in part because you as you mentioned firms often have externalities so they're not just entirely self-contained organizations or entities they have externalities meaning there are effects of their activities on uninvolved or un um on third parties that we don't uh consult so let me build a little bit on a part of what sam um argued and ask you this question how should we balance these these rather broad objectives so for whatever um whatever it's false profit seems a relatively straightforward measuring stick both for evaluating companies and corporate executives and it's also in a way um a fairly straightforward measure for ensuring accountability to the shareholders who after all have put their resources at risk in a company um so if profit is an incomplete way at least it seems it's fairly precise but these other objectives um seem somewhat less precise and a critic might even say they're vague and maybe even without they're open-ended and it's not clear how to evaluate on the basis of these other objectives so if we want to in good faith incorporate them and try to balance them somehow how do we actually measure these things thank you so much james and and thanks for this opportunity it's been a already fascinating and thought-provoking discussion um sam's i agree with much of what sam said and um i agree with you james that the standards are uh you know currently in a nascent stage but i'd like to highlight one thing that's running throughout this debate that that actually runs throughout the corporate governance debate often which is a false distinction between economic and non-economic ends these things climate change racial injustice income inequality are economic factors because they are systematic risks that threaten the entire market large asset managers understand this this is a fundamental fundamentally economic calculation for them insurance companies understand this they're building this analysis into their underwriting process the metrics are getting better the four largest accounting firms have banded together to work with the standard setters to develop more specificity around how to measure total cost of externalities for you know pollution for example or for a particular product the impact that that's having on the workforce i think that we can do better than saying we should use profit or stock price because it's easy to measure i think that we have a lot of sophistication in economics today that in environmental economics in particular that we can marshal towards uh you know an economic accounting of the true cost of externalities um but i i do want to um emphasize that this distinction between economic things over here that business should deal with and all of this social stuff or environmental stuff that's better placed in um you know the responsibility of ngos or government is a false distinction and the large asset managers again understand that the important thing for business to do i agree is to enhance the common good the common but what is the commonwealth the commonwealth means one business cannot externalize its costs on to society or onto another business because the entire portfolio suffers and hence the commonwealth suffers the national economy suffers and where we are we end up where we are today thank you emilia so uh will amelia argues that there's a false distinction between economic and non-economic ends or let this is set up in a way to create a kind of false dilemma based on the your argument it seemed to me that you were suggesting that part of your argument was that um for businesses what you're hearing from your member businesses and from ceos and other executives is that there is something important um some important social ends that they're responding to so in an important way you see the recommendation to consider certain things other than just profit to be really part of what the business a for-profit business should do in a market economy so correct me if i'm misrepresenting your argument but let me ask you this it sounds as if part of the argument is well businesses are really responding to changes in culture and to changes and demands from consumers citizens other stakeholders and they're doing so in such a way that if they respond to them properly this might actually be in their own long-term best interest as for-profit companies so if that's true then is this really a moral concern that they're responding to or is this really just um you know good business so if it turned out that ultimately it would lead to long-term benefit if they improve the lighting in their warehouses or if they got new computers or if they got uniforms for their employees these aren't particularly moral or non-moral concerns they're just good business practice and if it's just good business practices does it really have a moral content or does there have to be some kind of sacrifice that businesses are willing to take in the service of their moral lens for it to count as properly moral sure i mean that's a very interesting question i mean i i guess i would start by saying that at least the statement that business roundtable put forward in 2019 it's uh it's not a repudiation of shareholder interest in favor of political or social goals right the statement reflects the fact that for companies to be successful and durable and return value to shareholders they have to consider the interests and meet the fair expectations of a range of stakeholders and additional shareholders right um but i will say you know we know americans uh many americans are struggling you know work as office is often not rewarded uh and not enough is is being done for workers to adjust to the rapid pace of change in the economy um and you know if if companies fail to recognize you know that the success of our system is dependent on long-term growth then a lot of people in our country are gonna have legitimate questions about the role of large employers in our society and so i would say that the the statements made by our association uh have particularly around the purpose statement they've been to really reinforce