As the dust settles from the pandemic and things become more normal from a year and a half ago, it’s time we look and think: What is the purpose of a company?
Just months before the pandemic, 181 CEOs of American companies had come together at the Business Roundtable summit to discuss a change for companies to focus on stakeholders rather than JUST shareholders. The summit’s focus vastly differed from the older American business doctrine that Milton Friedman had created years before. So when the summit was announced, it was a big deal, published on many news platforms. Stakeholders would have a higher priority and companies would be focused on a long-term growth system.
Traditionally, companies have followed this principle by Friedman: “Shareholders come first, and anything else is inefficient.” Shareholders are the number one priority, and everything else is either secondary or irrelevant. This belief has led to an unhealthy trend of companies eroding their own long-term value to give shareholders greater short-term returns. Companies have been focusing on this mantra, focusing on short-term earnings rather than long-term profits.
With a focus on all stakeholders, shareholders become just one of many stakeholders.
As stated in the 2019 Business Roundtable:
- [Deliver] value to our customers.
- Investing in our employees.
- Dealing fairly and ethically with our suppliers.
- Supporting the communities in which we work.
- Generating long-term value for shareholders
However, any momentum towards change from the summit came to a screeching halt, with the pandemic devastating the economy.
The pandemic has caused unemployment to rise to levels not seen since the Great Depression and has especially impacted African Americans, Hispanics, and women. The same 181 companies had promised more of a focus towards all stakeholders, yet what has changed in the last year? What happened to stakeholder-oriented policies?
It is imperative that American companies, especially those who vowed to do better as part of the Business Roundtable summit, renew their focus on a long-term goal of helping out all stakeholders. As the impact of the pandemic begins to settle, it is more important to focus on helping out the majority of people who really need help from other companies than helping the cabal of millionaire investor shareholders.