Abstract
The Business Roundtable, a large group of top CEOs, recently issued a statement defining the purpose of the corporation in stakeholder terms, a direct and intended reversal from an earlier statement that defined the duty of directors as serving the interests of stockholders. In this editorial, we briefly describe the major twists and turns in the stockholders-versus-stakeholders debate that make this statement so significant to management theory and practice. We then describe the implications of the statement for scholars and practicing managers. We end with a description of three specific research topics that require more research in light of this statement: firm boundaries, the nature of value creation systems, and theory regarding the destruction of stakeholder value.
Keywords
On August 19, 2019, the Business Roundtable (BRT)—a group of prominent CEOs of companies, including JPMorgan Chase, Amazon, Apple, and Walmart, among others—released a statement declaring that the purpose of the corporation no longer gives shareholders special consideration, but rather that corporations should serve the interests of all of their stakeholders. As evidenced by the wall-to-wall media coverage in the days after the Statement’s release, this was big news. Maximizing shareholder returns has been an article of faith in business research and practice for decades, so this explicit reversal from the BRT’s earlier Statement (1997) supporting shareholder wealth maximization marks a sea change for the BRT and possibly an important moment in our understanding of how management is studied and practiced.
The idea that maximizing shareholder value is the organizing purpose of the for-profit corporation has been showing signs of wear for some time. Many managers and scholars have decried this belief over the years. Among the more prominent managers, Jack Welch—former CEO of General Electric and the man the Financial Times called “the father of the ‘shareholder value’ movement”—asserted in 2009, “On the face of it, shareholder value is the dumbest idea in the world. . . . Shareholder value is a result, not a strategy. . . . Your main constituencies are your employees, your customers and your products” (Guerrera, 2009).
BRT Statement signatory Larry Fink (2018) of BlackRock argued, “Purpose is not a mere tagline or marketing campaign; it is a company’s fundamental reason for being—what it does every day to create value for its stakeholders. Purpose is not the sole pursuit of profits but the animating force for achieving them.” There have been similar signs of shareholder wealth fatigue—and accompanying (re)consideration of stakeholder principles—among scholars (e.g., Barney, 2018; Jensen, 2001; Williamson & Bercovitz, 1996).
This new BRT Statement on the Purpose of the Corporation (hereafter, “BRT Statement” or “Statement”) is important in that a large group of business leaders is explicitly acknowledging the change. The Statement is not the sentiment of a bunch of “do-gooders.” The signatories represent companies at every point along the spectrum of “social responsibility,” including retail giants, energy companies, and chemical companies, which are some of the most publicly criticized organizations in the world. It will be more difficult going forward to characterize prostakeholder managers as being outside the mainstream or to discount stakeholder scholarship. This redefinition puts pressure on other organizations and their leaders to explain their support for, or opposition to, the Statement. Indeed, opposition may be the more difficult position to defend should the principles become the default position for corporations.
We begin our discussion with a description of the essential elements of the BRT Statement in contrast to the 1997 Statement, followed by a brief summary of the historical context that led up to the Statement, from both practical and academic perspectives. We then describe some of the most important implications of this change for management research and close with observations about a few of the most pressing questions that need further investigation if stakeholder theory is going to provide the sort of guidance it has the potential to provide.
The BRT Statement
According to the press release statement, the new BRT Statement “supersedes previous statements,” explicitly including the 1997 Statement on Corporate Governance. The organizing principle of the 1997 Statement can be summed up as follows: In the BRT’s view, the paramount duty of management and of boards of directors is to the corporation’s stockholders; the interests of other stakeholders are relevant as a derivative of the duty to stockholders. The notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors. (BRT, 1997: 3)
The 1997 Statement is written in the style of a group-generated “white paper” and bears no sign of specifiable authorship. However, the 183 leaders specifically attached their signatures to the new Statement (by our count, 11 of the 183 are women, which is consistent with the percentage of female CEOs in the Fortune 500). We take this contrast between the 1997 and 2019 declarations as notable. There is power in a signature—among the more controversial elements of the Sarbanes-Oxley legislation in the United States were new demands for corporate officers’ signatures (sections 302 and 404) on certifying documents.
Of the 305 words of the new Statement, the most relevant for our purposes are these 194: While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We 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.
Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities and our country. (BRT, 2019b)
We believe that many CEOs have been thinking about corporate objectives in stakeholder terms for some time now. Many corporate mission statements contain wording that is similar to portions of the BRT Statement, and most successful managers would probably agree that a company cannot neglect its employees, customers, or suppliers for long without negative implications. Because stakeholder theory is a perspective that envisions the firm as being engaged with stakeholders in joint value creation and thereby recognizes the importance of pursuing multiple objectives based on serving stakeholders well, it has always provided a practical perspective that mirrors the reality of the complex, demanding business environment that managers face (Freeman, 1984; Freeman, Harrison, & Wicks, 2007). But the business rhetoric over the past several decades has favored an emphasis on shareholder wealth creation, or what is known as shareholder primacy, rather than providing value to a broad group of stakeholders (Stout, 2012). Consequently, the BRT Statement serves as an important signal that the tide has shifted, replacing shareholder primacy with a multistakeholder purpose for corporations.
The BRT Statement in Historical Context
Stout (2012) describes how questions regarding the purpose of the corporation during the early part of the last century led to what is sometimes called the Great Debate. Adolph Berle (1931) and Merrick Dodd (1932) squared off in the pages of Harvard Law Review, with Berle arguing for shareholder primacy and Dodd supporting a broader purpose that includes secure employment, quality products for customers, and contributions to the good of society. Berle conditionally conceded the point more than 20 years later writing, “The argument has been settled (at least for the time being) squarely in favor of Professor Dodd’s contention” (Berle, 1954; cited in Stout, 2012: 17-18).
But the seeds were already planted for the next round of the debate. A few decades later, in the 1970s, so-called free market economists at the University of Chicago led an effort to tip the balance toward shareholder primacy. Perhaps the most famous of the quotes on this subject was by Nobel laureate Milton Friedman (1970), who declared in an essay in the New York Times Magazine that shareholders own the corporation and that “the social responsibility of business is to increase its profits.”
Shareholder Primacy as Dogma
Shareholder primacy caught on like wildfire among academics and managers, fueled in part by what became known as agency theory—built on the idea that managers serve as agents for the shareholders, who are the principals of the corporation (Jensen & Meckling, 1976). Scholars in finance published hundreds of articles that looked at the effect of various phenomena on shareholder returns (i.e., Brown & Warner, 1980, 1985; Halpern, 1983; Lease, Masulis, & Page, 1991). The rising strategic management discipline, struggling for legitimacy and rigor, began to adopt these methods in its own body of research (i.e., Barney, 1988; Balakrishnan, 1988; Jacobsen, 1988). Other business disciplines followed suit. The shareholder primacy doctrine also crept into the business classroom. Darrell West (2011), a senior fellow at the Brookings Institution, examined business and law school curricula and found that in classes that dealt with the topic, the purpose of the corporation was most often defined as maximizing shareholder value. He found that new graduates also held this perception.
One of the driving forces behind these trends was the simplicity of shareholder returns as the dependent variable for researchers and as a clear objective for managers (Harrison & van der Laan Smith, 2015; Oler, Harrison, & Allen, 2008; Stout, 2012). It is easy to explain, easy to measure, and presumably justifiable on moral, legal, and economic grounds, although all of these bases have been challenged (Brink, 2010; Heminway, 2017; Rönnegard & Smith, 2019; Stout, 2012). Regardless, shareholder primacy became dogmatically institutionalized as a norm among business academics and managers (Rönnegard & Smith, 2019; Wicks, Elmore, & Jonas, 2019).
Stakeholder Theory as a Contrasting Narrative
In 1984, Freeman offered Strategic Management: A Stakeholder Approach. It was intended to be a textbook for a strategic management class but gained little traction in that context. In fact, strategic management scholars largely ignored stakeholder theory in the classroom and in their research for many years. However, the business ethics and business and society fields embraced the theory, with business ethics focusing largely on normative issues and business and society using the theory to explain corporate social responsibility and its influence on corporate performance. Though leading some to confuse stakeholder theory with corporate social responsibility even to this day (cf., Elms, Johnson-Cramer, & Berman, 2011), support from these fields provided a space for stakeholder ideas to flourish and develop.