our commitment to you know a free market economy that that serves all all americans now when it comes to statements made by individual companies you know i would say that you know many of our companies touch aspects of our everyday life right brt companies employ 15 million people and they are deeply embedded into different aspects of our society and some uh issues when companies are silent some of their employees and customers may equate that to them being complicit in the various various issues and look i'll just say that individual companies have their own individual purpose um we have set out a statement that our companies have committed to in terms of what is good business practice in terms of how to operate your comp your your company for kind of for the long term um but in regards to particular issues when companies weigh in it should be authentic and it should not be about branding and it should be in relation to the stakeholders of of that individual company okay thank you so sam um a couple of questions to you i think um that were basically directed by amelia and will but uh juan from amelia isn't it the case that um that firms are joint enterprises they um they have activities that have effects beyond their own walls including social political environmental effects and if so shouldn't they be held accountable for all of those effects not just um for returning value to shareholders um and you know just thinking about what will said now um isn't it wouldn't it be the case that in the long term if if a for-profit company is interested in its long-term profit it's long-term survivability um then it should take these social considerations um into effect it should it should really think about these effects that it has on uh things outside his walls thanks for that um i have a couple of thoughts on uh both your questions well it is obviously the case that companies have externalities they vary from social to community to environment when a company for example gets up and moves from one location to another that obviously has implications for the surrounding community um so that's i think that's that's not a point in dispute uh to the extent i think that for example some forms of stakeholder theory say well businesses should treat their employees and customers fairly they should honor contracts they should obey just laws they should respect the environment etc well in many respects that is how they are fulfilling those types of responsibilities and they have an obligation to be involved in shaping what that looks like both at the level of regulation and at the level of law of course the the thing that you have to watch for is the sheer breadth of some of the claims that are being made that businesses are supposed to be responding to so it's one thing to say okay uh such and such a firm needs to be very conscious of what's going on its community many of its customers are there and if its clients are there etc it's very different to say you are now responsible for world peace uh if you read for example um the book recently published by klaus schwab on stakeholder capitalism what he says there profit is one thing there's three other p's though peace um the planet and third fourth one is uh escaping me but um i think i think it's people isn't people right well okay well what does that mean what does that mean what does that mean some sort of eternal county in peace that they're supposed to be contributing to and if so how uh as for the planet well are they responsible for what's going on on the other side of the world or this is their primary responsibility what's going on immediately around them so i think a lot depends on which type of stakeholder theory you're you're looking at some of them i think are simply articulating uh responsibilities that i think that any conscious corporate citizen is going to follow others i think not in some cases not all have a much more explicitly political agenda attached so that's the first thing um the second thing in terms of long-term long-term sustainability well there's a couple of things that can be said about that in the first place obviously companies that want to be around in 20 30 40 50 years time have to think about how they sustain themselves and they have to think about changing directions within their customer base they have to think about what's going on in their society a company for example that tried in that was like located in say for example alabama that tried to maintain the type of uh arrangement that prevailed before the civil rights act probably wouldn't be around today right that's an example but at the same time one has to say to yourself okay well what does this mean what is this how does it actually cash out because long term can shift very very quickly so for example we see a lot of companies are [Music] responding to the idea that people want their social political preferences reflected in their consumer choices okay well if you're a business that's pursuing profit it probably makes sense to be paying attention to that but that can change as well people get older they read some economics they get married sometimes their views change about all sorts of things and suddenly if a business is not careful can find itself pursuing the objectives of a generation that grew up in the 1970s or 1960s so certainly yes long-term sustainability is crucial if a business is going to survive but i would urge businesses to pay a lot of attention to going to what's actually going on and what's likely to be going on in the near to the near future because i think the assumptions that may be prevalent at one particular point can become redundant very very quickly thank you sam so um i'm going to build on part of what you said i think part of your argument for amelia and will um so suppose companies and corporate executives um are persuaded by the argument um that they should broaden their focus um i think this might be part of what sam was getting at uh but my q the question would be why should we trust them that they'll get it right you know there's a lot of suspicion