CEOs Reject Investor-Centric Model

Amid growing public discontent over income inequality and the burgeoning costs of healthcare and higher education, Jamie Dimon and other leaders at some of the world’s largest companies said they plan to abandon the long-held view that shareholders’ interests should come first. The purpose of a corporation is to serve all its constituents, including employees, customers, investors, and society at large, the Business Roundtable said Monday in a statement. Dimon, the CEO of JPMorgan Chase & Co., heads the group.

“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the group said in the statement. “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 181 signatories include BlackRock Inc.’s Laurence Fink; Bank of New York Mellon Corp.’s Charlie Scharf; and the CEOs of several Wall Street banks, including Goldman Sachs Group Inc., Morgan Stanley, and Moelis & Co. It also includes Amazon.com Inc. founder Jeff Bezos, the world’s richest person.

This shift in corporate priorities comes as some politicians and critics question whether the fundamental premise of American capitalism should be revamped. Some executives also have complained that an outsize focus on share prices and quarterly results hampers their ability to build businesses for the long term.

The group’s statement offers scant detail on how the executives’ commitments will be converted into action, and it presents no roadmap for getting there. Many companies vow to do good things but resist releasing data that would enable others to independently verify such promises. And it will fall on CEOs—who, on average, last no longer than six years—to convince fickle investors, including powerful activists, that shifting resources will pay off in the long term.

The idea that businesses exist primarily to benefit shareholders, also known as “shareholder primacy,” took hold in corporate America in the 1980s. In 1997, the Business Roundtable embraced the idea in a document outlining governance principles.

The concept has been criticized for leading to a fixation on short-term results and helping fuel the rapid increase in executive pay. Last year, public companies in the United States began disclosing the difference between their CEOs’ compensation and that of their median workers. At S&P 500 firms, the average ratio is about 280-to-1, according to data compiled by Bloomberg.

Both Dimon and Fink have written open letters saying that chief executives should take on a larger responsibility for tackling societal matters and, at times, take stances on politically controversial topics.

“Stakeholders are pushing companies to wade into sensitive social and political issues—especially as they see governments failing to do so effectively,” Fink wrote this year. The message echoed a position he took in 2018 urging CEOs to make a more positive contribution to society. BlackRock oversees almost US$7 trillion in assets.

In April, Dimon challenged fellow chief executives to get more involved in social causes and public-policy matters.

“In the past, boards and advisers to boards advised company CEOs to keep their head down and stay out of the line of fire,” Dimon said in a letter to shareholders. “Now the opposite may be true. If companies and CEOs do not get involved in public-policy issues, making progress on all these problems may be more difficult.”

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