You’ve all heard that the Business Roundtable, a group of CEOs of America’s leading companies, recently released a statement announcing that shareholder primacy should not solely define corporate objectives. They had the audacity to suggest that suppliers, customers, employees and the community at large are equally important to long term success.
Have they lost their collective minds?
The big questions being asked by pundits include:
- Does this really imply a commitment to changed behaviors?
- How can they effectively measure these other commitments?
- Are you sure this isn’t just a way for CEOs to explain away negative financial results?
- What about activist shareholders that will punish this behavior? Can a CEO survive?
Some of the CEO’s include:
- Jamie Dimon, chairman and CEO of JPMorgan Chase & Co. and chairman of Business Roundtable
- Chase has been fined $13 billion by the U.S. government from its contribution to the 2008 financial crisis, and by $360 million by Europe in 2016 for illegally manipulating a key interest rate. Reports claim that since the multinational signing of the Paris Climate Accord in 2015, JPMorgan has been the top fossil fuel investment banker.
- Dennis A. Muilenburg, chairman, president & CEO of The Boeing Company
- Do I need say “737 Max?” The company has been fined multiple times for various import/export violations, including military parts.
- Punit Renjen, Global CEO of Deloitte
- Deloitte has been fined $150 million in 2018 for fraud contributing to the 2008 crash, along with numerous other fines for fraud from counties around the world.
- Craig Arnold, CEO of Eaton
- Eaton moved its legal headquarters to Ireland for tax advantages, while its physical headquarters sit on very nice property in Beachwood, OH with financing support from the local Port Authority; none of this is illegal. But a $500 million settlement to avoid a jury trial for violating anti-trust laws is another question.
Given that the folks listed above signed the statement, cynicism is not surprising. These companies are not all bad; each has contributed positively in many ways, but poor and questionable decision-making wrapped around maximizing shareholder rewards has been inherent in these and more.
The first signature (alphabetical order) is Kevin Wheeler, CEO of A. O. Smith, not a perfect company, but an outstanding one. It is a publicly held company that won’t have to change much to live the Boardroom Roundtable statement. (Full disclosure: I am personal friends with one of the board members, a former client of mine.)
You are all likely familiar with Bob Chapman, chairman and CEO of Barry-Wehmiller, a $3 billion global manufacturing business. He has keynoted for AME and volunteered his time and that of many of his team members to help AME launch people-centric leadership, based on his Truly Human Leadership philosophy and strategy.
While Barry-Wehmiller is privately owned, it still has to be profitable and generate cash. I can’t tell you what their EBITDA is, but I expect it compares favorably with the manufacturing companies that signed the BR statement. Why do I say that? Because over the last 140 years it has grown from a baby to $3 billion company. That’s hard to do if you’re not profitable.
Every business needs to be profitable over time or it will cease to exist. Publicly held organizations have visible quarterly earnings pressure and activist shareholders that can influence decision-making. But that is no excuse for treating employees, customers, suppliers and communities poorly. Toyota hasn’t done half bad, continually helping all five of its constituencies.
Why has the list of top businesses in the United States changed so much over the past 20, 30, 50, and 75 years? Why have so many large publicly held companies gone out of business? Certainly, part of it is poor strategy, but focus solely on the bottom line didn’t help.
Most of you work with companies that have an interest in lean, which is all about respect for people (not only employees!). But some of you have seen:
- your publicly-held organization bring in loads of inventory at the end of a month because it needed PPV (purchase price variance) to help meet analyst expectations;
- good employees let go because “we’ve done all with lean that we can” and management believes reducing salaries is the best option for increasing longevity;
- empty buildings and poorly kept property litter your drive to work as companies leave them to decay rather than spend money to consider the community;
- suppliers used as financing tools from stretched payment terms;
- customers treated poorly to save a few dollars;
- doing everything (legal) to eliminate tax payments to federal, state, and local government entities while using the education system, roads, and public safety provided.
If you are familiar with Conscious Capitalism or B or Benefit Corporations you will find this startling Business Roundtable statement old hat. But as you can see in the media, it shocked many, is doubted by most, and reflects what a truly lean company would do anyway.
Has the Business Roundtable lost its mind?
I prefer to take the optimistic view and believe that at least some of those company leaders will become more interested in the world around them than their own compensation and job security. Caring for others and fair executive compensation are not mutually exclusive. Perhaps coverge of growing income inequality is helping these top CEOs wake up. Or as many suspect, perhaps the statement is just fluff.
I encourage you to discuss the published statement with your executive team. It would be a worthwhile conversation.