Just about two weeks ago, a consortium of America’s most powerful CEOs signed a commitment to “[modernize] the principles on the role of a corporation.” Instead of saying that corporations were solely bound to maximize profits for their shareholders, the Business Roundtable (BRT) said that today’s times require corporate entities to serve their entire set of stakeholders (customers, employees, suppliers, communities). In the long run, that strategy will most likely maximize long-term value to shareholders. The CEOs of 181 companies, including Amazon, Apple, GM, and JPMorgan, gave an insight into their reasoning. They realize that “many Americans are struggling,” and as others “raise questions about the role of large employers in our society,” they should get ahead and clarify their role; they are bound to social and ethical standards to do right by their ecosystem.
I thought I would provide my $0.02 on how our generation might evaluate this commitment. I believe that our generation will be grappling with questions that cut at the core of this pledge, whether in roles of corporate or public leadership: To what extent should corporate actors play a role in making our world better? How should we view the role of government regulation or public policy in the context of stakeholder capitalism? Our attempt at answering these questions will help us go from reimagining capitalism to actively reshaping it.
A brief self-introduction: I grew up in Cupertino, California, as a son of two Indian immigrants. I was exposed to mostly liberal world-views and planted in a pot of socioeconomic privilege. The country may have forgotten about Eastern Kentucky and East Palo Alto, but it most surely did not forget about Cupertino, home to Apple’s headquarters.
Prior to HBS, I helped Ro Khanna, a progressive politician, get elected to the United States Congress (CA-17). Soon after that, I worked at Google, most recently on their initiative to strengthen quality journalism around the world. I have optimism that both the public and the private sectors can work to build a stakeholder economy that works for all of us, not just the shareholder class.
My thoughts on the BRT pledge? It’s a fool’s errand to speculate about what truly motivated the CEOs. At worst, a non-binding pledge is a very minimal concession that capitalism needs to be communicated differently for its survival. This pledge represents no meaningful shift in corporate policy, simply a political recognition—one that might even let some companies continue doing things that hurt the world. At best, there’s a chance that a future CEO will make a case against short-termism and encourage investment into more sustainable business practices. If this pledge pulls the psyche of leaders in a marginally more conscientious direction, then that will be a win. But if this pledge lulls us into complacency, into believing that good motives from powerful CEOs are enough, then we might one day see this as a pledge that perniciously set us back.
The most notable absence in the BRT pledge is any mention of the role of a healthy public sector in protecting markets. Larry Summers, former President of Harvard University, offers an interesting perspective in his recent blog post. Summers, a policymaker who spent most of his life marveling at markets, writes, “If the Business Roundtable is serious about stakeholder capitalism … [it should also] push for laws and regulations that support firms’ ability to stand up for their stakeholders.”
Their stakeholders, our fellow citizens, need us to move more urgently, and more fully. Given the rise of automation, decades of wage stagnation for the middle class, and threats to our democracy from foreign actors, it should be obvious that our government has a role to play in protecting capitalism. Still, in the halls of capitalism, making a case for a thriving public sector can come off as fringe.
Anand Giridharadas, a celebrated critic, provides some explanation. He writes, “If you have been playing in Reagan’s stadium, the underlying consensus is that capitalism is a great force of human advancement, and government is something to be careful in using.” Our generation, the children of the 1980s and 1990s, have grown up playing in Reagan’s stadium. President Clinton and President Obama, our two most recent liberal presidents, tended to be cautious about expressing a desire for an active government in our economy. Even today, political leaders who scrutinize the blind spots of capitalism are branded as heretics on a mission to destroy innovation.
With the arrival of the BRT pledge, and a recognition (however small) from the business community that shareholder primacy isn’t everything, our generation has a chance to leave the stadium they built for us and construct one of our own. Our stadium might be one that approaches public policy with ambition and curiosity, not disdain and instinctive skepticism; our stadium might see thoughtful regulation as being vital to our national security, not simply cumbersome bureaucracy; our stadium might dismantle outmoded dogmas around the role of business and create organizations that work for the well-being of the entire ecosystem.
On policy: A team of Harvard economists working at Opportunity Insights, a nonprofit dedicated to improving mobility, have been exploring the impact of targeted federal investments. As it turns out, many of these programs pay for themselves and actually helped the government earn a surplus. The reasoning is intuitive! Investments in education, particularly at an early age, improve the health of children, increase their chances of attending college, and give them a lifetime of earnings (and therefore taxable income) that would far exceed what it would cost to educate them. In the 21st century, there are several intelligent investments our government might make (for example, smart investments in renewable energy so that powering our economy does not come at the expense of the air we breathe or the water we drink). At the Harbus, this year, we will explore what kinds of intelligent and ambitious policy the business community might get behind.
On regulation: Earlier this year, the CEO of Google, Sundar Pichai, penned an op-ed in the New York Times in which he claimed that Google will welcome regulatory frameworks to help ensure user privacy. He celebrated GDPR, the European privacy law that was put into place in 2018, and suggested that the United States “would benefit from adopting its own comprehensive privacy legislation.” In the same vein, California’s state government recently passed legislation (A.B. 375) that would require consumers to opt-in to any data sharing or transfers. This bill earned majority support from both Democrats and Republicans in the State legislature. To what extent will the bill be effective in protecting citizens’ privacy? At the Harbus, this year, we will explore what kinds of regulatory frameworks might effectively promote the long-term interests of business and society.
On business: Finally, coming back to the BRT pledge, we have a chance to assess how companies can include the social good in their fabric. Andrew Sorkin of the New York Times suggests that this new arena is actually a return to an older one. Before shareholders became king, in the 1930s, corporations used to be built to serve stakeholders. Sorkin writes that “it was a time defined by organized labor, corporate pension programs … and charitable gifts from companies that invested heavily in their communities and the kinds of research that promised future growth.” Perhaps we would do well to adopt some of that ethos today, but set in the context of the 21st century’s challenges. Companies like Patagonia have been rightfully celebrated for thinking critically about eliminating waste from supply chains or creating new markets for used goods. At the Harbus, this year, we will explore what it might take for companies to incorporate that ethos into their foundation.
In my observed and lived experience, companies that have taken on complex global challenges can move the world to a better place. Political leaders who use their platform to be bully pulpits for progress can do more than they may have ever imagined with just their voice. And students who have questioned norms, deconstructed biases, and thought critically about their society end up transforming their education just as much as their education transforms them. We, as students of Harvard Business School, have an opportunity to start thinking critically about how we might remake capitalism. This is, and will be, the work of our generation. We might as well get started now.