Even as most strategic management scholars continued to reject or ignore stakeholder theory on grounds that it would distract managers (and research) away from the primary objective of maximizing shareholder returns (Harrison, 2011), evidence was mounting that firms that treat a broad group of their stakeholders well also have higher financial performance (e.g., Choi & Wang, 2009; Henisz, Dorobantu, & Nartey, 2014; Hillman & Keim, 2001; Sisodia, Wolfe, & Sheth, 2007). These findings began to pique the curiosity of mainstream strategic management scholars. For example, 2011 witnessed a conference in Barcelona on stakeholder theory, cosponsored by the Strategic Management Society and European Institute for Advanced Studies in Management. This was soon followed by the formation of the Stakeholder Strategy Interest Group at the Strategic Management Society, a group that now numbers in the hundreds and continues to grow.
Finally, there are two relatively recent contributions to the legal and scholarly milieu into which the BRT Statement wades that merit some mention. Although Stout’s (2012) examination of the law surrounding shareholders and stakeholders concluded that the position stipulating that directors have a legal obligation to maximize shareholder returns is largely unfounded, legal scholarship continued apace after her publication. Heminway (2017) provides an update to Stout’s study that includes consideration of remarks from prominent Delaware jurists, since 2012, defending shareholder wealth maximization, as well as a fascinating examination of the ironic support for shareholder wealth maximization emerging from state benefit corporation legislation.
Also of note is Rönnegard and Smith’s (2019) analysis leading to the conclusions that, irrespective of legal requirements, shareholder wealth maximization has become so entrenched in managerial thinking that it rises to the level of a norm that continues to organize corporate activity and managerial decision making. If Rönnegard and Smith are correct about the pull of the shareholder wealth norm, this may shift the terms of the debate going forward to better understanding the normative grounds of corporate purpose. Both of these recent contributions demonstrate that although the pendulum seems to be shifting in favor of a broader stakeholder-oriented purpose for corporations, the influence of shareholder primacy will continue to be felt for some time in practice and in academia.
The history of stakeholder theory makes for a remarkable study of the growth and evolution of ideas at the confluence of theory and practice. From this brief discussion, we see the winding path that stakeholder scholars have taken to achieve academic and practical legitimacy to date. We can also see that it can take decades for new ideas to gestate and emerge. According to Planck’s (other) constant, “a new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it” (1950: 33). Though we expect the process to proceed at much the same pace going forward, the new BRT Statement of the Purpose of the Corporation may well mark a major turning point. In what follows, we consider this new Statement and its possible implications for practice and scholarship.
The BRT Statement and Stakeholder Theory: Implications for Practice and Scholarship
Having provided a thumbnail sketch of the BRT Statement and its historical context, we are now in a position to describe some of its implications. We begin with the observation that the fingerprints of 30+ years of stakeholder scholarship are all over this Statement. This is particularly noteworthy in light of criticisms regarding the relevance of business scholarship to actual practice (i.e., Pfeffer, 2007; Thomas, 2009).
Stakeholder Theory in Practice
Stakeholder theory has been steeped in practice from the beginning. From its practical-minded pragmatist epistemology (Freeman, Phillips, & Sisodia, 2020) to its roots in managerial voluntarism (Freeman, 1984) and managerial discretion (Phillips, Berman, Elms, & Johnson-Cramer, 2010, 2011), stakeholder theory has always had practice as both wellspring and polestar. In one of the most influential pieces of management scholarship of the last 25 years, Donaldson and Preston (1995) argue for a 4-part taxonomy for stakeholder research: descriptive, instrumental, normative, and managerial. Though “managerial” is underemphasized and underexamined in stakeholder research relative to the first three categories, Phillips, Barney, Freeman, and Harrison (2019: 9) suggest a Jamesian interpretation of the fourth category: “One pragmatist conclusion is that if the answer makes no difference to managerial practice, then the question is irrelevant.”
Specific to influencing the BRT and its Statement, it is worth noting here that the BRT invested US$2.7 million in 2004 to fund the Business Roundtable Institute for Corporate Ethics to be housed at the University of Virginia’s Darden School—long known as one of the centers of thought leadership on stakeholder theory. One outcome of this partnership was a years-long joint project to understand and improve public trust in business involving academics’ and practitioners’ contributions. The Institute is no longer active, and we have no documentary evidence of a direct influence of stakeholder scholars on the BRT Statement, but the coincidence between the stakeholder language in the Statement and the Institute is worth noting.
