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Maximizing shareholder profits can no longer be corporations' main goal, say top U.S. CEOs
A group representing more than 100 of the biggest corporations in the U.S. has released a statement updating its definition of the purpose of American corporations.
JOHANNES EISELE / Contributor
- The new statement says corporations shouldn't only be concerned about maximizing shareholder profits.
- Instead, corporations should focus on all of its stakeholders.
- The idea that corporations need only focus on maximizing shareholder profit took hold in the 1970s and has since remained, more or less, the dominant viewpoint on Wall Street.
Since around the 1980s, most American corporations have agreed their main purpose is to maximize shareholder profits. Now, amid growing concerns about income inequality and Democratic policy proposals that call for restructuring American capitalism, some of the nation's biggest corporations are saying it's time to change the definition of corporate purpose.
The Business Roundtable, a lobbying group of American CEOs, released a statement Monday describing how the corporate world's long-held definition of purpose — often called "shareholder primacy" — "does not accurately describe the ways in which we and our fellow CEOs endeavor every day to create value for all our stakeholders, whose long-term interests are inseparable."
"Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity," the statement reads. "We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all."
The Business Roundtable updates its guidelines periodically, but Monday's update is the most explicit to date in rejecting shareholder primacy. The statement — signed by 181 of 192 current members of the Business Roundtable, including CEOS from companies such as Apple, Pfizer, Mastercard, and Ford Motor Company — says members commit to:
- Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
- Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
- Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
- Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
- Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.
The statement doesn't promise any concrete changes, and it's unclear how corporations might change their practices, if at all. One governance expert said the statement actually decreases these executives' accountability.
"It limits accountability for these people to anyone, because if you have multiple stakes with whom you're accountable, you're always going to get it right on someone," Charles Elson, who directs the John L. Weinberg Center for Corporate Governance at the University of Delaware, told The Washington Post. "You can always make an argument that no matter what you've done, some stake will benefit. If your watch stops, it still gets the time right twice a day."
Still, at the very least, the statement signals a symbolic change in ethos of the American corporate elite.
"It really is quite significant," Peter Cappelli, a professor who studies labor economics at the University of Pennsylvania's Wharton School, told the Post. "It sounds like what they're describing is what was the standard view before the mid-1980s — before the shareholder value idea really started to spread."
'Maximize shareholder profits'
The idea of shareholder primacy can be traced back to the economist Milton Friedman, who wrote a New York Times Magazine article in 1970 deriding the claim that corporations ought to be socially responsible, calling it a "fundamentally subversive doctrine" in a free society, adding, "there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
In short, "social responsibilities" are for individuals; corporations need only focus on making as much money as possible without breaking the law.
"That article was very well received in Wall Street," Joseph L. Bower, a professor of business administration at Harvard University, recounted to Forbes. "They loved it. You could see the change in compensation practices. The use of the phrase 'maximize shareholder value' exploded at that time."
Bower once said the idea that corporations need only "maximize shareholder value" is "pernicious nonsense." In a 2017 article for Harvard Business Review, Bower and Lynn S. Paine suggest that Friedman's essential idea "could be damaging to the broader economy," mainly because it gives extreme consideration to shareholders over a short-term timeframe, while ignoring other stakeholders, such as employees or society at large. This results in an "accountability vacuum," they write, because in this governance approach shareholders are effectively treated as owners of the company, when in fact they're not held accountable for any company decisions.
Bower and Paine suggest that a more company-centric governance approach would benefit American corporations' many stakeholders, including but not limited to shareholders. (You can read their detailed piece here.) Meanwhile, some Democratic lawmakers have proposed policy that aims to wrest some amount of corporate power from executives and shareholders and give it to other shareholders.For example, U.S. Sen. Bernie Sanders (D–VT) wants to prohibit corporations from buying back their own stock, which drives up share prices, unless they boost employee pay and benefits. Separately, Sen. Elizabeth Warren's Accountable Capitalism Act aimed to restructure corporate decision-making, in part by mandating that corporations allow 40 percent of board members to be elected by employees, and by limiting the ways in which directors and officers sell company shares.
Northwell Health is using insights from website traffic to forecast COVID-19 hospitalizations two weeks in the future.
- The machine-learning algorithm works by analyzing the online behavior of visitors to the Northwell Health website and comparing that data to future COVID-19 hospitalizations.
- The tool, which uses anonymized data, has so far predicted hospitalizations with an accuracy rate of 80 percent.
- Machine-learning tools are helping health-care professionals worldwide better constrain and treat COVID-19.
The value of forecasting<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8yNTA0Njk2OC9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTYyMzM2NDQzOH0.rid9regiDaKczCCKBsu7wrHkNQ64Vz_XcOEZIzAhzgM/img.jpg?width=980" id="2bb93" class="rm-shortcode" data-rm-shortcode-id="31345afbdf2bd408fd3e9f31520c445a" data-rm-shortcode-name="rebelmouse-image" data-width="1546" data-height="1056" />
Northwell emergency departments use the dashboard to monitor in real time.
