Will the Business Roundtable Statement Impact Workers?

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MIT SMR Strategy Forum

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We asked our panel of strategy experts to tell us how strongly they agree with the following:

The Business Roundtable’s new Statement on the Purpose of a Corporation indicates a shift away from shareholder value maximization as the sole purpose of the corporation and toward a broader view of value creation.

This shift will have material impact on the well-being of U.S. workers.

RAW RESPONSES
WEIGHTED BY CONFIDENCE

Raw Responses

Responses weighted by panelists’ level of confidence

Last month, 181 chief executives of U.S. companies signed a new mission statement put out by the Business Roundtable, which indicated a shift away from a sole focus on shareholder value maximization and toward a view of corporate purpose that also includes the interests of employees, communities, suppliers, and customers. When it came to workers, the executives noted, “Too often, hard work is not rewarded, and not enough is being done for workers to adjust to the rapid pace of change in the economy.” And yet, in the days and weeks following the new statement, many have called into question the meaningfulness of the executives’ rhetoric.

Panelists

Panelist Vote Confidence Comments

John Roberts

Stanford University
Profile
Disagree 5

Rajshree Agarwal

University of Maryland
Profile
Disagree 9 “The statement presupposes an inherent conflict between shareholder value maximization and other stakeholders’ interests. Long-run profitable businesses ensure a win-win and a vertical alignment of all relevant stakeholders, so I see little difference between good practice in the past and the expressed interest.”

Joshua Gans

University of Toronto
Profile
Disagree 7 “I still believe that corporations mostly act in their own self-interest. Even if some other goals come into play, it is unclear whether this would directly impact on workers any more than it may be efficient practice to treat workers a certain way. [Having] broader goals does not imply charity.”

R. Preston McAfee

Economist
Profile
Agree 5 “The tension is between long-run and short-run goals. Often, maximizing long-run value involves activities that benefit workers and the public. The new focus gives management greater leeway to pursue long-run value maximization. Overall, it will probably make little difference.”

Ashish Arora

Duke University
Profile
Agree 7 “The best companies never actually focus only on 'shareholder value maximization' in any event. As John Kay points out in his wonderful book, ‘Obliquity,’ having a broader purpose may allow a company to do well by doing good.”

Shane Greenstein

Harvard University
Profile
Agree 8 “Organizations whose missions extend beyond maximizing shareholder value tend to provide more satisfying work experiences for employees. Ironically, shareholders tend to get a more productive organization, which is what they want if the organization is not so narrowly focused.”

Richard Holden

University of New South Wales
Profile
Disagree 9 “First, it's completely unclear that this is a genuine sentiment. Second, there have always been instrumental reasons — even under the Friedman view — for corporations to care about workers and other stakeholders. Happy workers are more productive, which leads to more profits. Companies that are seen to be socially responsible attract more customers, all else equal, and so on.”

Erik Brynjolfsson

Massachusetts Institute of Technology
Profile
Agree 9 “Corporations, like all organizations, have multiple stakeholders with varying interests. Workers are among those stakeholders — and recognizing this fact will likely increase their bargaining power and thus, their well-being whenever there are economic rents to be shared.”

Olav Sorenson

Yale University
Profile
Disagree 4 “According to the statement, these leaders believe that they already focus on more than just shareholder value. It's not clear that they consider this a change in practice. It will take more than just a statement of values to make a difference for workers — CEO incentives, corporate governance, and/or regulation will need to change as well.”

Petra Moser

New York University
Profile
Disagree 8 “The section on 'investing in our employee' sounds like Henry Ford introducing the $5/day wage plus other services for employees in 1914. But Ford was trying to retain low-skilled workers engaged in repetitive tasks, whereas today's companies are competing for high-skilled people. Overall, the statement reads like an acknowledgment of larger societal shifts and less [as a] changing force itself.”

Steve Tadelis

University of California, Berkeley
Profile
Disagree 8 “Two elements of the statement suggest that change is not imminent. First, the Roundtable has no enforcement ability and cannot dictate behavior. Second, the objectives are very hard to measure, making it difficult to create a clear set of measurable goals. Both of these, together with the fact that most companies are competing in a global economy, make it hard for me to believe in change.”

Kathleen Eisenhardt

Stanford University
Profile
Agree 7 “This statement is a step forward for employees. But old habits die slowly. Plus, lots of other worthy constituencies like climate change interests are in the wings.”

