Is the CEO Statement of Purpose Merely a PR Stunt? Does It Matter?

October 7, 2019

By now everyone has heard about the statement that struck fear in the hearts of shareholders across the country.

On August 19, the Business Roundtable, a group representing the chief executives of 192 large companies, published an update to its definition of the purpose of the corporation. Since the 1980s, the business world has treated “shareholder primacy” — the idea that a corporation’s raison d’être is to maximize profits for its shareholders — as gospel. But according to the CEOs, now corporations must balance that interest with the needs of customers, employees, suppliers and local communities.

Criticism swiftly followed the statement’s release. On one side, of course, are the shareholders themselves, who argue that in promising to take an active role in correcting social ills, corporations may be taking on a role best left to the government. (They don’t mention how well that has worked out for everyone so far.)

On the other side, advocates for stakeholders like labor and environmental groups said that while they are glad to hear the CEOs acknowledge that unchecked growth has not benefitted everyone equally, the statement amounts to a mere PR stunt. It includes no benchmarks or opportunities for accountability, so the business leaders can strike the right tone but go on enriching the most powerful and wealthy members of our society (a cohort that of course includes themselves).

So, are they right? Is the CEO statement a mere PR stunt? And if you are a leader of an organization, what good does it do to formally articulate your purpose?

First of all, these folks say “PR stunt” like it’s a bad thing!

We kid! Empty promises do and should make people groan, but the real question is whether the statement itself actually has no teeth. We’d argue that is far from true, and law leaders might be surprised by what comes from taking a bold stand on issues in their field:

A statement of purpose defines your organization’s culture. Saying and doing are two different things, but when leaders articulate the values that drive their decision making, they set the tone for the rest of the organization. Not only do clients and customers take note of these promises, but employees do too. A shift at the top has the potential to shift how business gets done day to day, in big and small ways.

A statement of purpose gives you cover. The Business Roundtable did not make this proclamation in a vacuum. Rather, this new commitment to deliver value to communities and workers comes after careful consideration of a variety of pressures. For many years these leaders have felt trapped by the singular mission to increase profits, and this has prevented them from responding to very real and potent consumer and political demand for accountability. Students of history will know that shareholder primacy is a fairly new invention of free-market devotees; throughout the 19th and early 20th century, corporations sometimes relinquished profits for the sake of higher wages and other policies that on their face benefitted workers more than shareholders. (Henry Ford famously wanted to pay his line workers enough so that they would be able to afford the cars they were building. He sold a lot of cars that way.) Today’s CEOs need a way to pursue what their customers demand without running afoul of their shareholders. This statement puts everyone on notice about their intentions, and in theory neutralizes shareholders’ ability to call them out for it.

A statement of purpose drives profits. Demonstrating your understanding of what the market demands is not an empty promise — it’s a shrewd business move. Many leaders suspect that historic economic inequality coupled with massive social and political upheaval has pushed consumers (who are also employees) to a breaking point. Average people are increasingly skeptical of institutions, and corporations are at the top of that list. But when companies take a stand on social issues (take Nike and Colin Kaepernick, for example), they can generate intense customer loyalty that translates to big profits. (Nike’s revenue rose 10% in the months following its famous ad about Kap.)

Yes, corporate law is a different beast from consumer-facing corporations, but your clients are the very people who have to answer to those consumers, so what matters to them is always top of mind. What needs to be said in your corner of the world? Which issues within the legal industry are crying out for leadership? Speak up. You might be surprised by what a difference it makes.