Contrary to (ir)relevance concerns, Ghoshal (2005: 76) famously argued that “bad management theories are destroying good management practices.” On this view, theory is not only quite relevant but can be actively harmful to practice. Ghoshal condemns “theorizing based on partialization of analysis, the exclusion of any role for human intentionality or choice, and the use of sharp assumptions and deductive reasoning.” Certainly, shareholder primacy theory has had a great impact on management practice over the past several decades and seems to have led to harmful management practices (Stout, 2012).
One significant role of the BRT Statement, then, is as a contribution to clearing some poorly conceived ideas out of the way. As Ghoshal (2005: 75) writes, “business schools do not need to do a great deal more to help prevent future Enrons; they need only to stop doing a lot they currently do.” Nothing in the BRT Statement would be in the least controversial but for the deeply rooted bad ideas to which it is a response. If a group of university presidents issued a statement saying that they were committed to balancing and advancing the interests of students, faculty, staff, donors, alumni, and so on, we would wonder why something so obvious needed saying. It’s the conversational equivalent of announcing each of one’s next breaths. In fact, when individual corporations’ statements of purpose, mission, vision, and so forth make similar assertions to those in the BRT Statement, few eyes are batted. Martin Lipton, founding partner of Wachtell, Lipton, Rosen & Katz, writes, “Indeed, the board’s ability to consider other stakeholder interests is not only uncontroversial—it is a matter of basic common sense and a fundamental component of both risk management and strategic planning” (BRT, 2019a). That these are the thoughts of a seasoned and influential corporate attorney brings us to the next point.
The BRT Statement also represents a severe blow to the idea that a commitment to stakeholders places managers in potential legal jeopardy for violation of fiduciary duties (cf. Heminway, 2017; Stout, 2012). It is reasonable to assume that the BRT must have itself consulted with numerous corporate lawyers during the debate and drafting of the Statement. We further suspect that the Statement made the rounds in the general counsels’ offices of 183 of the largest companies in the United States. Critics who continue to pronounce an opposition between stakeholder management and fiduciary duties now find themselves opposed to scores of front-line corporate law experts.
Implications for Performance Measurement in Management Research
From a research perspective, perhaps the most important implication of the Statement is that it supports the call for broader, stakeholder-based measures of corporate performance (i.e., Chakravarthy, 1986; Freeman, 2017; Harrison & van der Laan Smith, 2015; Harrison & Wicks, 2013). Consistent with the corporate purpose of providing value to a wide assortment of stakeholders, what is needed is a multidimensional view of performance in contrast to a single measure that is intended to capture everything (e.g., shareholder returns). To this end, Freeman (2017) argues that the total value that a firm creates, or total value created, is a function of the value created for customers, suppliers, financiers, employees, and communities.
Chakravarthy (1986: 447) was an early advocate for a multistakeholder performance measure. After examining some of the traditional finance-based performance measures, Chakravarthy said, “The performance measures discussed so far were solely focused on the welfare of the stockholder. A truly ‘excellent’ firm must also balance the competing claims of its various other stakeholders, in order to ensure their continuing cooperation (Barnard, 1938).” He then presented a measure based on customer, employee, community, and stockholder satisfaction. Chakravarthy’s data came from a Fortune survey of executives, directors, and analysts. However, subsequent research found serious flaws in these measures (Baucus, 1995; Fryxell & Wang, 1994). Nonetheless, Chakravarthy was a pioneer in developing broader, stakeholder-based measures of performance.
The creation of investment funds that focus on socially responsible companies resulted in increased demand for data dealing with how a firm treats its stakeholders (as well as its environmental performance). This demand led to the creation of databases by private companies that would then sell the data to fund managers, companies, and researchers. The most popular database for academic research is known as the KLD database (e.g., Mattingly, 2017). While KLD and similar databases capture outward evidence regarding some aspects of stakeholder treatment, they provide incomplete snapshots based on what the data collectors assume is appealing to stakeholders or often what is available to them. Since the databases were developed with a corporate social responsibility purpose, they tend to focus on aspects of performance related to what society values rather than what stakeholders specifically need or want (cf., Walsh, 2005). In fact, KLD has never reported data that are particularly relevant to suppliers, one of a firm’s primary stakeholders, and customer-relevant data are limited to categories such as the safety and reliability of products. In spite of these limitations and weaknesses, the KLD data have been used extensively in stakeholder-based research, typically in examining whether high levels of stakeholder performance are associated with high levels of financial performance (i.e., Choi & Wang, 2009; Hillman & Keim, 2001; Mattingly, 2017).
