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The New Capitalism Is Looking a Lot Like the Old Capitalism

Anders Melin
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The New Capitalism Is Looking a Lot Like the Old Capitalism

(Bloomberg) -- The Business Roundtable caused a stir last month by declaring the purpose of a corporation isn’t merely to generate returns for shareholders -- the group’s official line since 1997 -- but to care for all its stakeholders.

The 300-word statement spurred speculation over how corporate America might change. Not much, apparently, if you listen to the chief executives themselves.

Bloomberg News reached out to the 181 CEOs who signed the declaration. Roughly two dozen responded, with identical answers: Our companies are already run with customers, employees, suppliers and communities in mind. And shareholders, of course. Otherwise we’d have gone out of business long ago.

Many even said they’ve operated that way for years, or even decades -- in other words, long before disillusionment with the global economy helped upend politics from Washington to London and beyond. And they rejected the notion that earning shareholders a fair return ends up short-changing other parties.

Critics, though, point to gaping inequality, runaway executive pay and insufficient efforts to combat climate change as evidence that while some companies do better than others, the overall numbers can’t possibly bear out the CEOs’ claims.

“I don’t know how you look at the current situation in the country and say: ‘We’re really killing it in terms of taking care of all our stakeholders,’” said Rick Wartzman, director of the Drucker Institute’s KH Moon Center for a Functioning Society, who discussed the matter with Roundtable Chairman Jamie Dimon over dinner last year. “There’s been a tremendous imbalance with shareholder value being put ahead of everyone else.”

Several CEOs acknowledged that many Americans haven’t reaped the benefits of recent years’ economic expansion, and that the political discourse has made them think harder about what can be done to bring those people along. But some, including JPMorgan Chase & Co.’s Dimon, argue that corporations alone can’t solve all society’s problems and shouldn’t be blamed for its shortcomings.

“I do think business can do more,” Dimon said. “But I don’t think business alone can do it.”

In interviews, the men -- and they were all men -- spoke about a range of programs and initiatives undertaken to pay employees more, reduce their firms’ environmental footprint and support communities.

“Most corporate CEOs feel that we serve each stakeholder best by serving all,” said Tom Linebarger, head of diesel-engine manufacturer Cummins Inc. and a Roundtable board member.

Lawrence Kurzius of spice-maker McCormick & Co. spoke about his firm’s efforts to assist small farmers in developing countries. “The best companies, frankly, are not those who try to scrape every last dollar for the shareholder,” he said.

Vistra Energy Corp.’s Curt Morgan pointed to the company’s employee bonus program and efforts to subsidize or waive utility bills for low-income families. “It was easy for us to sign” the Roundtable’s statement, he said, “because we were living it.”

Marc Lautenbach of Pitney Bowes Inc. said the firm used half of the money saved thanks to the 2017 corporate tax cut to give employees a permanent raise. “You’ve got to get the balance right,” he added.

Douglas Peterson of S&P Global Inc. listed his company’s paper reduction initiatives, carbon offsets and data science training for workers.

Not everyone shares their view.

Treasury Secretary Steven Mnuchin said at a New York Times conference this month he wouldn’t have signed the pledge because if companies only focus on purpose over profits, “you’re not going to have a very vibrant business community.”

And Blackstone Group Inc.’s Steve Schwarzman -- one of a handful of Roundtable members who didn’t sign it -- said that while companies must consider stakeholders, focusing on all of them equally would make it difficult for him as a CEO to know what he’s supposed to do.

“I look at this as a little bit of a red herring,” Schwarzman said.

But Mark Sutton, CEO of International Paper Co., said his firm’s work sustaining forests and reducing emissions isn’t getting in the way of investor returns.

“The shareholders are absolutely at the center,” Sutton said. “We’re just saying what was left unsaid but implied: You can’t keep the shareholder at the center if you’re not excellent with the other people affected by your company.”

Even hardened skeptics have acknowledged that the Roundtable’s statement, if nothing else, was a step in the right direction. But some say that corporate-responsibility initiatives -- while important and well-intended -- won’t fundamentally change the chase for stock returns that still largely dictate corporate priorities.

Take the more than $8 billion in 2018 charitable donations by firms overseen by the Roundtable’s roughly 200 members, which pales in comparison with the almost $400 billion the same companies spent on share buybacks that year.

There’s also the question of how a company’s commitment to communities should be weighed against other aspects of its business.

Johnson & Johnson, whose CEO Alex Gorsky led the committee that wrote the Roundtable’s new statement, has donated medicine that has helped treat over 100 million children, a spokesman said. But one week after the Roundtable’s new corporate credo was published on Aug. 19, an Oklahoma judge found J&J liable for fueling the state’s opioid crisis and ordered it to pay a $572 million fine. Gorsky declined to be interviewed for this story.

“Johnson & Johnson did not cause the opioid crisis in Oklahoma” and will appeal the verdict, said Ernie Knewitz, a company spokesman. “We are actively collaborating with several organizations to help patients, families and communities” and find solutions to the crisis.

Given the economic realities many people face, burnishing the image of modern capitalism will take some work.

Since 1973, real income for the median U.S. household has grown 0.4% annually, according to the Peterson Institute for International Economics. The S&P 500, meanwhile, has seen annual increases of 10% in that time, and CEOs in the index received on average $13.8 million in 2018. That’s about 300 times more than their median workers -- a ratio that’s multiplied in recent decades.

Growing inequality helps explain why many young people in the U.S. are embracing ideas like universal health care and tuition-free college -- and why many people are skeptical that corporate priorities are really going to change.

“If these CEOs aren’t going to back up their words with real action to help workers, their words are meaningless,” said Senator Elizabeth Warren, a Democratic candidate for the presidency, who’s proposed making companies legally required to look out for all major stakeholders. “We need fundamental change now.”

(Updates with J&J comment in 25th paragraph.)

--With assistance from Olivia Carville, Thomas Black, Jenny Surane, Matt Townsend, Richard Clough, Jordyn Holman, David Welch, Michelle F. Davis, Annie Massa, Riley Griffin, John Tozzi, Michelle Fay Cortez, Keith Naughton, Ian King, Nico Grant, Rachel Adams-Heard, Katherine Chiglinsky, Gerry Smith, Julie Johnsson, Matt Day, Cynthia Koons, Craig Giammona, Sonali Basak, Lananh Nguyen, Justin Bachman, Oliver Sachgau, Kelly Gilblom, Anousha Sakoui, Brandon Kochkodin, Sridhar Natarajan, Kevin Crowley, Mary Schlangenstein, Scott Moritz, Heather Perlberg, Matthew Boyle and Robert Langreth.

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