Among other things, did the Business Roundtable's August 19th "put" perplex you? As a vested and invested strategic and operational participant in America's home building and residential development enterprise, it might well trouble us all.
If the answer is no, you could find yourself in a minority.
We'll illustrate with a quick show of hands. This way we may learn who thinks the BRT's commitment to a broadened set of values and priorities strays dangerously off capitalism's path of righteousness, on the one hand, and who believes the statement's woke social responsibility claims to be only so much hollow "virtue-signaling" p.r., on the other.
All those who believe the BRT's "statement of purpose of a corporation" veers recklessly from decades of sound practice and principles of management accountability, strategic alignment, fiduciary responsibility, and value creation, raise your hand.
Thank you. Now, those of you who are struck by the open letter's conspicuous lack of practical heft and who remain more than a tad skeptical about management's intentions and willingness to back up the verbiage with behavior and action in the real world, raise your hand.
Now, who does that leave? Ones unfazed not only by the message in the manifesto and its re-prioritization of corporate goals, but by its timing? Anybody? Moreover, while we're on the topic of timing, anyone out there other than me find it ironic that such a big milestone in corporate culture's evolution should surface during August's dog days, precisely when a lion's share of shareholders might be expected to be off on vacation, trying on disconnecting from their devices for size?
Coming as it did amid the rising blare of people running for political office calling corporate interests to account for a growing array of societal ills--the opioid crisis, gun violence, climate collapse, privacy failure, mass economic and financial inequality, social injustice, etc.--also arouses skepticism around both the intent and the moment.
Some declare that the 300-word "statement" blasphemes outright. Its freshly drafted framework on corporate mission and purpose recasts strategic management accountability. As the document re-scopes, at an essential level, the stack of beneficiaries from capital's value creation, its intent is, critics contend, not only radical but heretical. That would appear to be the view of the Wall Street Journal's Editorial Board. After all, the statement asserts that companies' sole reason for being should be about more than yielding profitable returns on their financial owner-shareholders' investments. Further, the promise of those profitable returns seems to have moved uncomfortably far down in the pecking order of management priorities.
For Milton Friedman, it was simple. “There is one and only one social responsibility of business,” the Nobel economist wrote in 1970: to “engage in activities designed to increase its profits.” Companies must obey the law. But beyond that, their job is to make money for shareholders.
And Friedman’s view prevailed, at least in the United States. Over the following decades, “shareholder primacy” became conventional business wisdom. In 1997, the influential Business Roundtable (BRT), an association of the chief executive officers of nearly 200 of America’s most prominent companies, enshrined the philosophy in a formal statement of corporate purpose. “The paramount duty of management and of boards of directors is to the corporation’s stockholders,” the group declared. “The interests of other stakeholders are relevant as a derivative of the duty to stockholders.”
Times change.
On Aug. 19, the BRT announced a new purpose for the corporation and tossed the old one into the dustbin. The new statement is 300 words long, and shareholders aren’t mentioned until word 250. ... Before that, the group refers to creating “value for customers,” “investing in employees,” fostering “diversity and inclusion,” “dealing fairly and ethically with suppliers,” “supporting the communities in which we work,” and “protect[ing] the environment.”
Friedman must be turning in his grave.
At least a couple of second-day-lead analyses conjure the same image of the Nobel laureate economist, disturbed and perturbed in his eternal resting place.
For those of us not yet so indisposed, the BRT "statement of purpose of a corporation" feels, well, existential. If for no other reason than how bifurcated, how polarized, how at-odds we appear to be with the letter's assertions and the principles underlying them, this feels big. From the sounds of it, the notion that invested shareholders may have to share in the bounty of a high-performing company feels tantamount to losing some of what they rightfully own. It also sounds as though corporate strategists and managers have begun to feel the heat of new forces that could structurally alter the "means of production" and their capacity to generate sustainable value.
- Is capitalism in crisis?
- If so, what aspects of "private ownership of the means of production" are coming undone?
- Is the "statement" to be believed at face value?
- If so, should company owner-stockholders fear that these CEOs have gone rogue in attesting that firms need to stand for something more than financial gains to those who possess legalized, documented ownership in them?
- Does it all add up to some kind of latter-day club-member "narrative," intended to cynically co-opt increasingly high-volume opponents? Is the promise to placate or motivate?
