This article first appeared in Revista Capital on November 16, 2019.
A few weeks ago, the Business Roundtable, a group composed of the CEOs of major U.S. companies, issued a statement promoting a “change in business philosophy”, modifying Milton Friedman’s concept: the main purpose of a company is to seek maximum shareholder value.
This has caused quite an impact, with some applauding the initiative and others shocked, fearing that shareholders are no longer at the center of the company.
As a decent of entrepreneurship and compliance, I believe that this really should not be a novelty nor should it be a “new economic concept”, but that from the beginning companies should pursue to be a contribution for all because, we must understand, that if the company does not take into consideration all those who form a company, they will be destined to die. There are some issues that I would like to raise on each point so that it is truly understood that if we do not begin to care and concern ourselves, we will not be able to create long-term value for shareholders, nor be sustainable over time.
Creating added value for customers is the central point of a company, it is nothing new. If this were not the case then no one would buy the product or service, so it would not continue to grow.
Another point is the investment in employees. Shouldn’t it be the foundation of the company? If I don’t have a fair deal with them, they will end up quitting and I won’t be able to bring in new talent. Especially today, when the new generations are concerned that companies should deliver added value to their workers.
Thirdly, there is the deal with suppliers. It must always be fair, because if I don’t take care of them – by not paying them on time, for example – they will end up going bankrupt, so I will have to change supplier, which will generate higher costs for the company.
Community support is key for companies. If I do not consider the community where I am inserted, it will “sabotage” the company, which will end up with the entity closing down.
All the above points show that the Business Roundtable statement follows Friedman’s theory, in the sense that it is fair and necessary for the company to grow and stay alive in the long term. If these aspects are not taken into consideration, they will end up losing instead of maximizing the profitability of the shareholders.
So shouldn’t this statement be the first thing to be taken into account in the corporate culture? If a company takes its first steps away from good practices, what is left for the future?
It is important to point out that, if it was necessary to reach the point of making this statement, it is because surely several of the items were being omitted. This is an unfortunate reality since it was made clear that important companies were skipping their stakeholders.
The statement should not remain just good intentions. It must be measurable. Thus, as shareholder value is measured by share price, companies should look for ways to measure that culture, and even reward their executives for it.
Many doubts can arise, but beyond this, we must take action and take responsibility for our value as entities, which in addition to generating profits, is to be aware of the moment we are living and be a real contribution. If we do not take this as a key factor, we will not reap rewards in the future.
If we want to be companies of the future and maximize our profits, now is the time to take the necessary measures and establish what compliance means in the heart and essence of the company.
We cannot stand idly by, let’s take this as an opportunity, or a second chance if you want to look at it that way, and let’s take care of all the stakeholders, who after all are the ones who make up the companies.
By Susana Sierra