of business people and ceos already does a call for them to look at much broader focus including things like prosperity people planet peace does that put too much faith in them that they'll get it right why should we think not i mean maybe they would get it right if they were all philosopher kings and queens but most business leaders i don't mean any offense aren't philosopher kings and queens so why should we think that they should get it they would get it right and why would we put that much faith in uh in them in the attempt that can be for either emilio or will i can i can take that so um i'm actually writing a paper on this uh and it's called a test for stakeholder governance with my co-author professor stavros gadines again we look at an institutional approach we examined how does stakeholder governance work in practice because there's a lot of suspicion triggered by larry fink's letter and the business roundtable letter that this is just you know a cover a chamfer ceo aggrandizement or projects that ceos may be passionate about or as a way to cover up poor performance essentially when you observe stakeholder governance and practice what you realize it is is that it is far more accountable it makes managers and directors far more accountable to both the board and it makes boards far more accountable to shareholders than the shareholder primacy model the shareholder primacy model looks at one metric stock price which hundreds of papers have have demonstrated can be very easily manipulated and you know we all know that here what's much harder to er to manipulate are literally hundreds of metrics that are being turned through and corporate um stakeholder oversight and esg um infrastructure that is getting constant feedback from stakeholders from shareholders from regulators from people with very different interests it's a messy process but it's a process that builds upon what corporate law has tried to do uh which is provide better and better information to the board and management in order to make the board more accountable to shareholders that is why again shareholders are pushing for this they're not pushing for it because larry fink is a socialist they're pushing for it because they realize that the esg process and stakeholder governance is so incredibly robust and superior at overseeing not only financial risk but emerging financial risk in a way that is uh really far better than than shareholder primacy and a singular focus on profit and esg is environmental social and governance did i get that right amelia yes environmental social and governance it also happens to be uh perhaps subconsciously the the initials of my youngest daughter aha that's why you support it no i'm kidding um will was there something you wanted to say about that question as well yeah you know there's there's a lot to unpack there i mean i i think um you know i would agree that the board should be cognizant of developments related to economic social and environmental issues and and should understand which issues are more important to uh or most important to the company's business and to its shareholders and this is a concept that brt has endorsed you can find in our principles of corporate governance i mean it's just good business practice i would say though that you know in regards to the fiduciary duty of corporate directors you know boards don't operate in a vacuum right i mean that they need to make decisions on an informed basis and in good faith and in the honest belief that the actions that they take are in the best interest of the company and its stockholders and so you could add to that you know the board needs to factor in all esg risk uh but you know let's think about that you know if you you should you also add in compliance risks should you should you add in succession risks should those be added in i mean i guess i would just say that you know legislators have avoided that they've opted for a flexible contact context-specific approach if there's a material esg risk i think you're absolutely right a board better be paying attention because if they're not you know you can have an argument that a board isn't informed and it's not acting in good faith under its current fiduciary obligations but you know expanding the current fiduciary duty isn't isn't necessary it's not something business roundtable is has argued for and it's it's probably a very slippery slope yeah just to clarify i'm not arguing for an expansion of the duty or for any regulatory reform uh what i'm what i'm emphasizing is that uh the esg and stakeholder governance process when you observe it in practice allows boards to oversee their fiduciary duty to you know prevent financial and legal risk in a much more robust way you well i i feel like i have to bring up a uh a currently relevant issue a current topical issue and sam i'll give you the first crack at this question but it's for all of you so lee some of the leading technological and social media companies like facebook twitter google have recently begun to use moral and political commitments to influence their activities but that's been quite controversial as i'm sure you all know it's led to a lot of criticism and in some cases some division so should company other kinds of companies follow their lead in allowing their moral or political principles to influence their activities perhaps in the process risking alienating some of their users or consumers or should they strive to remain neutral with respect to these competing moral or political perspectives um and is this um is what facebook twitter and google what they've been doing is this an extension of um a an example of the right kind of esg or otherwise broadening of the purpose of what companies should be paying attention to thanks for that nice easy question jim okay well a couple of thoughts um when we get to that that scale of issue i have noticed a fair amount of selectivity on the part of some very big corporations so for example apple let's take apple so um the head of apple has said that he wants to spend a hundred million dollars on uh