- Or rather, are assumptions and assessments reflected in its framework actually classic S.W.O.T. analysis that suggests that both "the means of production" and what is being produced have entered a new chapter of intrinsic transformation?
- In other words, have stakeholders become the new shareholders?
- And, if the pledge, as it's constructed, aims to improve decision-making, clarify accountability, and provide the basis for better choices in a more complex world, how does all of that tie to performance, to results, to the greater wealth for those who privately own the means of production?
- Does adding goals subtract from the one goal that really counts--making money for the owners (legally, of course!)?
- And if you don't add those other goals and give them equal focus and priority, is there a fundamental threat to that singular outcome shareholders care most about, their payday?
These are just 10 of the many big, big questions. The 181 signers have far more neurons firing, invest-able resources to bring to bear, and far greater visibility into the ins and outs of these issues than I do. We'll stay tuned to see how these 181 men and women back up their words with action. I personally was gratified to see, among them, a handful of familiar leading lights from our community--Lennar, Whirlpool, Honeywell, The Home Depot, Owens Corning, Stanley Black & Decker, and a few others--clock into the commitment. This is heartening, particularly because these very issues run deeply at the heart of housing's most important strategic and tactical challenges.
Namely:
- Attainability of homes--to rent or buy--for people who need, aspire to, and want.
- Worker talent and skill, which is scarce.
- Community impact.
- Environmental repair.
Some company executive members in The Business Roundtable opted out of endorsing the letter. For leaders in housing, however, we feel the pledge's intent and message should not be ignored, but rather, embraced and put into action. As this Harvard Business Review piece from author and consultant John Elkington notes:
There is a narrow window of opportunity within which to prove that stakeholder capitalism is more than self-serving PR.
Elkington calls out six action item pillars--pay and incentives, ownership and governance, taxes and lobbying, procurement, investment, and products and pricing--each of which is both a problem and an opportunity area for business leaders in a housing ecosystem whose losers currently outnumber its winners.
For people leading home building investment, development, building materials, design, and construction companies--all of whom work in the cross-hairs of social, political, and cultural challenges as well as business, competitive, financial, and economic ones--the grounds beneath us are shifting. Here's a few points that come to mind as you come to your own conclusions about the validity, relevance, meaning, and matter of the BRT avowal.
- Corporations are not people, although we're apt to give them human characteristics and refer to firms in a personified manner. They are neither good nor bad by nature. They do not, in and of themselves, back "liberal social causes," as The Economist writes here. They're constructs, made up of people who own, manage, and operate them.
- Corporations, today, including home building, development, residential investment, and building manufacturing and materials organizations, stand for values, practices, and principles people either trust or distrust. Sustainable, regenerative value creation increasingly will correlate with trust vs. mistrust.
- Social capital, cultural capital, community capital, and consumer trust capital may sound fuzzy and soft because they're harder to measure than financial capital--except in their absence. Then, they become real KPIs of the distinctive ways the markets reward or punish organizations. The "statement" acknowledges value in their intentional presence versus a scenario of having to acknowledge lost value from their absence.
- It is better for these CEOs to, as they have, seize on this big bet for transformational change while things are going well economically and performance-wise, rather than to do it when things are more adverse. The rewards will be greater, and the risks less so.
- It's important to understand that improving decisions and making better choices are two different matters. The new rules of engagement spelled out in TBR statement may work toward better decision-making, but they won't necessarily make tough choices easier, less conflicting, or more consequence-free.
Why we're encouraged, and why this elevated conversation about the essential and existential purpose of firms map to so critical a moment in housing, in home building, in residential neighborhood development, in community investment, and in building materials and products manufacturing is this: In raising the bar of expectations of what a housing company can and should be, the statement also effectively lowers the barriers for their leaders. As a result, they can be held to a higher level of achievement in their pursuit.
Housing's challenges--for what they are--are baked in, hard, chronic, and, for many, worsening. To reverse the strong tide of some of those forces and release new opportunity, leaders at companies like Lennar, Whirlpool, Honeywell, The Home Depot, Owens Corning, Stanley Black & Decker, and others will have to perform in ways they haven't yet performed.
Or else, their business opportunity and the downstream benefits to investors, customers, employee associates, communities, and the environment itself will begin to diminish. The BTR pledge says as much.
