Connor Doyle is a Research Analyst at Equilar, Inc. This post is based on his Equilar memorandum.
On August 19, the Business Roundtable made waves in the corporate governance community by publishing its Statement on the Purpose of a Corporation. By shifting away from a model that emphasizes shareholder return over all other considerations, the Business Roundtable asserted that companies should embrace the “Stakeholder Model,” meaning that corporations should balance the needs of all stakeholders in a business: shareholders, employees, customers and the communities in which a business operates.
While this declaration has no enforcement mechanism of its own, it represents a significant rethinking of the way corporations operate in a capitalist framework. The Roundtable proposal requires corporate participation to become effective, and while the announcement caused a stir in the corporate governance world, it came at a time when institutional investors and activists had already demanded that boards pay closer attention to subjects like diversity, environmental impact and corporate responsibility. This begs the question, does the Roundtable statement represent a fundamental departure from corporate governance trends, or does this announcement fall in line with a movement away from the shareholder model towards one that emphasizes the needs and concerns of all stakeholders?