The Purpose of a Company

The Business Roundtable thinks we need to change our view of the purpose of the companies we own.

CEO group urges firms to remember obligation to society, employees, and customers

And

The Business Roundtable said Monday that it is changing its statement of “the purpose of a corporation.” No longer should decisions be based solely on whether they will yield higher profits for shareholders, the group said. Rather, corporate leaders should take into account “all stakeholders”—that is, employees, customers and society writ large.
“Each of our stakeholders is essential,” the new statement says. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”

The Roundtable is virtue signaling.

The only stakeholders are a company’s owners. Full stop.

Of course, a company should listen to its employees; it can’t function without them. But stakeholders? We’re seeing the effects of the destructive self-absorption of employees given too much “stakeholder-ness” in Alphabet’s shameful behavior—on society writ large, yet.

Of course, a company should listen to its customers, and potential customers; that’s why a company exists at all: to provide a product or service that fills a gap in their lives.

Society at large? Society is best benefited by the company doing what it does best: satisfying its customers’ needs and wants, providing jobs along the way, innovating to better satisfy those needs and wants. Further, by being successful, a company can grow and foster new businesses, which increase jobs and innovation—and maximizes profit, which draws more investors and owners into the company and into the larger market, a positive feedback loop in its own right.

Profit max is the most efficient way to achieve any of that, and maximizing those returns to the owners within a free market economy maximizes that efficiency.  That, in turn, enhances the company owners’, and their employees’ and customers’, ability to work toward the good of society at large, with each acting according to his own view of what that good is, undiminished by being mixed into a mishmash of phantom “stakeholders.”

Mr [JPMorgan Chase CEO James] Dimon, for example, has challenged the shareholder-profit focus as too narrow and an impediment to executives’ ability to focus on long-term goals.

That misunderstands the problem. This is an investor education matter; business executives need to show the gains to be had from mixing a long-term view with a shorter-term view. Diluting the owners’ control over their company by passing too much power to pseudo-stakeholders only weakens any sort of view.

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