Credit: Northwell Health<p>One unique benefit of forecasting COVID-19 hospitalizations is that it allows health systems to better prepare, manage and allocate resources. For example, if the tool forecasted a surge in COVID-19 hospitalizations in two weeks, Northwell Health could begin:</p><ul><li>Making space for an influx of patients</li><li>Moving personal protective equipment to where it's most needed</li><li>Strategically allocating staff during the predicted surge</li><li>Increasing the number of tests offered to asymptomatic patients</li></ul><p>The health-care field is increasingly using machine learning. It's already helping doctors develop <a href="https://care.diabetesjournals.org/content/early/2020/06/09/dc19-1870" target="_blank">personalized care plans for diabetes patients</a>, improving cancer screening techniques, and enabling mental health professionals to better predict which patients are at <a href="https://healthitanalytics.com/news/ehr-data-fuels-accurate-predictive-analytics-for-suicide-risk" target="_blank" rel="noopener noreferrer">elevated risk of suicide</a>, to name a few applications.</p><p>Health systems around the world have already begun exploring how <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7315944/" target="_blank" rel="noopener noreferrer">machine learning can help battle the pandemic</a>, including better COVID-19 screening, diagnosis, contact tracing, and drug and vaccine development.</p><p>Cruzen said these kinds of tools represent a shift in how health systems can tackle a wide variety of problems.</p><p>"Health care has always used the past to predict the future, but not in this mathematical way," Cruzen said. "I think [Northwell Health's new predictive tool] really is a great first example of how we should be attacking a lot of things as we go forward."</p>
Making machine-learning tools openly accessible<p>Northwell Health has made its predictive tool <a href="https://github.com/northwell-health/covid-web-data-predictor" target="_blank">available for free</a> to any health system that wishes to utilize it.</p><p>"COVID is everybody's problem, and I think developing tools that can be used to help others is sort of why people go into health care," Dr. Cruzen said. "It was really consistent with our mission."</p><p>Open collaboration is something the world's governments and health systems should be striving for during the pandemic, said Michael Dowling, Northwell Health's president and CEO.</p><p>"Whenever you develop anything and somebody else gets it, they improve it and they continue to make it better," Dowling said. "As a country, we lack data. I believe very, very strongly that we should have been and should be now working with other countries, including China, including the European Union, including England and others to figure out how to develop a health surveillance system so you can anticipate way in advance when these things are going to occur."</p><p>In all, Northwell Health has treated more than 112,000 COVID patients. During the pandemic, Dowling said he's seen an outpouring of goodwill, collaboration, and sacrifice from the community and the tens of thousands of staff who work across Northwell.</p><p>"COVID has changed our perspective on everything—and not just those of us in health care, because it has disrupted everybody's life," Dowling said. "It has demonstrated the value of community, how we help one another."</p>
"You dream about these kinds of moments when you're a kid," said lead paleontologist David Schmidt.
- The triceratops skull was first discovered in 2019, but was excavated over the summer of 2020.
- It was discovered in the South Dakota Badlands, an area where the Triceratops roamed some 66 million years ago.
- Studying dinosaurs helps scientists better understand the evolution of all life on Earth.
Credit: David Schmidt / Westminster College<p style="margin-left: 20px;">"We had to be really careful," Schmidt told St. Louis Public Radio. "We couldn't disturb anything at all, because at that point, it was under law enforcement investigation. They were telling us, 'Don't even make footprints,' and I was thinking, 'How are we supposed to do that?'"</p><p>Another difficulty was the mammoth size of the skull: about 7 feet long and more than 3,000 pounds. (For context, the largest triceratops skull ever unearthed was about <a href="https://www.tandfonline.com/doi/abs/10.1080/02724634.2010.483632" target="_blank">8.2 feet long</a>.) The skull of Schmidt's dinosaur was likely a <em>Triceratops prorsus, </em>one of two species of triceratops that roamed what's now North America about 66 million years ago.</p>
Credit: David Schmidt / Westminster College<p>The triceratops was an herbivore, but it was also a favorite meal of the T<em>yrannosaurus rex</em>. That probably explains why the Dakotas contain many scattered triceratops bone fragments, and, less commonly, complete bones and skulls. In summer 2019, for example, a separate team on a dig in North Dakota made <a href="https://www.nytimes.com/2019/07/26/science/triceratops-skull-65-million-years-old.html" target="_blank">headlines</a> after unearthing a complete triceratops skull that measured five feet in length.</p><p>Michael Kjelland, a biology professor who participated in that excavation, said digging up the dinosaur was like completing a "multi-piece, 3-D jigsaw puzzle" that required "engineering that rivaled SpaceX," he jokingly told the <a href="https://www.nytimes.com/2019/07/26/science/triceratops-skull-65-million-years-old.html" target="_blank">New York Times</a>.</p>
Morrison Formation in Colorado
James St. John via Flickr
|Credit: Nobu Tamura/Wikimedia Commons|
Archaeologists discover a cave painting of a wild pig that is now the world's oldest dated work of representational art.
- Archaeologists find a cave painting of a wild pig that is at least 45,500 years old.
- The painting is the earliest known work of representational art.
- The discovery was made in a remote valley on the Indonesian island of Sulawesi.
Oldest Cave Art Found in Sulawesi<span style="display:block;position:relative;padding-top:56.25%;" class="rm-shortcode" data-rm-shortcode-id="a9734e306f0914bfdcbe79a1e317a7f0"><iframe type="lazy-iframe" data-runner-src="https://www.youtube.com/embed/b-wAYtBxn7E?rel=0" width="100%" height="auto" frameborder="0" scrolling="no" style="position:absolute;top:0;left:0;width:100%;height:100%;"></iframe></span>
The Persian polymath and philosopher of the Islamic Golden Age teaches us about self-awareness.