The Business Roundtable’s recent call to expand the notion of corporate accountability beyond shareholder value has provoked reaction across the ideological spectrum. But as Winrock CEO Rodney Ferguson writes in Arkansas Business, this statement by top American business leaders only acknowledges growing consumer demand for corporations to take a longer-term approach. By broadening the definition of what a corporation should be, the CEOs are in fact boosting innovation — and making a good business decision.
It’s a pleasure to see an innovative Arkansan like Walmart’s Doug McMillon chosen to lead the Business Roundtable. He is taking over at an important time for the group.
The Business Roundtable’s recent declaration that businesses have responsibilities to protect the interests of all stakeholders, not just their shareholders, has elicited a wide range of responses that follow predictable partisan patterns. The right maintains that protecting workers and the environment exemplifies the leftward creep of the global elite who manage multinational corporations. The left argues that corporations can’t be trusted, and the announcement was just a PR exercise.
But one argument has spread across the spectrum — the notion that innovation will be thwarted in the name of protecting workers made obsolete as companies disrupt the status quo.
This is the exact opposite of what should happen. Fighting policies that protect workers from disruption should unite the left, right and center — and should bring into clear focus the point at which corporations should rightly cede responsibility for employee protections to government.
First, the idea among progressives that corporations must protect workers from the sturm und drang of market forces seriously imperils one of the most significant forces at play in the global economy — the slow, inexorable and hugely beneficial shift away from carbon-intensive energy to cleaner sustainable energy sources. As predicted for years — but with greater acceleration than many energy market analysts predicted — the world is moving away from carbon-emitting energy production at a fast pace.
According to the national nonpartisan business group E2 (Environmental Entrepreneurs), clean energy jobs now outnumber fossil fuel jobs nearly 3 to 1. There were more than 3.2 million jobs in solar, hydro, wind and allied industries in 2018, with the promise of millions more to come. There are short-term losers in this transition — coal miners and oil-field workers, to name a few — but this transition is not only economically beneficial, it is environmentally necessary as we move the global economic engine to sustainable energy sources.
Second, conservatives who fear that CEOs are joining left-leaning globalists who want to replace capitalism with a gauzy, anti-growth, socialist agenda that renders shareholders impotent in boardroom politics are missing a central piece of logic. What prompted many of the 188 Business Roundtable members to approve the new model is that shareholders themselves are pushing corporations to greater environmental protections and worker rights.
While European companies are ahead of us in this area, American shareholders proposed 464 environmental and social resolutions in 2018 compared with 407 in 2010, according to the Sustainable Investments Institute. And the average percentage of shares voting for those resolutions rose to almost 26%, up from about 19% in 2010.
This trend is not going away. More and more corporate boards are adding sustainability officers, environmental stewards and consumer protection activists. And these pressures aren’t coming from a small activist elite but are increasingly driven by those who think that higher food safety standards or fewer children working in commodity supply chains are not secondary to profits, but equally — or perhaps even more — important.
Meanwhile, those at the center believe that a balance of profits and responsible behavior is possible. And one way ahead, to be led from a moderate political middle, is to reposition government as the arbiter of not necessarily how companies achieve these environmental and consumer protections, but the required floor every company should be responsible for reaching.
While many CEOs see increasing support for expanding the stakeholder landscape, they are still under great pressure to compete with companies that, because they are privately held or have a very narrow shareholder base, can ignore these concerns. Government should punish the free riders by enacting stronger child labor restrictions, restoring methane restrictions in energy production and re-engaging on international environmental conventions like the Paris accords. In doing so, we level the playing field and prevent companies from harming workers, the environment and the American consumer.
Don’t buy the line coming from both left and right that the Business Roundtable threw a worthless PR lifeline to U.S. multinationals looking for cover from the anti-corporate sentiment surging through both ends of the political spectrum. I’m not yet cynical enough to believe that most corporate CEOs believe they operate in a hermetically sealed world that shields them from the actions of their own, and their colleagues’, companies. Trust but verify, yes. That’s the responsibility of government. But take seriously the recent declaration to expand the beneficiaries of our capitalist economy. And if you own shares in a public company, encourage corporate leaders to follow through — and reward them and their companies for doing so.
Rodney Ferguson is the president and CEO of Winrock International, an Arkansas nonprofit that works in the United States and more than 40 countries to empower the disadvantaged, increase economic opportunity and sustain natural resources. He is a member of the Export-Import Bank of the United States (EXIM) 2019 Advisory Committee, the Milken Institute Center for Public Health Advisory Committee and the U.S. Global Leadership Council, and is a founding member of the Cuba Consortium.