Shareholder Value is No Longer Everything

Ken Makovsky

A Business Roundtable Report, “Statement on the Purpose of a Corporation,” issued over a week ago, champions the view that “shareholder value is no longer everything,” In contrast, I ask what is the accountable substitute?

The answer is really not defined, as the report appears to be more of a mission statement than a program for action. The purpose of corporations, the report says, is no longer just profits, but applying greater focus on employees, suppliers, customers and the community in which the company resides. But while profits are easily measured, what is the accountability for these other areas, as valid as they are?

As a public relations professional and one who is concerned with supporting and communicating with all target audiences, my reaction is that more criteria are needed to flesh this out. And while this “Statement” makes focus on these audiences official, there is significant anecdotal evidence that our democratic culture has been motivating large numbers of corporations for years to focus directly and actively on these audiences. Many annual reports prove it.  How otherwise can a company grow? Yet there are no finite measurements. The BR, while to be commended for moving forward, is acting like a bit of a Johnny-come-lately.

It seems that building shareholder value has paid off splendidly in terms of stimulating investment in the United States and in other parts of the world, as well as providing cash to support programs for these other targets. According to the Aug. 24th issue of The Economist, “investment in America is in line with historic levels relative to GDP, and shareholder value conquered America, then Europe and Japan where it is still gaining ground. Judged by profits it has triumphed: in America they have risen from 5% of GDP in 1989 to 8% now. “

“A good mini way of making firms still more responsible and accountable (to these other aforementioned targets) would be to broaden stock ownership,” says The Economist. The proportion of American households with exposure to the stock market is only 50%. The tax system needs to encourage more share ownership “among employees, community members and others so they can vote in company elections, for example.” Communications programs need to be established, if not already done, to reach groups of stakeholders to educate them on the potential role they can play in affecting corporate strategy and policy,

Elizabeth Warren, the Democratic presidential candidate, wants firms to be federally chartered, so that if firms abuse the interests of staff, customers or communities, their licenses can be revoked, according to The Economist. Rather, let’s stay positive and talk about what these groups CAN do as opposed to punishment for possible corporate abuse.

A long-time Makovsky client, a Fortune 500 company Chairperson, years ago told me he did not believe in corporate and shareholder democracy; he felt companies could not be properly run that way. Based on what I’ve read, some big companies including GE, Alcoa and the Blackstone Group did not sign the Report. And the Council of Institutional Investors disavowed the ideas set forth in it, according to the Economist.

How the debate will end no one knows. But we do know that pressures in Washington DC and in our culture brought this situation to bear. The New York Times put it well: “For companies to make good on their lofty promises, they will need Wall Street to embrace their idealism too.

Until investors start measuring companies by their social impact instead of their quarterly returns, systemic change may prove elusive.”