In 2019 – about a year into the “ESG bubble” – the Business Roundtable (BRT) announced it was redefining “the purpose of a corporation to promote ‘an economy that serves all Americans’”. That announcement included “the release of a new Statement on the Purpose of a Corporation signed by 181 CEOs who commit to lead their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders.” Before BRT’s action, Bob Eccles and Tim Youmans renamed their “Statement of Significant Audiences and Materiality” (I’ve written about that rather excellent idea previously) to “The Statement of Purpose”:
“The board of a company should publish an annual one-to-two page ‘Statement of Purpose’ that clearly articulates the company’s purpose to profitably achieve a solution for society. It specifies within that purpose the few stakeholders most critical to long-term value creation and sustainability.”
Bob and Tim’s goal was for “the board of every listed company, and as many private ones as possible, [to] publish a ‘Statement of Purpose'” by 2025. Probably not gonna happen, but the world has turned upside down since 2019.
Now the BRT flipped with its latest position “The Need for Bold Proxy Process Reforms“. The paper argues that SEC policy allowing shareholders to introduce corporate purpose/ESG matters (ostensibly “promoting ‘an economy that serves all Americans’” and “for the benefit of all stakeholders”) is bad:
“Long-standing interpretations of Rule 14a-8 were rewritten to favor broader inclusion of environmental, social, political and other policy-related proposals… This retreat from responsible regulation has allowed a small but vocal group of activist investors to exploit the proxy system for political purposes. As a result, shareholder proposals focused on environmental, social and political issues have surged, despite having little to no connection to long-term shareholder value…
Companies are being forced to divert significant resources and attention toward responding to a flood of ideology-driven shareholder proposals — resources that would be better spent driving long-term value creation. These escalating costs ultimately fall on shareholders, yet there is little evidence that such proposals yield meaningful economic benefits.”
This isn’t an explicit rebuke of corporate purpose, but it’s close – especially when you consider this statement:
“using corporate governance mechanisms to advance policy objectives outside the democratic process undermines accountability and weakens confidence in regulatory institutions. The SEC’s mission is to protect investors, maintain fair, orderly and efficient markets and facilitate capital formation. However, if the agency is perceived as prioritizing ideological goals over these core objectives, its credibility — and trust in the regulatory framework supporting our markets — will be at risk.”
There are those who will argue that ultimately, a company’s purpose drives “meaningful economic benefits”, but (a) the current political setting in the US puts companies at risk for espousing that, and (b) few companies made – or disclosed – a compelling and lasting purpose value proposition.
If you want to talk about purpose in today’s C-suites, you better have a strong business case linked to the company’s business fundamentals.
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