Corporate Character and the Future of Capitalism
By Robert H. Rock

Is accountability to everyone accountability to no one?

Editor’s note: This is a shortened version of our chairman’s address to the 2020 Character of the Corporation forum.

Character embodies the core values and convictions that are etched into a company’s DNA, inspiring its societal commitments, environmental responsibilities and moral consciousness. The character of the corporation animates behavior that expresses corporate values and culture to a broad array of stakeholders.

Echoing through corporate boardrooms is a new model of capitalism based on the overarching themes of purpose, inclusion and sustainability, upending the decades-old doctrine of shareholder primacy. For over a half century, corporate America has placed priority on providing profitability for its shareholders, which has proven to be highly successful in generating jobs, spurring innovation and enhancing our country’s overall wealth.

In a recent eight-page special section, The New York Times rings the death knell of shareholder primacy. Fifty years after Milton Friedman’s landmark essay appeared in its magazine section, The Times presented the opinions of “top thinkers” who roundly dissed the Nobel laureate’s overarching premise that “the social responsibility of business is to increase its profits.” Critical of shareholder primacy and short-term focus, the new mantra is stakeholder capitalism with its longer time horizon and wide array of constituencies. Increasingly, CEOs are looking beyond shareholders, and shareholders are looking beyond short-term profits.

But some governance experts argue that accountability to everyone is accountability to no one. They fear that the corporation’s primary purpose is slipping away from its shareholder-value moorings, allowing for the loudest and most passionate activists to set the agenda for the allocation of corporate assets. They underscore that CEOs are employees who are elected by and work for the shareholders and thus need to focus on creating value for them. Yet for all the talk of a new model of corporate governance, most companies still give priority to shareholder returns, an emphasis most analysts consider inevitable.

Citing what he sees as corporate America’s prioritization of stockholders and investors over workers and their communities, President Joe Biden believes that capitalism has gone awry, having broken “its basic bargain of shared prosperity.” He bemoans how large companies, like his hometown’s DuPont, are no longer responsible corporate citizens. In a recent interview he declared, “It used to be that corporate America had a sense of responsibility beyond just CEO salaries and shareholders.” He concluded, “It’s way past time we put an end to this era of shareholder capitalism.”

The president is not yet fully aligned with the Democratic Party’s left wing, which is calling for greatly enhanced government legislation, regulation and oversight that would extend the reach and weight of the federal government far into the economy. He has often said that he would rather change corporate America through moral suasion than through regulatory fiat.

Some will align, to varying degrees, with the fundamental assertion that corporate governance requires a sweeping overhaul, while others will offer a full-throated rebuttal of stakeholder capitalism. But all recognize that income inequality, social injustice and climate change are persistent problems, bringing into focus the challenge of attaining fair, equitable and sustainable growth.

We at Directors & Boards recognize the intensifying drumbeat for boards to go beyond profits and develop a sense of purpose that focuses on social good both within and outside the company. We will continue to explore how far directors can go in serving a broad array of stakeholders and will continue to examine how corporate character impacts sustainable performance.

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