It was big news this week when the nation’s most powerful chief executives finally acknowledged that corporations should contribute more to society than maximizing shareholder value. The new mission statement of the Business Roundtable, as their group is known, contains the following goals:
- 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.
There is a lot of speculation around what has motivated this change, ranging from genuine altruism to a response to politicians who have made corporate greed a talking point in their stump speeches, or even to using it as a hedge to explain future losses driven by a possible recession. This article does not address any of that speculation. Instead, this article will address whether the Business Roundtable’s new mission statement is likely to significantly affect corporate behavior, based on our experience as perhaps the first Social Purpose Corporation in the technology space.
“The Business Roundtable CEOs could just re-incorporate as a Social Purpose Corporation, if their motives aligned with their words.” Todd Weaver, Founder & CEO of Purism stated.
This news story caught our attention here at Purism because we have been thinking about how to build a company that promotes social good. Our company was incorporated in Washington State as a Social Purpose Corporation. We chose this form or corporation to ensure that our foundational purpose to advance the freedom, privacy and security of our customers would not be undermined by those who seek to maintain the ability of Big Tech to profit off of customers’ personal information. We also wanted to protect our company’s ability to achieve its purpose as it grew, in particular once it took on outside investment. One big threat we knew we’d face if we went through the traditional C corporation model was that future investors could potentially sue us for pursuing social good above maximizing shareholder value.
According to the Washington State Bar Association, “An SPC’s directors may give weight to one or more of the social purposes, rather than solely considering the best interest of the corporation. RCW 23B.25.050. This allows the founder to elevate a particular social cause rather than maximize profit at the expense of society. It allows a company to be socially responsible without being considered financially irresponsible.”
As laudable as the mission statement by the Business Roundtable is, the fact remains that its members’ corporate structures and broader objectives will continue to be centered around profit maximization. Let’s keep in mind that CEOs of large companies typically have much of their compensation based on the performance of the company’s stock. Will CEOs whose compensation can run into the hundreds of millions of dollars per year put their personal financial interests aside for the greater good? And, more importantly, one must unfortunately admit that often times the very nature of the businesses conducted by the largest companies is, at their core, contrary to the public good.
Consider, for example, the social media companies who know their platforms are being manipulated to fuel division and discord in societies around the world, and yet they fail to stop the abuses. Consider the role of large banks in economic calamities around the globe. Consider the role of pharmaceutical companies in making drugs unaffordable for many people, and in contributing to the opioid crisis. Consider the fossil fuel companies who continue to extract and burn fossil fuels knowing that they are an existential threat. Consider the role of chemical companies in polluting the environment. And consider the fact that our company was born out of the need to protect people from the challenges to their privacy, security and freedom brought on by Big Tech. Sadly, the shift in emphasis by the Building Roundtable does not address the biggest problem with many of the largest corporations, which is that their business objectives are not compatible with general health and welfare. Saying that companies should deal fairly and ethically with their employees and partners even if it affects the bottom line is nice–but beside the point. It would be far more beneficial for these companies to reevaluate their overall effect on society.
We at Purism are grateful to the many US states offering to give companies the freedom to actually benefit society, rather than contribute to its ills. We believe that consumers who really care about their freedom, privacy, and security, or other issues like climate change, seek out companies like ours that exist, first and foremost, to do something important that can better people’s lives. We use capitalism, and the corporate form, to build a sustainable company that can continue to serve our mission. Making money is a means to an end, not the end itself. We exist for our customers, not for our shareholders, and our shareholders back us because know the social good that comes from our efforts. People parting with their hard-earned money for products and services deserve that much.