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Stakeholders Matter, but Shareholders Still #1

Quora logo for post about corporate stakeholders based on a Quora answer

This post about corporate stakeholders is based largely on my answer to a Quora question. Please see How many companies do you think will adopt the Business Roundtable’s statement that the purpose of a corporation is to take into account ALL stakeholders

The Business Roundtable describes itself as an association of chief executive officers of America’s leading companies. On August 19, 2019, the Roundtable garnered headlines when it announced that it had redefined the purpose of a corporation to promote an economy that serves all Americans. In my opinion, that characterization is not accurate.

Roundtable Statement about Stakeholders

Here is what the relevant portion of the Roundtable’s Statement on the Purpose of a Corporation says:

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.

…is not Radical

There is nothing radical about this agenda. Any company that wants to be successful and stay in business for the long term needs to treat each of its constituencies fairly.

What the document does not say, however, is that a corporation’s directors and officers have a fiduciary duty to look out for the best interests of the corporation and its shareholders. See, e.g., Directors’ Fiduciary Obligations: Delaware vs. California and Corporate Officers in California Need to Be More Careful than Directors.

  • Generally, this fiduciary obligation is compatible with respecting other stakeholders’ interests, because looking out for all stakeholders helps move everyone toward long-term business success.
  • But if there ever is a conflict between various stakeholders’ interests, the interests of the corporation and its shareholders – the last stakeholders listed – will override the interests of the other stakeholders.

In summary, the Roundtable’s statement may have earned PR points, but it is of little legal significance.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

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