Shift from “shareholder primacy” principle

＊This article was originally written in Japanese by our CEO, Yoshihide Arai.

Several months ago I saw a news headline that said The Business Roundtable, a non-profit association based in Washington, D.C., has superseded the “shareholder primacy” principle and outlined a modern standard for corporate responsibility.

The following is the quote from their official statement.

While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:

- 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.

- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.

- Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.

For several decades, the business standard in the US, such as the shareholder primacy principle and an emphasis on quarterly returns driving market capitalization, has been very strong and pervasive all over the world.

Reading the statement above, I was so surprised to see their quick and flexible adjustment for the modern business environment.

Ever since I built this company, I have continued to say a business organization is a system that makes all the people involved with the business happy.

People around me always told me that in principle a company belongs to shareholders. But I have opposed to the idea. I re-defined “what a company really is” on my own, and I have built this company based on my belief.

I wrote about it in this post in April this year and got a lot of feedback.

Even if some businesses made a great fortune for shareholders, it would not be sustainable if some people feel exploited by it.

These days, with the help of technology it is much easier for more people to notice unethical or immoral activities in business.

Also, it would not be sustainable either if the employees feel forced to do their best just for shareholders and cannot believe in the value they create through the business.

I believe all CEOs must face up to this reality.

I’m not saying shareholders are not important. It is critically important to run businesses in the long term, so it is a natural thing for business people to care about the share price and total capitalization.

However, it is not the highest priority. Our priority is to make something better for customers, society, and human beings.

Running a company is not a technique. It means all the activities we do for a society we belong to and for all human beings.

For several decades, many Japanese companies and their CEOs naively believed in the business standard of the US without much contemplation. Now is the great timing to rethink about what kind of policy we should have to run a company.

I believe if we rethink and redefine the business policy based on our Japanese value, Japanese companies could lead in the business field again in the future.