The Business Roundtable’s Purpose Statement, One Year On

Alex Heath is Executive Vice President of Social Purpose; Sara Dal Lago is Account Supervisor of Business & Social Purpose; and Meghan Laarman is Senior Account Executive of Financial Communications & Capital Markets at Edelman. This post is based on an Edelman memorandum by Mr. Heath, Ms. Dal Lago, Ms. Laarman, and Lex Suvanto. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Toward Fair and Sustainable Capitalism by Leo E. Strine, Jr (discussed on the Forum here).

It’s been just over a year since over 180 CEOs signed on to the Business Roundtable’s (BRT) statement on the purpose of a corporation, committing to lead their companies for the benefit of all stakeholders, not just shareholders.

This statement formally set a new vision for corporate action and drew a lot of attention from media, businesses, and nonprofits alike; many wondered if this was simply an empty promise, or if it would actually spark meaningful change and concrete action. Twelve months later, how has this multi-stakeholder commitment evolved?

In the wake of the global pandemic and societal outcry against racial injustice, the spotlight is now more than ever on the business community to act in-line with multi-stakeholder principles.

The call for business action on societal issues isn’t new. From the humble beginnings of Corporate Social Responsibility through the shared value movement and up to the newly embraced stakeholder capitalism, companies have been adding value and making a positive impact on their communities and society for a long time, while external and internal expectations have evolved and shaped their ongoing actions.

So what role has the BRT’s statement of purpose played, if any?

A theoretical framework put to the test: The acceleration of the multi-stakeholder movement

The multi-stakeholder commitment advocated by the BRT is a theoretical framework against which companies could guide their actions. Covid-19, combined with the recent social unrest across the country and globe, put it to the test.

While some businesses and their CEOs have been advocating for multi-stakeholder principles long before the BRT, with the forces and key drivers of the multi-stakeholder movement accelerating, they have now been pushed—almost forced—to act according to this framework.

How has the multi-stakeholder movement evolved? Accelerating forces and trends:

Expectations from stakeholders for business have intensified and will continue to accelerate

Our recent Edelman Trust Barometer Spring Update: Trust and the Covid-19 Pandemic, which surveyed more than over 13,200 respondents in 11 markets, emphasized that this is a moment of reckoning for business, which is now expected to deliver on the promise of stakeholder capitalism.

  • Business is not doing enough: Only 38 percent believe business is doing well or very well at putting people before profits.
  • CEOs are failing to demonstrate expected public leadership: 65 percent agree that CEOs should take the lead on addressing the pandemic rather than waiting for government to impose restrictions and demands on their businesses, but fewer than one in three respondents (29 percent) believe CEOs are doing an outstanding job responding to demands placed on them by the pandemic.

As a follow up to that study, we released a Trust Barometer Special Report: Workplace Trust and the Coronavirus, which finds that 70 percent of employees working from home say that their employer has effectively communicated how they are approaching return to the workplace.

While employers are clearly delivering on one key expectation of one incredibly important stakeholder group (their employees), the heightened expectations around societal issues are not a one-time call to action. Because Covid-19 has acted as both a crucible and an accelerant, testing the stated purpose of businesses while generating more and more authentic action, the bar for purposeful action is now being raised.

Scrutiny soars across the board to track who’s been walking the talk

As we’ve witnessed, the Covid-19 pandemic spurred many companies to jump into action, proclaiming promises to prioritize the health, safety and wellbeing of all stakeholders. Proclamations of this nature were not new to the media nor the public.

What feels new is the level of scrutiny with which these companies are measured against their commitments—from long-standing organizations like JUST Capital, already well-known for ranking America’s most just companies and its Covid-19 Corporate Response Tracker, to academic institutions like the Boston College Center for Corporate Citizenship listing member examples of corporate citizenship responses to Covid-19, all the way to newly launched initiatives such as DidTheyHelp.com, whose mission is to “document all of the good and bad deeds corporations and public figures have done during this period.”

Expectations will only continue to increase: the spotlight on business and the call to act according to multi-stakeholder principles outlined by the BRT and brought into stark relief during the current crisis will linger long after the pandemic and will continue to raise the bar for businesses.

People at the center of corporate purpose

Following unprecedented attention at this year’s World Economic Forum in Davos, climate change was anticipated to be the leading ESG issue in 2020. While climate remains a critical issue, the pandemic quickly redirected focus towards companies’ human capital management and treatment of employees—topics that fall under the ‘S’ category of ESG.

Employees’ voices are getting louder and pressing for change on issues spanning the ESG spectrum. From Amazon employees’ climate strike, to Google’s walkout protesting the company’s handling of sexual assault cases—the events of the last several years have given way to the renewed focus we’re seeing on social issues today. And due to this renewed focus on people, and with the climate crisis being increasingly understood as a racial issue, topics like environmental justice are drawing more attention.

While the pandemic brought intensified scrutiny to a company’s responsibility to uphold the ‘S’ factors of ESG, the horrific murder of George Floyd in May has sparked immense pressure mounting on all sides for businesses to assess their own Diversity & Inclusion (D&I) practices:

  • BlackRock’s CEO Larry Fink recently stated in a LinkedIn article: “This fall, as we assess the impact of companies’ response to Covid-19 and associated issues of racial equality, our stewardship team will be refreshing our expectations for human capital management and how companies pursue sustainable social practices more broadly.”
  • Sustainable investor Calvert Research & Management called for companies to disclose racial diversity and pay equity.
  • Just last week, State Street Global Advisors sent a letter to the boards of its portfolio companies asking them to articulate their risks, goals and strategies related to racial and ethnic diversity.

Looking back at the 2020 proxy season, social issues like employee health and safety and workforce diversity have quickly risen to the top of investor agendas, and it’s expected investor focus on the “S” of ESG will continue to grow and accelerate well into next year.

Looking ahead: Raising the bar for business and galvanizing action

If one thing has become clear over the past few months, it is that the bar for businesses to act according to multi-stakeholder principles is higher than ever before. Companies are outdoing themselves to take meaningful action—from Microsoft’s whopping 2030 climate commitment to a long list of company pledges and actions to fight systemic racism.

All this action is putting unprecedented scrutiny on the global business culture, especially corporate America. What’s important is that this level of scrutiny should not make business shy away from action in fear of being judged, but rather galvanize action and spur companies that have been on the sidelines into real, meaningful change to serve all stakeholders, build trust, and create shared value over the long-term.

To rebuild equitably in a post-Covid world, we’re going to need all hands on deck. More action and more authentic action is what is most needed. The issues we face are complex, the expectations are high, and now’s the time. The private sector has a critical role to play in pushing our world forward, and we can all make progress and rise together.

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