Corporate Responsibility: Assessment of the Business Roundtable Manifesto

Corporate Responsibility: Assessment of the Business Roundtable Manifesto | By Mike CritelliRecently, the Business Roundtable issued a manifesto designed to affirm that those who signed it are not only focused on shareholder value creation, but also focused on customers, employees, and communities. 

This manifesto was criticized in two directions: (i) traditional “free market” capitalists who adhere to Milton Friedman’s philosophy felt that it watered down the need to commit single-mindedly to shareholder value creation, an argument made in an op-ed piece in the Wednesday, September 18, 2019, issue of The Wall Street Journal by Richard Shinder, a financial services executive at Piper Jaffray:

(ii) progressives felt that the statement did not go far enough to emphasize the values of employees and communities.

The manifesto is important, both for what it has said, and what was left unsaid:

Great companies build winning partnerships with great customers and learn from them, as well as gaining revenue and profit from them.  Large organizations should be ridding themselves of narrowly focused procurement functions that drive “win-lose” outcomes that hurt their vendors, particularly smaller businesses. 

What this manifesto also does not address is the following: which employees, customers and communities should a global or multi-national corporation strive to serve?

Businesses often are forced to locate their facilities close to customers.  Component suppliers have to meet increasingly rigorous “just-in-time” delivery standards and are expected to locate near or even in the communities or countries in which their customers are located. 

We have “Buy America” requirements.  Global companies based in America confront similar requirements in many countries in which they sell products and services, and are forced to locate operations in these countries, not in the American communities in which they may have had decades of great employee and community relations. In this case, governments and customers demand proximity to them, but American employees whose jobs are eliminated to achieve that goal are disadvantaged. 

The second challenge is meeting increasingly demanding customer requirements for lower-cost and higher-quality products, services, and employees.  In 2004, Pitney Bowes reluctantly made the decision to move half of our low-cost product call center workforce to the Philippines.  We did so for two reasons:

We moved half of our call center activity to downtown Bridgeport CT, an economically depressed community that welcomed the additional 210 jobs we placed in that city, because they were higher-skilled and we could pay them more.

We became a good corporate citizen in the Philippines and in Bridgeport, and provided great opportunities for employees in both locations.  However, we had to leave the Savannah, Georgia community and its employees behind to meet customer and shareholder needs.

American businesses can help communities upgrade poor K-12 school systems and increase the skilled worker population, but they cannot prevent over-regulation by state and local governments that prevent the communities from being good places to situate operations.  Too many communities are located in states in which so-called “progressive” agendas prevent businesses from taking root and staying.

The goal of eliminating carbon emissions is admirable, but not fully achievable.  At Pitney Bowes, we significantly reduced the need for, and volume of, customer service technicians to get into cars and visit customers to fix equipment, but we could never eliminate it.  Some customers needed us to be there in person. Using electric vehicles does not eliminate carbon emissions, but transfers them from the transportation process to the electricity generation process.

The biggest problem for businesses is what they do when exiting a community.  They generally pay severance to employees unable to relocate to another company facility or job and offer outplacement services.  Some communities easily reabsorb these displaced employees.  However, many communities cannot do so because they are economically depressed due to bad government policies and inadequate educational systems. 

Pitney Bowes eventually exited Bridgeport after I stepped down from the CEO job, even though the facility had a great workforce, because the community was inhospitable to businesses.  We were not alone.  Many businesses left Bridgeport behind it was a poorly managed, corrupt city, like many old industrial cities in the Northeast and Midwest. 

Fortunately, there are some great local initiatives that take advantage of the lower-cost economics of many economically distressed communities. In Pikeville, Kentucky, miners who lost their jobs were retrained to do software coding through a newly created organization called Bit Source.

Large public companies can try to serve all stakeholders identified in the Business Roundtable Manifesto, but, as global companies with conflicting shareholder, customer and community demands, they inevitably have to make difficult trade-offs.  They will never make every employee, customer, government and community happy, but they can strive to minimize negative impacts to strike the balance required to adhere to the Business Roundtable manifesto. 

The manifesto is a useful aspirational statement, but maximizing business value to all stakeholders in all geographies in practice has never been, and will never be, achievable. The only reasonable way to interpret this document is that global and multi-national businesses must do the best they can to serve whatever constituencies are in front of them when and where they do business.  They cannot be guarantors of American jobs or zero environmental emissions.

Governments, labor unions, and activist constituencies are valuable at the margins to curb bad corporate practices, but they also cannot achieve the simultaneously unachievable goals embodied in this manifesto.  Politicians who state that they can make this happen are deluding us and themselves.