On Monday, the Business Roundtable announced the release of the Statement on the Purpose of a Corporation(The Statement). The new Statement was signed by 181 Chief Executive Officers (CEOs) who committed to lead their companies for the benefit of all stakeholders – customers, employees, suppliers, communities and shareholders. In full, it stated:
Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.
Businesses play a vital role in the economy by creating jobs, fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial, communications and other services that underpin economic growth.
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country.
This Statement dramatically changes the conversation in the compliance and business communities and the wider US political debate. While conversations on these matters have been ongoing for some time, this is the first time that the business community, in the form of the Business Roundtable, has taken the step to recognize them. The Statement will give every compliance officer, Corporate Social Responsibility (CSR) professional, ethicist and all others interested in moving the ball of corporations treating a variety of stakeholders with dignity and respect greater ammunition in fighting corporate malfeasance.
Why is this Statement so important? It reframes the corporate discussion from simply making money (i.e. enhancing shareholder value) to a much broader discussion of how to be a better corporate citizen, while delivering value. Each of the five listed stakeholders directly ties to the overall goal of every compliance professional.
Here the principles are delivering value to customers while meeting or exceeding customer expectations. Certainly, doing business both legally and ethically is now demanded by customers. As the legislators who passed the Foreign Corruption Practices Act (FCPA) over 40 years ago recognized, it is by focusing on what you can control, the supply side of bribery, that you change the way companies do business. Moreover, companies who are willing to cut ethical corners outside the US are more than likely to engage in dodgy behavior inside the US as well. If your culture is just to make your numbers at all costs, that culture is permeated throughout the company.
It would seem like treating employees as people would be a basic concept. Yet under most corporate formulations, employees are simply a cost to be reduced when the need arises. That is not only short-sighted in terms of your employee base but antithetical to good business practices. However, the Statement points to treating employees with “dignity and respect”. It is these two words which speak directly to the compliance function of every company. For if there is no institutional justice and institutional fairness, there will be no positive culture. This holds true in the areas of promotion and discipline. If promotion is largely based on gender or the old boy network, your company is not only wasting talent but actively excluding one-half of the work force. In the area of discipline, if you fire employees in Brazil for cheating on their expense account, then you must also fire your top US producer if they engage in the same conduct.
Here the key phrase is “Dealing fairly and ethically with our suppliers”. But it is more than simply the words ‘fairly and ethically’; it is that your suppliers can help the company meet its mission. If your mission is to do business ethically and in compliance, working with ethically minded suppliers is a good first step. But this is where the compliance function steps in with a robust third-party risk management process on both the sales and the vendor/supply chain side. The business process of third-party risk management allows a company to walk through why you should do business with a company, who that third-party is and then helps to manage that relationship through a variety of tools and controls. If one of your corporate missions is to only do business with other ethically minded suppliers, the Statement emphasizes why this is such an important corporate mission.
Here the Statement says, “Supporting the communities in which we work”. While it goes on to focus on sustainability, and many commentators will focus on sustainability, I think the focus may be different for the compliance professional. Many contracts outside the US have a CSR component. A compliance function must be involved in such matters from an anti-corruption perspective so this requirement fits directly into the Statement and the greater goal of working with communities. It also allows a corporate compliance program to focus these CSR components to actually benefit the communities in which they are delivered rather than the ruling party, junta or friends of the country’s leaders.
The primary goal is to create “long-term” shareholder values through transparency and engagement. As effective compliance creates greater business process efficiency, this leads to greater overall profitability. The 2019 World’s Most Ethical company designees outperformed the S&P 500 average by 10.5% according to Ethisphere. So clearly the doing business ethically component of compliance and ethics is good for business. However, the Statement also focuses on transparency and engagement with shareholders. This moves into better corporate governance and a host of other issues which make companies not only better run for their shareholders but also improve long-term growth.
Do I expect things to change tomorrow? No, they will not, but as with the worldwide fight against the global scourge of $3tn lost annually to corruption, the change is ongoing. I hope that everyone engaged in the compliance profession will welcome the Business Roundtable’s Statement as a welcome declaration of US businesses once again leading the way to a corporate vision that is not simply focused on profit maximization to the exclusion of all other interests.
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© Thomas R. Fox, 2019