With ‘Stakeholder’ Edict, Will Business Roundtable Catch Up With CEOs?

By Jeffrey Sonnenfeld - August 20, 2019

The week’s business headlines opened with widespread congratulatory pieces that American business community was celebrating a wider set of performance indicators than shareholder value alone. At the same time, we should recognize that such responsible and responsive social conduct has long been far more accepted practice by progressive business leaders than presumed.

This is not a novel position for the Business Roundtable but a rediscovery of its original position. It is also not a revolutionary set of principles for U.S. business leaders but the return to collective voice by this formal association. The founding generation of the Business Roundtable, the “Great Generation” or the “soldier generation” of World War II possessed sweeping noble visions but was succeeded by the narrower “Bobbysoxer Generation” which came of age in the 1950s. Now finally, the Woodstock Generation is expressing themselves as a last chance in the saddle.

Roughly 200 CEO members of the Business Roundtable (BRT) issued a statement declaring, “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all our stakeholders.” These U.S. business leaders should be celebrated for their certification as mainstream what has already been evolving as widespread corporate citizenship in existing practice.

This announcement supposedly reversed this business group’s original worship of economist Milton Friedman’s admonition that “the only responsibility of business is the bottom line” with a focus only on the supremacy of shareholders. In reality, Friedman’s scold was not underscoring prevailing practice but seen as a correction to the then-surge of corporate do-gooders. Furthermore, even the forgotten rest of Friedman’s commentary acknowledged, “It may well be in the long-run interest of a corporation … [to] devote resources to providing amenities to the community.”

I knew many of the founders of the Business Roundtable, who formed the organization to address the negative image of business in American life at the time in the wake of ferocious battles over environmental disasters (e.g. the infamous Tennessee Valley of Drums, the raging fire on Ohio’s Cuyahuga River and the nightmare of contamination for home owners at Love Canal New York by Hooker Chemical), race riots in cities across the nation, and a country torn over the Vietnam War.

Two hundred top chief executives founded the Roundtable in 1972 after years of watching the business community’s public image decline. Working sometimes with Washington, but often on its own, the Roundtable tackled problems like improving global workplace conditions, retraining, diversity and environmental sustainability.

They understood that their jobs went beyond their office walls. Reginald Jones of G.E. was one of the first chief executives to champion the term “corporate social responsibility.” In fact, their lofty missions were so virtuous that G.E.’s Jack Welch, a generation later, complained to me that they had taken their eyes off the ball of their own firms’ competitiveness, preferring to work on social issues instead of parochial commercial concerns (somewhat ironically, GE’s current CEO, Lawrence Kulp, is one of a handful of BRT members who declined signing this new statement.)

Sadly, by the 1990s, the Business Roundtable had become cynical and distant with some leaders even ethically impaired. As public trust in the business community plummeted in the wake of Enron and other scandals of the early 2000s, the group pulled back and imperfect reforms were hastily passed with the BRT having a tantrum on the sidelines. Jeff Kindler of Pfizer worked valiantly to try to build a consensus during the creation of Obamacare with little support in the late 1990s. Others dug in on the budget wars of the early 2010s.

So individual CEOs at many of America’s most well-known companies—many of them BRT members—took the lead on social issues. As the industrialist George Weyerhaeuser told me in 1978, “We have a license to operate from society, and if we violate its terms, it can be withdrawn. Citizenship is part of that contract.” Having researched this field for over 40 years, Weyerhauser was far from an outlier in practicing such noble values. In 1985, Johnson & Johnson’s CEO James Burke told me that “Our most powerful tool is institutional trust which is real, palpable and bankable. Every act that builds that trust enhances the value long term of the business.”

More recently, PepsiCo’s Indra Nooyi championed “Performance with Purpose” over 15 years, meeting ambitious internal yardsticks on nutrition such as ending trans-fats, reducing sugar and sodium, and environmental sustainability milestones on recyclable packaging and responsible water use. Similarly, years ago, Paul Polman of Unilever launched its “Sustainable Living Plan,” which set ambitious goals such as cutting Unilever’s environmental impact in half by 2030.

Jeffrey Sonnenfeld Jeffrey Sonnenfeld is senior associate dean, leadership studies, Lester Crown professor of leadership practice, Yale School of Management, as well as president of the Yale Chief Executive Leadership Institute and author of The Hero’s Farewell and Firing Back.