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August 19, 2020

Why Businesses Should Continue to Pursue a Stakeholder Mindset

Why Businesses Should Continue to Pursue a Stakeholder Mindset

August 19, 2020
Published By American Promise
The coronavirus pandemic, an intensifying economic crisis, and a rise in calls for racial justice all present business leaders with challenging decisions to make in meeting their commitment to all stakeholders.

It has been a year since the Business Roundtable released its Statement on the Purpose of a Corporation, putting the interests of employees, customers, communities and the environment on equal footing with shareholders. This bold and historic statement has found widespread acceptance among leaders of Fortune 500 companies, and even among investors. Over the past year the Business Roundtable statement has reverberated across the business world, finding favor with values-driven business professionals like those joining American Promise’s National Business Network supporting the American Promise Amendment for a free market economy that serves all Americans.

In signing the Business Roundtable statement last year, 181 chief executives committed “to lead their companies for the benefit of all stakeholders — customers, employees, suppliers, communities and shareholders.” This approach to corporate leadership and stakeholder capitalism takes a more complete view of a corporation’s purpose, focusing on creating long-term value and better serving all stakeholders, democracy and our government as detailed in Elizabeth Doty’s op-ed, How the Business Roundtable could create a level playing field for purpose-driven business.

This one-year anniversary of the Business Roundtable statement arrives at an extraordinary time. The coronavirus pandemic, an intensifying economic crisis, and a rise in calls for racial justice all present business leaders with challenging decisions to make in meeting their commitment to all stakeholders. Signing the statement a year ago was an important first step for these CEOs, but long-term work lies ahead to make real systemic changes.

Values-Driven Profitability

Younger workers searching out employers with a values-driven purpose, customers deliberately selecting values-driven products, and socially conscious investors increasing money in values-driven businesses are positive trends we are seeing in America. In light of the extraordinary challenges of the past 12 months, let’s explore the impact of this 2019 statement.

This recent LinkedIn post from HP President and CEO Enrique Lores, shared following an appearance before the California Senate by HP’s strategy chief, Kim Rivera, is a powerful expression of HP’s support for a state bill that would require firms to diversify their boards. As Lores says in the post: “Study after study has shown how gender and ethnic diversity can help power innovation and strengthen a company’s performance. For example, McKinsey has found that companies with more women and more ethnic diversity at the executive level are more profitable, and they’ve also found that companies with more diverse boardrooms enjoy significantly higher earnings and returns on equity.”  

HP’s board includes 58% minorities and 42% women, yet Lores writes “we have a lot more work to do—as a company and industry—to finally shatter the barriers that have prevented true equality and fairness for far too long.” 

Businesses Turn to Stakeholder Value

Another example of a business caring for its stakeholders occurred shortly after the coronavirus hit, when Workday became one of the first companies to send workers home, plus give their employees a bonus equal to two weeks’ pay, to help deal with extraordinary expenses. “In a crisis, the first thing you do is fall back on core values,” says Workday’s CEO and co-founder Aneel Bhusri in Fortune’s Leadership Next podcast. 

Bhusri is a strong advocate of the stakeholder approach to business. “We’ve always had employees as number one,” he said on the podcast. “In this environment, companies are stepping up to do the right thing” for employees, for shareholders, for customers, and for their communities. Bhusri adds: “Companies should have a soul and need to step up in tough times. … You see business leaders taking on things that historically governments took on, and they are being quite effective.”

Many companies that take stakeholder capitalism seriously also have shown they take hazard pay seriously. Frontline workers’ jobs have become more dangerous and more difficult during the pandemic. For example, retail workers have been showing up to do their jobs under stressful and challenging conditions over the past five months. Just Capital noted at least 38 of the 300 largest businesses instituted hazard pay policies in the early phase of the pandemic. A Just Capital and Harris Poll shows 77% of respondents support some form of hazard pay policy for the duration of the virus. Several companies, including Charter Communications, Target, and Tractor Supply, have not only provided hazard pay to their employees, but announced that wage increases will be permanent—stakeholder capitalism in action.

As author Rick Wartzman shares in this FastCompany article, top management thinkers agree with the stakeholder-minded business approach. The University of Toronto’s Roger Martin says a focus on serving customers, developing employees, or tackling a social need will lead to shareholder value creation. And Judy Samuelson, executive director of the Aspen Institute’s Business and Society Program, adds: “I read the Roundtable’s statement as a return to common-sense principles of management and the recognition that employees need a bigger share of the pie to assure a healthy economy.”  

Take Action

Shareholders ultimately benefit through the creation of long-term value when businesses are beholden to all stakeholders. Now is the time to create a strong economy and democracy where businesses compete based on the value they create in the marketplace. Take action, and join us by signing the American Promise Statement of Principle for Business Professionals.

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