Yossi Sheffi
Sep 2 · 4 min read

By Yossi Sheffi

Fires to clear land for industrial purposes along the Xingu river Mato Grosso, Brazil taken by ISS Expedition 29 crew — NASA Earth Observatory, Public Domain, https://commons.wikimedia.org/w/index.php?curid=16945493

Have CEOs from top US companies finally seen the light and converted to the cause of social responsibility? That is what the Business Roundtable (BRT) would have us believe in its recently released statement about the purpose of a corporation.

I don’t buy it.

This grand gesture from senior executives has much more to do with playing to the crowd than taking a step to increase the welfare of the planet and its inhabitants.

It’s the latest in a long line of such gestures, such as the recent announcement by InterContinental Hotels Group that it will replace mini-shampoos and conditioners with bulk products by the year 2021. As I explain in my article Removing mini-shampoos from hotel rooms won’t save the environment published by The Conversation, InterContinental’s CEO Keith Barr asserted that the policy “will allow us to significantly reduce our waste footprint and environmental impact.” In reality, this is a “feel good” initiative which cuts costs and helps avoid the move to more serious actions that can actually make a difference. It is similar to the move to cut plastic straws I commented about in a previous Influencer post, and several similar “pretend” corporate actions.

Fighting words

A similar dynamic is at work at the BRT. On August 19, 2019, the association of CEOs from America’s leading companies declared that after much deliberation, it had created a new Statement of the Purpose of a Corporation. The 181 CEOs who signed the statement commit to “lead their companies for the benefit of their stakeholders — customers, employees, suppliers, communities, and shareholders.”

It’s significant that “shareholders” are the last beneficiaries mentioned in the quote. The BRT has been issuing these proclamations since 1978. This latest one “supersedes previous statements and outlines a modern standard for corporate responsibility,” states the organization. As Fortune magazine reported, in 1997, the statement enshrined the idea that the paramount duty of a company’s management and board of directors is to serve the corporation’s stockholders. Now, stockholders appear to have fallen in the pecking order of constituents favored by the BRT.

The new statement of purpose commits corporations to deliver value to customers, invest in employees, deal fairly and ethically with suppliers, support the communities in which they work, and generate long-term value for shareholders.

The BRT commits to deliver value to all these stakeholders “for the future success of our companies, our communities and our country.” Its members believe that “the free-market system is the best means of generating jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.”

Not much substance

A stirring message, and some commentators lapped it up. Fortune magazine’s Alan Murray wrote that over the last four decades he had interviewed CEOs from some of the largest corporations in the US. “In the past few years, it has become clear to me that something fundamental and profound has changed in the way they approach their jobs,” Murray reported. CEOs are responding to growing disenchantment with capitalism, according to Murray, who added: “I can confidently state that none of these actions would have happened a decade earlier.”

On the last point Murray may be right. A decade ago CEOs were committed to rewarding their investors, not to “play to the crowds” using populist talking points.

Other commentators were less enamored of the new CEO message. For example, the editorial board of the Wall Street Journal questioned the statement with the no-nonsense headline: The ‘Stakeholder’ CEOs: Executives who abandon shareholders won’t appease the socialists, pointing to the motive of the BRT’s statement.

The BRT’s statement is just talk. These are inspiring mission statements — not concrete actions to address hugely complicated challenges such as climate change or economic inequality. The senior executives are not on a mission to redefine capitalism and save the planet. They are — quite rightly — on a public relations mission designed to deflect the unwanted attentions of environmental groups and Democratic candidates, and respond to “green” demands with low-cost, easy-to-implement, token gestures.

This is an impressive strategy. While the promises made by the BRT appear to steer corporations in a new direction, they actually espouse policies and practices that make sound business sense — for the shareholders’ stake. Delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, supporting the communities in which they work, and generating long-term value for shareholders, are activities that successful companies already engage in, and will continue to do so regardless of the BRT’s prosaic claims.

Moreover, CEOs — including the signatories of the BRT’s statement — will continue to take every opportunity to use the influence and power of their office to skew the commercial playing field in favor of their companies. That’s what they are supposed to do. Furthermore, their long-term compensation is inextricably tied to the value of their company’s stock — so who is kidding whom?

The true cost

Some people believe that paying lip service to social responsibility is better than no reaction. Also, a public relations exercise of this type doesn’t cost anything.

I would argue that there is a cost. Such posturing distracts us from the urgent need to marshal the world’s expertise and resources to tackle the genuine threats to our planet’s future.

At the time of writing, headlines are screaming that the Amazon jungle is on fire with potentially severe consequences for climate change. According to one report, there have been more than 72,000 fire outbreaks in Brazil this year, up 84% compared to the same period in 2018.

Such disasters, and the planetary fall out they cause require world-scale counter-measures. The BRT companies, who represent $7 trillion of revenue, could have pooled their resources in a concerted effort to fund research on a global scale into real solutions. Instead, they chose to add hot air to a warming planet.

MITSupplyChain

MIT Supply Chain is a world leader in supply chain management education, research, and thought leadership. We create supply chain innovation and drive it into practice.

Yossi Sheffi

Written by

Dr. Yossi Sheffi is a professor at the Massachusetts Institute of Technology, where he serves as Director of the Center for Transportation & Logistics.

MITSupplyChain

MIT Supply Chain is a world leader in supply chain management education, research, and thought leadership. We create supply chain innovation and drive it into practice.

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