Many topics were discussed at MLR Media's Nov. 30 Character of the Corporation event at The Metropolitan Club in New York City, including the role of the outgoing CEO in succession, how companies build their boards and the best ways for boards and CEOs to navigate social issues. However, as each panel was conducted, it was clear they had a similar through line, and that would be corporate purpose. Our lead panel for the day discussed that topic, in particular its relationship to the capitalist system. The panel was moderated by Larry Cunningham, special counsel for Mayer Brown, and featured directors Herman Bulls, Ursula Burns and Mary Bush.
Capitalism and Corporate Purpose
Bush, a director of Discover Financial Services, Bloom Energy, ManTech International and T. Rowe Price Group, believes that the purpose of a corporation in simplest terms is to meet the expectations of its shareholders.
“The prime expectation, as I see it, is a competitive and acceptable return to shareholders.”
However, she noted, corporations must keep their many stakeholders in mind.
“There are employees; there are customers; there are suppliers; and there are communities that companies operate in, whether those communities are local or global. I think that the friction arises when people are not conscious of or focused on the value that those groups bring to the corporation,” said Bush, who is chairman and founder of Bush International LLC.
Of the increased focus on corporations' benefit to multiple stakeholders, Bush said, “I think it's a good thing. When we recognize the value that employees, communities and others bring to the corporation, boards and management are better able to factor in those things when they set strategy and operate the company.”
The Public Company and Societal Interests
According to Burns, during her time as CEO of Xerox, success was pretty easy to measure.
“When I was running Xerox, you didn't have to have a point of view about anything except shareholder return. That was it,” said Burns, who is chair of Teneo Holdings LLC and a director of Uber Technologies Inc., Endeavor Group Holdings Inc. and IHS Holdings.
However, she noted, if that mindset continues among today's CEOs, it is going to result in disaster not only for their companies but also for the business landscape itself.
“If we don't adjust the way that we manage and lead companies, we're going to be left behind. America and business in general will be left behind,” said Burns. “Corporations, CEOs and boards have to change their point of view from only speaking about return to shareholders. We're going to have to incorporate other points of view, and CEOs are going to have to improve their ability to communicate their own points of view.”
The Good and Bad of Capitalism
“First of all, it's the best system that I know of.”
Those are the words of Herman Bulls, international director and vice chair, Americas, of JLL, when asked about capitalism. It's a system Bulls says stirs economic development, forges the appropriate allocation of resources and promotes individual freedom, creativity and ingenuity. To illustrate his point, he focused on the ubiquitous iPhone.
“When iPhones came out, nobody could afford them. The masses certainly couldn't,” said Bulls, who serves as vice chair of USAA, chair of Fluence Energy and a director of Comfort Systems USA and Host Hotels & Resorts. “But with capitalism, we have mass production and efficient supply chains. Capitalism allows us to get to a place where the standard of living for everybody is raised.”
Yet capitalism has its limitations. Among the challenges Bulls cited are wealth disparity, income distribution and market failures.
“There's a motive for corporations that they're just going to maximize profit. You end up with pollution and the externalities that go along with that.”
However, while Bulls pointed out the need to address other challenging aspects of capitalism, such as its tendency to prioritize short-term focus on the part of CEOs, he stressed that it is a system worth fortifying.
“I can't think of a better system to thrive under.”
Bush concurs with this sentiment.
“Capitalism is the best system in the world. There is no other system that has created the kind of economic value that has lifted more people out of poverty or brought more people into the middle class than capitalism,” said Bush. “I think it is incumbent upon all of us to make sure that capitalism is re-energized and that people have confidence in it. One of the ways that we can do that is by recognizing that there are many groups that contribute to value creation for shareholders, including employees and the communities, both local and global, that are sources of talent for the company.”
Burns also agrees with Bulls on his placement of capitalism at the top of the list of economic systems. “There's not a better one,” she said. But, she added. “If we're not aggressive about understanding and seeing the unjustness of some of it, and the fundamental racism and sexism of some of it, we're going to be run over by people who want a different system.
“I think it's really important to remember that corporations were generally formed by white men. The rules were written by white men. The referees on the field were white men. Everything about the corporation was defined by a very small fraction of the people who participate. We have to adjust quickly to rethink some portions of capitalism so that it is more inclusive, more fair, more balanced and more broadly applied.”