The corporate world is rethinking economist Milton Friedman’s seminal 1970 essay positing that the primary job of the corporation is to maximize profits. Change is being led in many cases by the next generation of leaders, who have been further galvanized by the coronavirus pandemic and renewed calls for racial equity. Critics may sniff that younger people want to promote socialism, but young leaders say they’re capitalists. They just want the system to work better.
“I think all of us very intensely believe in capitalism, believe in profits,” said Alison Omens, the chief strategy officer at JUST Capital, a nonprofit that ranks companies based on their commitment to “stakeholder capitalism.” That’s become a buzzword, centered on the idea that capitalism shouldn’t just benefit shareholders of the corporation, but also the wider community, including workers, customers, and the environment.
The term got greater traction last August 2019, when the Business Roundtable, an association of U.S. CEOs, rolled out a new “Statement on the Purpose of a Corporation,” incorporating ideals central to stakeholder capitalism. Whether they’ve lived up to those ideals is still in question.
‘What people really care about’
Young leaders including Omens recently participated in a roundtable discussion, led by the NextGen Chamber of Commerce, on how the next generation of business leadership is approaching the coronavirus pandemic and the quest for racial justice. Bottom line: They’re watching corporate America, and they’ll hold them to account.
“A lot of companies have been able to skate by on lofty ideas and ideals, but haven’t always when push has come to shove acted in accordance with their stated values,” said Tyler Spalding, director of corporate affairs at PayPal (PYPL), during that discussion. “Workers and customers, small businesses, the population at large — they’ll have long memories about the companies that really stood by them, the leaders that really cared for them and were in their corner in some of the toughest and darkest times, and those that weren’t.”
Measuring companies’ adherence to stakeholder capitalism can be challenging. A new report from the Test of Corporate Purpose — an initiative to track corporate response to the coronavirus pandemic using artificial intelligence-powered data — found that signatories to the Business Roundtable pledge did not outperform on treatment of workers and other metrics over the past six months. Whether a company had adhered to stakeholder-friendly practices over the prior five years was a better predictor of their performance over the course of the pandemic, the report found.
JUST Capital, on the other hand, using a different dataset, found that BRT signatories did outperform peers on issues of racial equality, for example.
Omens said that worker treatment is among the highest priorities in surveys of how companies should be graded on their responses to COVID-19 and the Black Lives Matter movement: “What people care about is how a company treats its workers, pay, benefits, leads with integrity — all of the core things that we're seeing play out in real time in our society and in the country. So is a company providing paid sick leave in this period of time? Are they paying hazard pay? Are they truly committed to racial equity in their organizations, through their supply chains and in their communities?”
A lack of trust in the government
Just 20% of American adults say they trust the government to “do the right thing,” according to surveys that the Pew Research Center reported on earlier this month. That has left room for corporations to attempt to fill the confidence gap and to provide some of the social safety net. The change, of course, hasn’t always come from leaders at companies. Frequently, it’s been the result of a push and expectations from employees and customers.
“We know that this generation wants to shop and purchase and buy goods from companies who put their money where their mouth is, and I think that that is also driving some of what we're seeing with this change,” said Rhett Buttle, co-founder of the NextGen Chamber of Commerce.
That push had gained urgency even before the coronavirus, as the promise of the American Dream seemed to recede for many Americans. “We're facing a reality, particularly among young people, who recognize that their parents could get a decent education, get a job, work somewhere hard, put the right investments in play. It's not their reality,” said Mekaelia Davis, program director of the inclusive economies program at the Surdna Foundation.
Young leaders expect their organizations to play a pivotal role in remaking capitalism — a reform that will include the public and private sectors, for-profit, and nonprofit entities. They expect corporations to help lead the way.
As Paypal’s Spalding said, “Corporations and business at large have a real responsibility to moral leadership in this moment.”
Julie Hyman is the co-anchor of On the Move on Yahoo Finance.