KOLB: The Business Roundtable Reaffirms That A Corporation’s Job Is To Profit

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Charles Kolb Deputy Assistant to George H.W. Bush
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Founded in 1972, the Business Roundtable is not known for espousing left-leaning policies. Its 192 CEOs represent many of the country’s largest, most successful corporations, and its collective voice on policies ranging from economics and trade to education and the workforce carries substantial weight in Washington. Elected leaders pay attention to the BRT because its members account for a significant portion of the U.S. workforce and corporate income.

In August, the BRT issued a 300-word statement redefining the purpose of the corporation. According to the statement, that purpose includes generating “long-term value for shareholders” and delivering “value to our customers.”

For many decades, the BRT followed the views of Nobel-prize-winning economist Milton Friedman, who argued that a company’s principal role was making profits that would maximize shareholder value. While Friedman didn’t altogether ignore other external social factors that might affect how companies were run, he downplayed the importance of external stakeholders such as customers, employees, suppliers, communities, and the environment.

Critics on the right branded the BRT’s statement as vague, a left-leaning capitulation, or a preemptive strike against 2020 Democratic campaign rhetoric. The stakeholder and nonprofit communities mostly cheered the BRT’s new direction as long overdue but said it didn’t go far enough or lacked sufficient details about concrete action.

The controversy has become overblown because, as happens often in contemporary American life, opposing sides overstate their positions to the point of caricature. Most companies do not follow a strict Friedmanite view that shareholder value is the only thing that matters, to the detriment of other stakeholder interests. Likewise, most companies are not run by following the policy prescriptions of Alexandria Ocasio-Cortez or the evolving fantasies of the American progressive left.

For 15 years, I had the privilege of running a nonpartisan, business-led think tank, the Committee for Economic Development. Founded in 1942, CED’s mission was to engage business leaders in formulating policy recommendations to increase economic growth in ways that would also be shared equitably among all American citizens. CED counted over 175 senior business leaders and university presidents as members. Among its initial efforts was helping create the design for the Marshall Plan that rebuilt much of postwar Western Europe. President Truman tapped CED’s founding chairman, Studebaker CEO Paul Hoffman, as the Marshall Plan’s first administrator.

CED’s policy work included education reform (pre-K, K-12, postsecondary, and international studies), campaign-finance and state-judicial reform, fiscal policy (debt and deficit reduction), globalization and trade, immigration, and health-care reform. The organization’s members prided themselves on running profitable companies while also caring about policies that affected the American economy, our citizens, and, in turn, their companies and their employees. Some observers considered CED as a “sensible center,” or as espousing what Alexis de Tocqueville in 1835 called “self-interest, rightly understood.”

While some companies may exist only virtually, or perhaps in Delaware post-office boxes, most companies exist in communities. These companies’ employees and managers have a keen interest in a community’s overall welfare: crime-free streets, good schools, safe drinking water, plus affordable, quality, and close-by health care. When communities deteriorate, local businesses are also harmed.

Fortunately, most American communities have effective local United Way member organizations and other groups that engage local corporations in supporting vital local institutions and infrastructure.

Al Dunlop, the late former Sunbeam CEO, carried Friedmanite views to an extreme: all that mattered in running a corporation was maximizing shareholder value. You could forget charitable institutions like United Way. “Chainsaw Al,” as he became known, ran Sunbeam into the ground with his management style. He’s the poster boy for those who believe that only profits matter.

During my CED tenure, the longest-serving trustee was the late Peter G. Peterson. In a 2004 Washington Post article, Peterson asked why there weren’t more “business patriots” now like the leaders who established CED. The only sitting CEO Peterson saluted for enlightened leadership as a “business statesman” was GE’s Jeffrey Immelt. It’s therefore sadly ironic that two of the seven BRT members who did not sign the BRT statement were GE’s current CEO, Larry Culp, and Steve Schwarzman, who co-founded Blackstone with Peterson.

The BRT’s pronouncement is not novel, but it is a welcome and sorely needed reiteration of the values that should guide today’s corporate leaders. BRT president and CEO Josh Bolten and the signatories deserve considerable praise for their efforts. They have promulgated a valuable template for what 21st century enlightened business leadership should entail.

Charles Kolb was deputy assistant to the president for domestic policy in the George H.W. Bush White House from 1990-1992. From 1997-2012, he was president of the nonpartisan, business-led think tank, the Committee for Economic Development.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.