More complete, reliable, and stakeholder theory–specific measures are needed. Initiatives such as the ISO 14000 standards, the Social Accountability International SA8000 standard, and the work of the Global Reporting Initiative are resulting in more reporting on the social impact of a firm’s operations (Harrison & van der Laan Smith, 2015). In addition, there is an upward trend in the number of companies that are having their reports audited (KPMG, 2013). While this sort of reporting is corporate social responsibility focused, some of it can be adapted for stakeholder theoretic purposes. More important, these recent data collection trends demonstrate that such metrics, while contentious, are not only possible but practically and academically useful.
Closer to the cutting edge as of this writing, Lieberman, Garcia-Castro, and Balasubramanian (2017) engaged in an innovative project to break down the economic value provided to employees, customers, suppliers, and capital providers by firms in the U.S. airline and global auto industry, using publicly available sources, mostly from annual reports. Also, Odziemkowska and Henisz (2016) used the Global Data on Events, Language and Tone (GDELT) data set, which contains >250 million media-reported events from around the world in >100 languages. One of the main challenges for this work is meaningfully organizing and analyzing the overwhelming volume of available data.
Much work remains in deriving and validating these measures. As theory and practice continue to cocreate performance measures, we expect the BRT Statement to catalyze a wider group of scholars and practitioners to join the search for better and more diverse performance metrics. Much more research and open debate are needed regarding what these measures are or need to be. In this regard, one academically optimistic outcome of the new BRT Statement would be an openness to providing, collecting, organizing, and sharing stakeholder-relevant data. It could be funded, in part, by selling the information back to corporations so that they can better fulfill their new purpose.
What Broader Performance Measures Will Mean for Management Research
Utilization of stakeholder-based corporate performance measures as dependent variables should have far-reaching effects in management research. The possibilities seem limitless, but in the interest of succinctness, we provide just two illustrative examples based on recently published research. Brauer and Zimmermann (2019) used short-term changes in share prices to track investor responses to announcements of workforce downsizing over a 12-year period and under various conditions. While changes in stock prices influence stockholder wealth directly, it would seem that an action such as downsizing would have an even more profound effect on the utility provided to employees and could also influence customers and communities in substantial ways. Some of the stakeholder utility that is lost or gained will be noneconomic in nature (Harrison & Wicks, 2013). We realize that there are separate studies that account for some of these influences, but we are suggesting that they should be included in the same studies. Then researchers can obtain a better picture of the differential impact of specific management actions on various stakeholders, leading to a more balanced view of the total amount of value (combined stakeholder utility) that they are creating or destroying.
Another phenomenon, perhaps one of the most studied over the past several decades, is mergers and acquisitions (Haleblian, Devers, McNamara, Carpenter, & Davison, 2009). Recent examples in this journal include Zhu, Ma, Sauerwald, and Peng (2019) and Zorn, Sexton, Bhussar, and Lamont (2019). Acquisitions have such profound and far-reaching effects on all of a firm’s stakeholders and especially for the stakeholders of the acquired firm, yet the emphasis in this literature has been on financial returns. What is the influence of a particular type of acquisition on employees, shareholders, suppliers, customers, and the communities in which the two firms operate? In other words, what is the influence of an acquisition on the total amount of value produced in the firm’s value creation system? Studying the influence on each stakeholder separately does not really tell the whole story. What is needed here is a more comprehensive systems view of performance.
Broadening the performance construct in management research also provides the opportunity to reevaluate past findings. A management action or strategy that increases utility for one stakeholder could very well reduce utility for another stakeholder, so if a past study has shown that a management action or strategy benefits a particular stakeholder, a valuable research contribution would be determining the influence of that action or strategy on other stakeholders.
One of the undisclosed assumptions for a lot of management research is that if an action or strategy is associated with an increase in financial performance, it must be good for the firm. However, it is evident that short-termism can create positive returns in the short run at the expense of the long run (i.e., Harrison & Fiet, 1999; Johnson & Kaplan, 1987; Stout, 2012). If researchers use broader multistakeholder measures of performance, they should also be able to better predict longer-term implications. For example, a strategy of cutting employee pay and benefits might increase profits in the short run but with detrimental consequences over the long run for not only shareholders but customers as well (as customer service or product quality decline). We assert that when a management action or strategy reduces utility for any one stakeholder group, it negatively affects the firm’s value creation system and, thus, the total value the firm creates now and in the future. This is an empirically verifiable assertion.
