Audit, Compliance and Risk Blog

Business Roundtable (Re)states Position for Broad Corporate “Purpose”

Posted by Jon Elliott on Tue, Oct 08, 2019

Round tableThe Business Roundtable has just offered its answer to the question “what’s the purpose for a corporation”? There are various ways to ask that question – existentially, legally, and/or operationally. Because the Roundtable is an association of chief executive officers of (CEOs) of many of America’s leading companies, its formal statements reflect the views of forward-looking Big Business. The Roundtable is most focused on the operational version, although press reports are pushing in all directions. The remainder of this note looks at what the Roundtable actually said, and provides some context to the multi-faceted question.

How Do Corporation Laws Answer the Question?

Corporations are incorporated in states and similar jurisdictions, subject to the laws in their jurisdiction. As you’d expect, general statutes focus on how to birth an artificial person in their jurisdiction. Most US states base their requirements on the Model Business Corporation Act (MBCA), which provides the following broad permission:

“3.01(a). Every corporation incorporated under the Act has the purpose of engaging in any lawful business unless a more limited purpose is set forth in the articles of incorporation.

(b). A corporation engaging in a business that is subject to regulation under another statute of this state may incorporate under this Act only if permitted by, and subject to all limitations of the other statute.”

This purpose statement is designed to be as general as possible, in order to allow a state corporation statute to cover the broadest range of corporations and activities. Therefore, it provides no useful guidance to corporate directors and officers about how to use this flexibility; the lawmakers leave it to individual companies to add details in their articles of incorporation and bylaws if they want to narrow the scope of permissible activities or emphasize some market or policy focus. Some jurisdictions do offer additional options, including “public benefit corporation.”

Canadian jurisdictions take similar approaches, with trends toward providing additional details. The most recent amendments I know of are to the Canada Business Corporation Act (CBCA), which was been amended effective June 21, 2019 (by Bill C-97) to add the following clarification:

(1.‍1) When acting with a view to the best interests of the corporation … the directors and officers of the corporation may consider, but are not limited to, the following factors:

(a) the interests of

(i) shareholders,

(ii) employees,

(iii) retirees and pensioners,

(iv) creditors,

(v) consumers, and

(vi) governments;

(b) the environment; and

(c) the long-term interests of the corporation.

 These expanded CBCA provisions reflect similar approaches to the Business Roundtable pronouncement I’m about to discuss.

 How Does the Business Roundtable Answer the Question?

 In recent decades, the Business Roundtable has issued a series of guidelines addressing corporate purpose and also corporate governance by boards of directors and senior management. These have consistently called for broader approaches to each, not a simplistic call to maximize shareholder returns in the short term (or even in the long term). 

  • 1997 Statement on Corporate Governance

As long ago as its 1997, Business Roundtable issued a Statement on Corporate Governance that began with the sentence “The Business Roundtable wishes to emphasize that the principal objective of a business enterprise is to generate economic returns to its owners.” However, the next paragraph emphasized that “It is in the long-term interests of stockholders for a corporation to treat its employees well, to serve its customers well, to encourage its suppliers to continue to supply it, to honor its debts, and to have a reputation for civic responsibility. Thus, to manage the corporation in the long-term interests of the stockholders, management and the board of directors must take into account the interests of the corporation’s other stakeholders.”

  • 2016 Principles of Corporate Governance

In 2016, the Business Roundtable issued an updated version of its Principles of Corporate Governance. That guidance included eight “core guiding principles” for corporate governance, including:

    1. “In making decisions, the board may consider the interests of all of the company’s constituencies, including stakeholders such as employees, customers, suppliers and the community in which the company does business, when doing so contributes in a direct and meaningful way to building long-term value creation.”

  •  2019 Statement on the Purpose of a Corporation

The newest Statement has received considerable publicity, much of which describes it as offering big changes to corporate America’s approaches. The entire document is one page of Statement, followed by eleven pages reproducing 181 CEOs’ signatures. The Statement first emphasizes the CEOS’ collective belief in free market principles, and businesses’ “vital role in the economy.” It then presents the following commitments, and closing statement, which I quote in full:

      • “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.”

This new Statement reaffirms longstanding principles from the Business Roundtable, that corporations serve their shareholders, and can do so by attending to the needs of other stakeholders as well.

Now What?

Despite the rhetoric about the new approaches presented in the most recent Business Roundtable statement, it follows earlier pronouncements by the group, including those I’ve quoted above. What remains to be seen is whether individual CEOs change the policies and activities of their corporations to more fully align with this new (re)statement of purpose.

Self-Assessment Checklist 

  • Have the board of directors and CEO (or the equivalent) of my organization made formal policy statements about the organization’s priorities toward serving the interests of:

    • Shareholders (or the equivalent)

    • Employees

    • Customers

    • Its community(ies)

    • Its customers

    • The environment

    • Other ______

Where Can I Go For More Information? 

Specialty Technical Publishers (STP) provides a variety of single-law and multi-law services, intended to facilitate clients’ understanding of and compliance with requirements. 

Like What You've Read? Subscribe to Our Blog Now

About the Author

Jon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at:

photo credit: solutionist999 7454107_m via photopin (license)

Tags: Corporate Governance, Business & Legal, directors, directors & officers