Timothy Simcoe

Boston University
Profile
Agree 7 “One can debate the causes, but it's clear that the era of shareholder capitalism — starting with Friedman's op-ed, or maybe Reagan's election — has not been great for U.S. labor, especially compared to capital or top-percentile earners. I hope that this statement reflects a less credulous view of welfare economics among the next generation of top managers.”

Joel Waldfogel

University of Minnesota
Profile
Agree 4 “In the generation since Friedman admonished companies to worry only about their shareholders, median incomes have stagnated, inequality has grown — to the point that corporations don't want to be passive conduits of discontent. Policy makers are currently AWOL in regulating markets. It's remarkable that major firms are making a statement like this. Still, I'm not confident of rapid effects.”

Anita McGahan

University of Toronto
Profile
Strongly Agree 9 “The focus on stakeholders is a focus on value creation. Managing for shareholder supremacy amounted to running businesses for their residual claimants rather than for sustained superior performance. The Business Roundtable, led by Jamie Dimon, has put forth the same principles that have guided JPMC (and, before that, BankOne) under Dimon’s leadership. The results speak for themselves.”

Scott Stern

Massachusetts Institute of Technology
Profile
Disagree 7 “Declaration does not have any meaningful commitment device. [It's] more likely to diffuse accountability than enhance worker well-being. [We] would need change in corporate governance (labor board seats) and changes in law (union strength) to move the dial.”

Yael Hochberg

Rice University
Profile
Strongly Disagree 7 “So long as activist shareholders remain focused on returns, this statement is unlikely to have an effect. Without aligned incentives, it is hard to see how CEOs can avoid bowing to shareholder pressure.”

Rebecca Henderson

Harvard University
Profile
Disagree 8 “The statement is an important first step, but unless it is followed by concrete commitments on the part of the firms, it will, alas, have very little effect on anything.”

Meghan Busse

Northwestern University
Profile
Neither Agree nor Disagree 7 “A true broadening of the objectives of firms would improve the well-being of workers. But it remains to be seen how many of the CEOs who signed the statement are truly committed to making such changes, and also how many of them will find they are able to — given pressures from inside the firm, pressures from financial markets, and their own career ambitions.”

Tom Lyon

University of Michigan
Profile
Disagree 8 “The American public deeply distrusts big business. The Roundtable feels pressure to soften the view of corporations as too big, too driven by short-term share prices, and too powerful in Washington, D.C. But that didn't stop Roundtable member Amazon from cutting health benefits for part-time workers. The 'statement' will help workers if unions hold firms to it — otherwise, it's empty talk.”

Lori Rosenkopf

University of Pennsylvania
Profile
Neither Agree nor Disagree 10 “Lao Tzu said that 'the journey of a thousand miles begins with a single step.' This is an important first step, but the road to material impact on the well-being of U.S. workers is long and winding. I urge all the signers of the Business Roundtable Statement to model concrete steps that continue this journey.”

John Van Reenen

Massachusetts Institute of Technology
Profile
Neither Agree nor Disagree 6 “The statement by itself does not do anything, I think. But if there was an economy-wide shift away from a near total focus on shareholder value, this would have some positive effects on workers.”

Raffaella Sadun

Harvard Business School
Profile
Disagree 7 “It is, at this point, hard to distinguish this statement from pure PR speak. It will be interesting to see whether and how the Business Roundtable will substantiate these intentions with concrete actions.”

Topics

MIT SMR Strategy Forum

Each month, we pose a question about business, management, technology, or public policy to our panel of academic experts. Here you can see what they think and why.
Learn more about this series

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Comment (1)
Robert Ballantyne
Completely Disagree!  As Director of Research and Development my focus and how I focus the engineering effort is always about "cost of the problem" followed by "Cost to build the solution" followed by profitability and return on investment.  To think any other way is idiocy like WeWorks with valuations that have no basis in reality and absolutely no chance of making a return on the money that will be wasted with that kind of evaluation.

I see a large number of shareholder actions in the near future to get rid of this "living on company rent" attitude by a group of people whom left the real world years ago and live in "the bubble."    They will get away with it right up until investment companies start explaining to the California Teachers Retires they are getting less from the pension fund  so the CEOs can spend their money on what the CEOs feel is needed ......