Will the BRT Statement Really Change Anything?
As of this writing, media reactions have largely tracked the status quo ante described earlier. Advocates of shareholder wealth maximization continue to express disdain or indifference toward the new Statement; stakeholder management advocates are running victory laps; critics of capitalism and corporatism more broadly see sheep’s clothing continuing to cover corporate rapacity. This is to be expected, at least in the short term. Immediate media reactions have been more Rorschach than reasoned.
Several leaders of the BRT (e.g., Jamie Dimon) made comments of support (e.g., in the press release accompanying the Statement and in contemporaneous interviews). Of course, the companies have continued to make the tactical and strategic decisions of a going concern, and managers still have the same wide legal discretion regarding how to manage stakeholder relationships under the business judgment rule (Stout, 2012). A very small number of BRT members did not sign the statement, including Alcoa, Blackstone, General Electric, NextEra Energy, Parker Hannifin, Kaiser Permanente, and State Farm. To the best of our knowledge, none of the nonsigners has issued an affirmative denial of the Statement. Some of the nonsignatories even expressed support for the ideas in the Statement while declining to sign it themselves (Moore, 2019). Kaiser and State Farm claim that the Statement is not relevant to them because they do not have shareholders as such. The temptation to speculate further on the unstated reasons for not signing is great, but we leave that to others. It is sufficient for now to observe that the Statement leaves open the question of its implementation, asserting in preface that “each of our individual companies serves its own corporate purpose.”
While the explicit and immediate media and managerial reactions have been close to business as usual, we should not underestimate the value of making space for better ideas to flourish. At the very least, the Statement allows scholars and practitioners (including company directors) to think about customers, suppliers, financiers, employees, and local communities without concern that their natural human tendency to care about their partners’ well-being is somehow contrary to their legal duties. While perhaps not fast or specific enough for critics, we nevertheless count this as progress.
Other Essential Topics in the Stakeholder Conversation
Redefining the purpose of the corporation has ramifications for more than just judging corporate performance. In this final section, we briefly mention three other essential topics that are worthy of more research in light of this change: firm boundaries, the nature of value-creation systems, and better theory regarding destruction of stakeholder value.
Firm boundaries are a topic requiring additional attention in light of the broader purpose of the corporation (Phillips et al., 2019). Many articles and books have included ideas about whether a group or individual is a stakeholder and, if so, how important one is to the firm. Scholars have also classified stakeholders using a number of criteria. However, these distinctions often appear stipulated, even ad hoc, without a theoretically informed understanding of firm boundaries. Should boundaries be based on legal status, economic dependence, social convention, ability to control, common interests, ability to contribute to creation of value, or some other dimension? How can the purpose of a corporation be defined without understanding first what the corporation is and which stakeholders have responsibility for achieving the purpose? A deeper understanding of the boundaries between and among stakeholders will strengthen the foundations of stakeholder theory significantly. Taking this idea one step further, redefining boundaries could present a change in how we understand much of the last 40 years of strategy. “Redefining the corporation” (Post, Preston, & Souter-Sachs, 2002) was the bold mission of a 5-year research project (1995–2000) supported by the Sloan Foundation. The question of organizational boundaries—in light of the new BRT Statement—may be one route for achieving this audacious goal.
Related to boundaries is the issue of the value creation system itself. Stakeholder theory has, since its inception, advocated for a systems approach to organization (Freeman, 1984). However, much of the stakeholder literature focuses on bilateral relationships between a firm and a stakeholder. If the purpose of a corporation is defined in terms of simultaneous satisfaction of at least five primary stakeholders, then stakeholder management is indeed a systems problem and should be addressed from a systems perspective. Fortunately, there is some good work to build on. For example, Kast and Rosenzweig (1972) provide an excellent foundation for understanding organizations as systems; Rowley (1997) specifically examines the implications of looking at stakeholder influences from the network perspective; Albert, Kreutzer, and Lechner (2015) discuss interdependencies that exist in activity systems; and Garcia-Castro and Aguilera (2015) examine both value creation and appropriation from a multiple-stakeholder perspective.
