Yesterday’s announcement by the Business Roundtable that it would change its fundamental purpose from shareholder to stakeholder marks a turning point for chief executive officers. Now CEOs are committing to investing in employees, supporting communities and dealing ethically with suppliers, as well as generating long-term value for shareholders while delivering value to customers. The group also states that its goal is an economy that allows each person to succeed through hard work and lead a life of meaning and dignity.
The Edelman Trust Barometer has shown the way forward, for business to step into the void left by government on issues of worker training, sustainability, LGBTQ, minimum wage and immigration. Seventy-three percent of respondents in our 2019 study agree that a company can take specific actions that both increase profits and improve the economic and social conditions in the communities where it operates. More than three-quarters of respondents (76%) say that CEOs should take the lead on change rather than wait for government to impose it. Three-quarters of respondents said that they trust their employer to do the right thing, 19 points more than business in general. Two-thirds said that they expect prospective employers to join them in taking a stand on societal issues.
All of this comes in the context of an urgent desire for change. Only one-in-five of the mass population believe that the system is working for them. Trust inequality is back to record highs, with a 16-point gap in trust between the informed public and mass population in trust in institutions. There is deep unease about quality of information, with 73 percent of the general population saying they are worried about fake news being used as a weapon and social media trust remaining low. One can see the changes in the political debate, with pressure for tariffs, suggestions of wealth taxes and rising nationalism. Fears of downward economic mobility, loss of status and job loss are causing unrest even as the levels of unemployment reach new lows. And employees are taking control of the dialogue, with walkouts at tech companies to protest work with unsavory clients.
The question is whether the Business Roundtable goes further in the future. Among the issues to be addressed: globalization; sustainability; quality information; data privacy; social safety net, especially for gig economy workers; taxation; guaranteed income; and affordable health care. When a recession hits business there will be different pressures, to reduce head count, to make quarterly numbers, to use automation for efficiency. The pressure to compete for the best and brightest will ease but the new employer-employee contract is established. The rise of small, mission-driven companies with brands that speak to purpose is an important new force. Our 2019 Edelman Trust Barometer Special Report: In Brands We Trust? found that over 80 percent of consumers say that trust in the brand is as important as quality, price and performance. Government is paralyzed by factionalism, aggressive social media and the need for short-term wins so business will have to be the balancing force.
It is for each CEO to decide how far to take this new commitment of business. Consumer-facing brands from Walmart to Unilever will continue to lead. But it should be noted that a banker (Jamie Dimon, CEO of JPMorgan Chase) and pharmaceutical executive (Alex Gorsky, CEO of Johnson & Johnson) have led the Business Roundtable to this higher bar. The smart play is to establish a framework for broad understanding, not to make a quick jump into issue advocacy that can be construed as a personal agenda or knee-jerk reaction to pressure. Klaus Schwab, founder of the World Economic Forum and the first to consider stakeholder theory, is correct in stating that there is a gap between those who embrace change and know that we have to adapt our institutions and those who retreat to protect a good old world that does not exist anymore.
Richard Edelman is president and CEO.