dealing with issues of racial injustice etc in the united states and yet he has said nothing about what's going on in china with uyghur muslims with um any number of abuses that are being committed by in some cases racial abuse is being uh being committed by what is after all a communist authoritarian regime so there's a fair amount of selectivity that's going on here which that's problematic because if you're going to be presenting yourself as articulating a particular moral message and i think the business people are just as entitled to do that as anyone else and they should be done consistent in the way that they talk about these types of issues because they leave themselves open to the obviously inconsistency but also the the charge that um well in the end economic self-interest is over will override what you are parading as being your moral concern for a particular problem so as we all know apple have lots and lots of operations in mainland china now so i suspect they're probably not going to be saying very much about what's going on in china because we know what the communist regime will do to companies and does due to companies that don't tow the line so apple's an example of a company i think that is being grossly inconsistent in the way that it presents itself and talks about these sorts of issues is this uh the second question is this a sort of um extension of the shareholder thing well it depends which shareholder theory you're talking about because there's lots and lots of different shareholder theories out there some of which you could argue give rise to this type of language and rhetoric and behavior on the part of some ceos but there's plenty of stakeholder theories that would say no actually this is probably not what businesses should be doing and this is actually a distraction from some of the good points and good insights that some stakeholder theorists bring to the question of what is the proper responsibility of a corporation or a business in a given community thank you amelia or will do you ever thought about that i do but i'll i'll seat the floor to will and then i'll go last okay um sure i mean i guess i would say just responding to a couple of of the points it made i mean a business roundtable in our companies support free and fair commerce with foreign nations that benefit american workers and businesses we believe strongly in the freedom of expression we oppose efforts to use economic pressure to stifle that freedom um you know i this these are the really complicated issues in terms of kind of racial inequality um you know i'd say that we've seen real incidences of police brutality there's real angst in our society regarding racial inequality some of our companies recognize these issues are important to their employees they're important to their customers and to the extent companies want to lead on those issues you know they should do so and but they should do so in an authentic way um that's obviously not just not just branding but uh an authentic way that i think kind of responds to to the concerns that are important to their individual stakeholders emilia yeah but thank you james so your your question is a really interesting one and one that i thought a lot about and one that you can imagine that the students you know find it thrilling to to study brand activism now brand activism is um often related to the shareholders stakeholder debate but i'll take the uh but not always with respect to racial justice it absolutely is now as as sam pointed out these issues morph and change and again that's why it's very important for corporate directors and managers to be eliciting information from a wide as wide as possible of an array of stakeholders so that they can respond to the issues of the day now racial injustice is absolutely an economic issue i mean it's perfectly aligned with shareholder primacy and long-term or even short-term sustainability of companies we can see that reflected in things like the stock exchange requiring now aboard diversity and in regulation being passed all over the country mandating gender and racial diversity on board again these are not social issues these are fundamentally economic issues because the validity and the social license to operate for the company depends on depends increasingly on these issues so to the extent that there's uh alignment it makes sense um sam raises a good point with respect to inconsistencies there will be inconsistencies because there's limited time there's limited resources and corporate directors and managers have to be strategic about which decisions um you know align with their interests and which don't but again if you look at these as business issues and not put them in the bucket of moral issues then that inconsistency can be reconciled i think that leads to another interesting question so we only have a few minutes left and i'll raise a general question to all of you and maybe first emilia since you raised the issue about a business issue versus a moral issue when we talk about the social responsibility of business we don't often talk or if we talk about say corporate social responsibility um is this a responsibility that is unique to business or is this a generalizable responsibility so i mean we don't talk about law firm we don't hear people talking about law firm social responsibility or university social responsibility or even consumer social responsibility we talk about corporate or social responsibility so is there something unique about businesses that incurs some kind of moral obligation or moral responsibility that's different from other moral responsibility or is this in fact just generalizable it's just their particular version of something that all of us should do or all organizations should face yeah i mean i think all organizations have uh moral obligations but i think that the reason businesses are different is because businesses have an obligation to their shareholders to increase value the way that they do that is by accounting for impacts on stakeholders again i don't i don't draw this distinction of