Nearly 50 years ago, Milton Friedman published his infamous theory, summed up by the title of the article in which the theory was first explained: “the Social Responsibility of Business is to Increase its Profits.” Thus, the concept of shareholder supremacy, which has permeated the business world over the last half century, was born.
It is my opinion that the belief that maximizing profits at all costs is the sole purpose of an organization is one of the more damaging concepts to have ever been introduced into modern society. Under the cover of “shareholder supremacy,” “maximizing shareholder value,” or “having a fiduciary obligation to shareholders,” companies have gotten away with atrocious acts over the last few decades, from cutting down rainforests to decreasing employee pay, safety, and wellbeing.
In my recent interview with Simon Sinek, I asked him about the proliferation of Milton Friedman’s theory. Sinek remarked, “It didn’t happen overnight; it took 20 to 30 years over the course of the ’80s and ’90s for it to become fully baked into the system. And it’s going to take us another 20 to 30 years to fully bake it out.” When I asked Sinek how we could possibly change the minds of CEOs of publicly traded companies toward stakeholder supremacy — valuing employees, communities, customers, suppliers, and shareholders, rather than just shareholders — he explained, “It’s really the law of diffusion of innovation that Everett Rogers proposed in the 1960s, which is: we don’t need everyone. We need the early adopters — the conscious capitalists who are questioning the legitimacy of the status quo and thinking, ‘There has to be a better way to run a business.’ We only need a couple of courageous leaders to stand up and say, ‘I’m going to do it differently and the results will speak for themselves.’”
So, yesterday when the Business Roundtable representing 181 of the most powerful CEOs in the world — I’m talking the CEOs of JP Morgan Chase, Apple, Exxon, Amazon, The Carlyle Group, and more — released a statement on the Purpose of a Corporation that committed their companies to operate for the benefit of all stakeholders, my jaw dropped. The Business Roundtable has occasionally issued “Principles of Corporate Governance,” and since 1997 the organization’s members have always stood behind principles of shareholder primacy. Their statement released August 19, 2019 says, “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.” This new statement officially supersedes all previous statements according to the group.
Can you even comprehend how huge this is? For the first time in nearly 50 years, publicly traded CEOs are coming out in unison to state that maximizing profits for shareholders is not their sole purpose any longer. Instead, these leaders will now focus on creating value for their employees, suppliers, customers, communities, and shareholders. And it wasn’t just a couple of brave leaders as Sinek suggested; it was nearly 200. Maybe I’ve been steeped in this stuff for too long, but I shed tears of joy as I read their joint statement.
The change in mindset of these CEOs didn’t happen overnight. For massive change like this to reach the mainstream, it required the work of thousands and thousands of early adopters behind the scenes, who have been advocating for this type of change for many years. The conscious business movement has been beating the drum of stakeholder supremacy for decades: from business owners who have been walking this talk independently; to organizations like Social Venture Circle that is more than 30 years old and had founders like Ben Cohen and Jerry Greenfield of Ben & Jerry’s and Anita Roddick of the Body Shop; to B Lab, which certifies B Corps; to the American Sustainable Business Council, which lobbies on behalf of conscious business; to Conscious Capitalism, which has been working to make mainstream these concepts with early-adopting CEOs like John Mackey of Whole Foods and Kip Tindell of The Container Store; to our very own organization, Conscious Company Media, which has been telling the stories of these early-adopting CEOs who help redefine success in business to mean maximizing value for all, not just shareholders; and countless others.
No matter what your role has been, we have all been critical to changing the overall zeitgeist that has popularized stakeholder supremacy to the point where mainstream companies feel comfortable enough to get behind it. We should all take a moment to acknowledge the importance of yesterday’s events and celebrate our respective roles in making this happen. I’m not saying our work is done, nor that these CEOs won’t need to be held accountable to their new purpose statement, but I do want to stop for a moment to say, “Holy friggin’ moly!” History is changing before our very eyes. And to all of you who have been tirelessly beating the drum: I see you. I thank you. Now, let’s get back to work!