Finally, stakeholder theory is far too one-sided in describing how value is created, even though a lot of the empirical research includes variables that indicate harm to stakeholders (Mattingly, 2017). What is needed is better theory to guide our understanding of the processes associated with value destruction (Harrison & Wicks, 2019). Specifically, what are the types of harm that firms inflict on their stakeholders? How can we predict stakeholder responses to that harm? To what extent do their responses reduce the value created in the entire system? How do/should firms respond to allegations or hard evidence that one or more of their stakeholders have been harmed? If, indeed, the purpose of a corporation is envisioned as providing value to a broad set of stakeholders, is it not also essential to understand how this same group might be adversely affected by the firm’s decisions and behavior?
In addition to these three essential topics, there are other important avenues that researchers might consider. One involves the implications of the broader corporate purpose for the way that corporations are governed. For example, so much of a CEO’s compensation has been tied to shareholder wealth creation in so many companies for so long. It seems natural that these types of compensation systems would need to be altered, but what should replace them, and how should it align with the interests of multiple stakeholders? Also, should representatives of various stakeholder groups be given board seats with greater regularity, and how would they be selected if they are not also shareholders? The German system has two boards, with one representing the employee stakeholder group. Is there also a place for a more diverse second board with customers and community representatives. Finally, what are the implications of a more broadly defined, stakeholder-oriented purpose for agency theory? These topics present research opportunities for management scholars who might be interested in joining this important conversation. They are also a signal to existing stakeholder scholars regarding how their research might be redirected in useful ways.
It would also be interesting to compare the Statement with related statements from other groups of executives, both in the United States and around the globe. The BRT is composed largely of executives from US companies. Have groups of executives in other parts of the world issued similar or conflicting statements on behalf of their members?
Do statements from other executive groups (e.g., industry based), perhaps with memberships overlapping those of the BRT, make statements in tension with (or even outright contradict) the BRT Statement?
Conclusion
In this editorial, we argue that the new Statement by top CEOs regarding the broader purpose of a corporation is an important signal that reinforces a set of ideas that has been gaining momentum for some time. To emphasize the importance of this Statement, we briefly explained the context by tracing the origin of shareholder primacy and the development of stakeholder theory in both academia and practice. We also argued that this sea change opens up new research opportunities as scholars explore the impact of management actions and strategies on a broader group of stakeholders. Contrary to the 1997 Statement that has been superseded, the new Statement has the names and signatures of 183 top executives (and, presumably, their legal teams). Among the signal functions of the new Statement, then, is to clear out some of the mistaken notions about law and practice that have plagued stakeholder theory for decades (Ghoshal, 2005; Phillips, Freeman, & Wicks, 2003).
If this clearer path now looks more appealing, allow us to suggest a couple of maps to help guide your route. First, Harrison (2019) created an annotated list of stakeholder scholarship, available on the Oxford Bibliographies website. We also recommend the chapters in the Cambridge Handbook of Stakeholder Theory, edited by Harrison, Barney, Freeman, and Phillips (2019).
Optimism should, however, remain a bit tempered for those who see this change happening seamlessly or quickly. Recall the earlier discussion about the Great Debate between Berle and Dodd in the 1930s. We noted that Berle conditionally conceded the point. The concession was conditional because, a few years later, Berle (1959: xii) went on to write, I should not accept his view of the debate I had in that era with his predecessor, the late professor E. Merrick Dodd. . . . In 1954 (The 20th Century Capitalist Revolution), I conceded that professor Dodd had won the argument. . . . But when Professor Chayes suggests I conceded that Dodd was right all along, I must protest. It is one thing to agree that this is how social fact and judicial decisions turned out. Is another to admit that this was the “right” disposition; I am not convinced it was.
The Great Debate has never been—and may never be—quite settled. Planck’s (other) constant will still dictate the pace of change to some degree.
The BRT Statement is an exciting signal with huge ramifications for management research and practice. We conclude with comments from some executives. Tricia Griffith, president and CEO of Progressive Corp, writes, “CEOs work to generate profits and return value to shareholders, but the best-run companies do more. They put the customer first and invest in their employees and communities. In the end, it’s the most promising way to build long-term value” (McGregor, 2019). Alex Gorsky, CEO of Johnson & Johnson and chair of the Business Roundtable Corporate Governance Committee, writes, “BRT has always maintained that investing in employees and communities is an essential part of generating value for shareholders. But the fact is, words matter. And our own language was not consistent with the ways our member CEOs strive to run their companies every day.” He concludes, “To me, the BRT Statement on the Purpose of a Corporation isn’t an achievement, it’s a call to action—so let’s get to work” (BRT, 2019a).
