By Jack Kelly
On Monday, the Business Roundtable, an association of over 180 chief executive officers of America’s leading companies, headed by the well-respected CEO of JPMorgan Chase, Jamie Dimon, released a statement that could radically change the mission of corporations and the lives of their employees.
For over 600 years, capitalism has reigned supreme. Companies were expected to generate the most profits for their shareholders. The employees, vendors and communities where they operate were of lesser concern. All that mattered was the bottom line and how much the shareholders earned on their investments. The pursuit of profits prevailed over everything else.
The Business Roundtable recommended that corporations must change the way they operate and now focus on their employees, the places where they conduct business and their vendors to ensure that everyone is treated fairly. This will come before the needs and wants of the shareholders.
The CEOs assert that Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. They believe that 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.
The group, according to the press release, committed to the following:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
Economists, such as the legendary Milton Friedman, argue that the sole purpose of business is to generate and maximize profit for shareholders. According to Friedman, “Companies that did adopt responsible attitudes would be faced with more binding constraints than companies that did not, rendering them less competitive.” The prevailing belief was that any distraction from generating profits would hurt the company and make them less competitive. This new statement from the country’s top executives rebels against traditional economic doctrine.
If this does indeed happen, it will be a windfall for working people. Management will have to prize employees as much as they do profits. It should result in more vacation time, greater maternity and paternity leave policies, on-the-job training, real retirement plans, flexible work arrangements, better insurance coverage and a voice in the running of the company. These are lofty goals. Cynics may assert that it is fine for behemoths, such as JPMorgan, Amazon, Google or Facebook (the last two did not sign the statement), to act magnanimous and make heart-touching, socially conscious statements, as they possess war chests of money and dominate their respect industries. When a company, such as Amazon or Facebook, possesses a near monopoly, it is easy to lavish care on their employees. For small and mid-sized corporations in competitive markets, they don’t have the same financial resources. This could end up in a situation where the bigger companies will implement the new plans and the best and brightest from the smaller organizations will jump ship to the larger players. These big corporations will get even larger and their competition will weaken, dwindle and fall by the wayside.
Interestingly, the group of astute CEOs neglected to include details of how their bold statements will be turned into actionable plans. They left out any clauses that claim the plan will be open to the public scrutiny. There is no mechanism indicating if any third party entity will oversee that these promises are adhered to.
Human nature is not taken into consideration either. Will a CEO, executives and management really sacrifice their multimillion dollar compensation plans to offer additional perks to their employees. They also ignore the important role of investors. If profits are not prized, investors will sell their stock and look elsewhere for opportunities that reward their capital. If enough investors flee, the company’s stock price will plummet and management will be left with no choice other than repealing their newly enacted, employee-empowering benefits.
It’s easier to portray themselves as caring individuals fighting against income inequality in an environment with record-high employment and a roaring stock market. At the first decline in the economy or a recession, the companies will most likely retract their offerings in an effort to save resources. It doesn’t make them bad people. They will be left with a Hobbesian dilemma to either keep generous commitments to all employees and risk going out of business or skimping on their promises and layoff personnel to stay afloat and competitive.
The skeptics view this as blatant moral preening, appealing to the growing wave of social responsibility demanded by consumers and will not follow through with any real meaningful changes. However, the CEOs have made a noble statement and it would be wonderful for everyone if they actually commit to it.