The stakeholder–shareholder debate is over

The role of corporations in society shifted permanently in 2020.

The coronavirus pandemic has created significant distortions in our sense of time. But let’s rewind to August 2019, a safer, long-ago era, when arguments about masks were more focused on costume parties than scientific data.

That is when the Business Roundtable published its opinion about the purpose of a corporation, proclaiming that companies should no longer act only in the interests of shareholders. Instead, the group of CEOs said, companies should also invest in their employees, protect the environment, and deal fairly with their suppliers.

“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” read the statement by the Roundtable, which represents and lobbies for many of America’s largest companies. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

The pronouncement was widely seen as a departure from a decades-old ethos, articulated most famously by Milton Friedman, the University of Chicago economist, who said in 1970 that “the social responsibility of business is to increase its profits.” That singular focus made heroes (at least for a time) of CEOs such as “Neutron Jack” Welch of General Electric and “Chainsaw Al” Dunlap, who was also nicknamed “Rambo in pinstripes” for his turnaround strategies, which often involved laying off workers and closing factories to steadily lift share prices.

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The ExCo Group’s Adam Bryant wrote this article for his column in Strategy + Business. It was originally published here.