How the Business Roundtable could create a level playing field for purpose-driven business
Last week the roughly 200 CEOs of some of America’s largest companies who comprise the Business Roundtable issued a statement redefining the “purpose of a corporation,” saying that focusing on shareholder primacy is no longer the only way companies should be expected to deliver value to our nation. The group has also developed “an American innovation agenda for 2020,” with broad goals including removing roadblocks to innovation, positioning America to compete, and pursuing more inclusive innovation.
Their statement is a welcome and needed response to growing levels of distrust in American institutions. It is hard to imagine how we can change our current course without the level of alignment and commitment this statement indicates.
Yet, lack of commitment is not the primary cause of today’s crisis of trust. Nearly every large company has a CSR statement that declares its intention to care for the environment, its employees and the communities where it does business. Most have an inspiring brand promise to customers, and many have value propositions that show concern for employees.
No, this crisis of faith revolves around whether companies actually act on their commitments when it counts. And, as indicated by the multitude of skeptical comments on the Roundtable article, this is, at best, the first step in a long journey to rebuilding trust.
In a strong U.S. economy, companies compete based on the value they create in the marketplace. Yet, in America today, the ideal of free enterprise is too often replaced by “pay-to-play,” where firms and special interests compete for favors based on political spending. Under the rules and preferences that result, profit often comes at the expense of societal well-being. Consider the societal costs of inaccurate information about opioid addiction, delays in grounding the Boeing 737 Max, small businesses burdened by the paperwork to apply for tariff exemptions, or unique advantages to firms that can afford to lobby for tax carve-outs.
In an economy where winners and losers can hinge on political spending, specialized access and government favors, refusing to play the game puts purpose-driven businesses at a competitive disadvantage. For example, many companies that have taken strong stands on climate action have trouble disengaging from trade associations actively lobbying against that action. They worry that not being at the table amounts to unilateral disarmament.
It is precisely this “pay-to-play” environment that is at the root of rising distrust. Indeed, one of the biggest sources of reputation risk for purpose-driven brands is the potential for contradictions between their stated commitments to customers, employees and society, and their actions through political spending and government affairs. According to the CPA-Zicklin Index Report of 2018, only 30 percent of S&P 500 companies provided detailed information about the public policy positions that provide the basis of their political spending decisions.
This is why business leaders who are serious about a broader corporate purpose need to create a level playing field for purpose-driven businesses. This would mean targeting the rules that make it difficult or unprofitable to act on this new statement of corporate purpose, and investing in new “rules of engagement” that reduce the incentive and pressure to use political influence to gain advantage, rather than competing on the value created in the marketplace.
Thankfully, a cross-partisan super-majority of Americans are already calling for such reform with initiatives such as the 28th Amendment, which would authorize limits on political spending.
We have begun inviting business leaders to join the call for credible, systemic reform that reaffirms the principles of representative democracy, rebuilds public trust, and creates an environment where companies are rewarded for creating value for all their stakeholders and for the long-term.
Creating a level playing field for purpose-driven business will require coordinated action. Small businesses, individual executives, and business educators can speak openly about their concerns over this pay-to-play environment and the costs to business and society. Larger firms can conduct a thorough review and consider what rules would create a more level playing field and make it easier to deliver for all stakeholders at scale. At a minimum, companies can commit not to obstruct deliberation on civic reform—and challenge their peers to do the same.
Clearly, members of the Business Roundtable have begun a process of open discussion that reflects broader interests and a long-term perspective. We hope they use that capacity to consider and support reforms that address the barriers to creating value for multiple stakeholders, and the root causes of our current crisis of trust. Far from over-stepping, this is the most effective way business leaders can foster a new era of shared prosperity and well-being.
Elizabeth Doty is Co-founder of Business for American Promise.
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