businesses should act morally rather um externalizing negative externalities even if the law perfectly allows for it uh is increasingly untenable because of the interconnected nature of our markets thank you emilia will sure i mean i would say that um you know our view is that companies should be contributing positively society but they do that right by focusing on their stakeholders by focusing on their customers by treating their employees well and by being responsible members of their communities and you know because shareholder value in the long term is lost if you're not focusing on the very things that make your company great right you shouldn't be as uh as father sriko put it you know serving yourself the first fruit so the point is there's a role for corporations in helping address some of the anxieties around capitalism some of our companies have done an excellent job in this area but even among those members there's a desire to do more and so our members made a commitment to act in a responsible manner when it comes to serving their individual stakeholders and and look we think the statement that we put out is an important step in the right direction but it's just a step it's it's part of a much longer story about you know how companies have been working to support their workers and and communities and there's still a lot um a lot of work to be done we've got a lot of examples of kind of company investments that they're making particularly in their workforce and their and their training and and these are things that i think average americans should care about because um particularly in a economy that is ever evolving with technological advances it's important that companies care about their workers and care about their communities and make those investments and then finally you know i'd also say that companies are one piece of this puzzle right i mean i i think that the government plays an important role as well um just as the private sector serves to grow and innovate and create jobs and invest in the stakeholders that continue to make growth and job creation possible the government has a role in in areas like workforce training and investing in infrastructure and supporting basic research and so we also you know have pressed congress to achieve these goals through a number of of policy changes that that we think kind of are to the betterment of of society and and our stakeholders as well thank you will uh sam you have the last word for our last minute well there's lots to say one is i i mean to your general question i think one reason why there's so much focus there's two reasons why i think there's so much focus upon social responsibility business and many of the things that amelia will and i have been talking about one of course is that business is so central to the lives that so many people lead it's where large numbers of people between the ages of let's say 25 and 70 it's where a lot of people spend lots and lots of their time and that being the case there's an immense focus upon making sure that this very big part of life in america and life and around the world which has enormous impacts both seen and unseen upon countless people it doesn't surprise me in that sense that there's such a focus upon say the social responsibility of business in the way that we don't talk about i think you mentioned law firms jim and that will be trade unions we don't you really hear people talking about the social responsibility of trade unions for example but i think it's got something to do with the centrality of business to contemporary market economies and modern societies the second of course i think is that let's remember that there's a long long tradition of hostility towards business that goes right back to the 19th century and even before that and it's not just coming from obvious people like marx it's coming from a range of different groups from all sectors of the uh all across the political spectrum by the way it's not just a left-wing thing you'll find plenty of right-wing people who are very hostile to business uh and some of these concerns might be valid i mean i think for example many people today are very exercised about the problem of cronyism and crony capitalism uh i often say to people i'm not i'm less in favor of business i'm much more in favor of free markets because markets are very very effective ways of dealing with this problem of cronyism and cronyism is a real problem so there are these these anxieties some of which i think are much more ideological in nature but others which actually have some foundation it's also the case that business is a realm in which self-interest operates obviously in a way that's not always as immediately apparent in other some some other fields of life and self-interest is one of these things that we have to watch and be very careful about because it can become very destructive if we're not careful so i don't think it's a surprise that we have all these different um causes of why business gets so much attention when it comes to these things some of which have to do with the sheer prominence of business and the role the critical role that it plays in our society but also there's these long traditions of criticism of business some of which i think are not so valid some of which do have some teeth which i think naturally means that people pay a lot more attention to what's going on in the business world than they do to other some other sectors of society thank you very much sam so i think all of the panelists and i would agree that um all human beings have dignity and should be respected accordingly and understanding what role business should play in respecting their dignity and also contributing to human flourishing and prosperity in the best way that it can these will remain important questions that we need to continue discussing my thanks to the panelists thank you amelia miazov will anderson sam greg it's been a pleasure and i look forward to the next time we can continue the conversation

2021-03-16 00:05

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