The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2020”.
Corporate Purpose
On August 19, 2019, the Business Roundtable released its latest Statement on the Purpose of a Corporation, emphasizing commitment to all stakeholders.[1] The Statement received a lot of attention in the press and focused attention on a simmering, somewhat academic, debate regarding “shareholder primacy”—i.e., the idea that the most important purpose of a corporation is to increase shareholder value, which should supersede other considerations cited in the Statement such as “supporting the communities in which we work” or “investing in our employees.”
Since Milton Friedman’s advocacy of the idea in the early 1970s, it has been an article of faith in most of the business community that, as he put it, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits.” Notably, there is reason to believe that many companies whose executives signed the Business Roundtable Statement did not do so on the basis of prior discussions with their boards.
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