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Financial News

Aug 22, 2019

What’s the Business Roundtable and Why Does It Want to Change Capitalism?

By Team Stash

Leading executives want to prioritize workers, suppliers, and the environment

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From Walmart to General Motors (GM), the primary goal of the biggest U.S. businesses has often been to pursue profits.

But perhaps not anymore.

The chief executives of the leading corporations in the U.S. released a new set of standards, through an organization called the Business Roundtable, about how they propose to operate their businesses in the future. And from now on, people, suppliers, communities, and the environment will allegedly come first.

“The American dream is alive, but fraying,” Jamie Dimon, chairman and CEO of JPMorgan Chase, and chairman of the Business Roundtable, said in a press release. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

Why is this important?

  • The new goals are the opposite of established business norms that prioritize profits.
  • For the last 50 years, the stated objectives of big corporations has been reportedly to make money, increase profits for the owners and shareholders, i.e., the people who own the company and its stock.
  • A top proponent of the profits over people mindset was Milton Friedman, a leading economist who wrote in 1970 that “the social responsibility of business is to increase its profits.”
  • In its 1997 mission statement, the Roundtables said it “wishes to emphasize that the principal objective of a business enterprise is to generate economic returns to its owners…In The Business Roundtable’s view, the paramount duty of management and of boards of directors is to the corporation’s stockholders.”

What’s different this time?

  • The Business Roundtable says it wishes to be more inclusive of workers and other non-owners who participate in business.
  • The Roundtable’s new statement says: “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.”
  • Sustainability and the environment are also key.

What is the Business Roundtable?

Founded in 1972, the Business Roundtable is a pro-business public policy and lobbying group that represents the interests of the largest U.S. corporations, which collectively employ 15 million people, and produce $7 trillion in annual revenue, according to the group.

Who signed the statement?

Nearly 200 CEOs, including:

  • Tim Cook, CEO of Apple
  • Jeff Bezos, founder and CEO of Amazon, and
  • Mary Barra, the chief executive of General Motors
  • Michael Dell, founder and CEO of Dell computers.
  • Doug McMillon, CEO of Walmart.
  • Here’s the full list.

Why now?

The heads of the largest U.S. companies may realize that times are changing, and they need to be more inclusive of people beyond shareholders and other owners, according to experts.

For example, executive pay and the increasing wealth gap between the richest and poorest U.S. citizens has been the topic of conversation from pundits to politicians in recent years, and particularly as the country gears up for the next presidential election.

Since 1978, the average CEO salary has increased 940%, according to the Economic Policy Institute, a labor think tank. Over the same time period, the wages of average U.S. workers have increased only 12%. The average CEO pay at a large company was $17.2 million compared to $56,000 for the average worker nationally.

Companies have also grown more sensitive about how the products they produce actually get made, and have grown more aware of the potential mistreatment of workers, particularly in emerging economies.

There is a growing realization that supply chains must be transparent, and that in order for capitalism to be sustainable, treatment of people matters, according to experts.

Additionally, global warming, and the role of business in producing carbon emissions that contribute to the heating of the planet, has become a top issue.

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