Responsible capitalism is not a form of millennial pandering

History is on your side.
History is on your side.
Image: Reuters/Keith Bedford
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ICYMI, we wanted to let you know about a major change in corporate attitudes—if not yet actions—that was officially recognized this week. The Business Roundtable, a powerful CEO lobbying group led by JPMorgan Chase’s Jamie Dimon, agreed to an updated definition of the purpose of a company that recognizes responsibilities to customers, employees, suppliers, and the environment as being on par with the responsibility to shareholders.

Why did this pronouncement happen now? You could accurately point to a few factors, including angry and informed consumers who finally have efficient means to band together and spread their messages, or political trends that have corporate executives worried over the fate of capitalism, or even fears that companies aren’t prepared to properly retrain employees as AI and automation technologies advance. But you and your co-workers are getting credit, too.

Companies have learned that a new generation of employees is not going to mindlessly bow down to the doctrine of shareholder supremacy. Indeed, we’ve seen how today’s workers are willing to walk out in protest or call out their bosses when they see misconduct and discrimination, or environmental plundering, or questionable contracts.

CEOs “invariably say the constituency that’s truly driving their newfound social activism is their employees,” Fortune’s Alan Murray writes of the strengthening demand for corporate activism. “Millennials, in particular, may be driving the change more than anyone—and, more important, they’re choosing to work at companies that are driving change too. Among those ages 25 to 34 in [a]Fortune/NP Strategy poll, 80% say they want to work for ‘engaged companies.'”

Accordingly, the embrace of a more conscious or compassionate form of capitalism has been introduced by some corporate leaders as a fresh idea, designed to appeal to a new era and a new generation.

But the notion that companies are meant to serve more than just the interests of the almighty shareholder is not, in fact, new at all. And framing it as a revolutionary concept meant to pander to millennials potentially does a disservice to the conscious-capitalism movement.

Back to the future

The history of capitalism suggests that companies had long accepted their duty to balance profits with good citizenship. In a recent essay for Quartz at Work, Rodrigo Tavares, founder and president of the Granito Group, traced this past, pointing to, for instance, business guilds of medieval Europe that were expected to contribute to building schools, roads, and housing. “Predictions are that the future of companies will bear a resemblance with their distant past,” Tavares wrote, “when they needed to fulfill public purposes in order to stay in business.”

A few hundred years after the founding of the guilds, a Depression-era Harvard Business School dean—the one who made the Harvard Case Study method so central to the school’s curriculum—argued for a broadening of business education, so that it would include courses on a company’s role in society, which in his view needed take into account the interests of labor. “Our present situation both here and in all the great industrial nations of the world is a major breakdown of capitalism,” he wrote in 1932. “Can this be overcome? I believe so, but not without leadership which thinks in terms of broad social problems instead of in terms of particular companies.”

But, as documented in a 2016 paper by management researchers in New Zealand, it was the case study method—which very deliberately examines the problems of particular companies—that became the pedagogical centerpiece at HBS and other MBA programs around the world.

Rick Wartzman, head of the Drucker Institute’s KH Moon Center for a Functioning Society, told Fortune that the Business Roundtable’s new statement on the purpose of companies has a “back to the future feel about it.” He was referring to the prevailing attitudes of the mid-20th century. “Many American corporate leaders came out of World War II with a profound sense of the need to put social goals and workers’ needs high on their corporate agenda,” Murray writes.

The rise of shareholder primacy

What happened in the last few decades to erode what was once a solid social contract is often traced to ideas that emerged in the 1970s, and specifically the work of the late Nobel-winning economist Milton Friedman, who argued that business leaders who talked about corporate social responsibility, or ending discrimination, or curbing pollution were “preaching pure and unadulterated socialism.” His theory held that businesses only needed to fulfill their duty to provide profit to shareholders, and free markets would look after everything else.

The idea soon replaced older, gentler ways of behaving in a capitalist economy. Management and corporate governance practices quickly evolved to protect the distant investor and board members above all others. Unions were demonized and, not surprisingly, by the 1980s, mass layoffs became common, as Quartz at Work’s Sarah Todd has reported. That’s when corporate layoffs began to be seen as a mere cost of doing business, i.e. serving shareholders. Companies were thereby morally protected from any judgement or stigma if they ignored or even undermined the wellbeing of their employees.

There have always been dissenting voices. The World Economic Forum’s “Davos Manifesto” was published in 1973, so it predates the Roundtable’s statement by 45 years. It asserts that the role of  company management is to “serve clients, shareholders, workers, and employees, as well as societies, and to harmonize the different interests of stakeholders.” It specifically states that management must ensure the “humanization of the work place,” and “assume the role of a trustee of the material universe for future generations.”

Even the Business Roundtable’s founding mission underlined the importance of companies staying responsible to all stakeholders, if with less force and specificity than yesterday’s updated statement. But in 1997, it finally caught up to Friedman’s idea and formally endorsed the primacy of shareholder interests. And now it’s playing catch-up again, reversing the 1997 guidance with a far broader definition of corporate stakeholders.

The potential political danger ahead

As the Aspen Institute’s Judith Samuelson notes, the Business Roundtable represents 10 million workers and is “the closest we come to the voice of Corporate America. When its member companies take a stand, it’s a close approximation of what an important segment of the entire US business community thinks—specifically the large, complex, globe-hopping, economically powerful businesses with deep supply chains.”  

So, yay! The message of today’s employees is getting through in a big way.

But there is a risk, too, that the type of conscious capitalism endorsed by the Business Roundtable will be misbranded as socialism—no less a hot-button word now than it was in Friedman’s era.

Particularly as the US enters another contentious election cycle, it’s easy to envision the Business Roundtable’s new statement getting chalked up to the effects of “snowflake” culture, in which we now need coddling even from our corporations. Arguably, there is nothing coddling about companies agreeing to keep a wide set of stakeholders in mind when taking up the kinds of decisions that in the past have destroyed people’s health, or the planet’s health, in the name of maximizing profit. But don’t count on this reasoning to resonate with everyone.

Meanwhile, on the left, conscious capitalism gets dismissed by some progressives as nothing but company spin and empty rhetoric, a nice story to tell in the face of growing social unrest, while shareholders are still served first. The latest statement from the Business Roundtable statement is just more of the same, these critics warn.

All of us would be wise to guard against woke-washing and to hold business leaders accountable. But we shouldn’t underestimate the significance of this moment, when CEOs who long espoused their singular commitment to maximizing shareholder value have now banded together to accept a broader view of the role of business in society.

And we shouldn’t let the public conversation tie “purpose” to millennials, as if it’s merely the fleeting whim of a restless and entitled generation.