When Business Leaders Endorse Stakeholder Responsibility, What Are They Really Saying?

Whether you are a big supporter or a big opponent of a focus on stakeholder rights, the overall message of what has actually happened since the ballyhooed 2019 pledge seems pretty clear. As Bebchuk and Tallarita write: “Overall, our findings support the view that the BRT Statement was mostly for show and that BRT Companies joining it did not intend or expect it to bring about any material changes in how they treat stakeholders.”

For myself, I’m not a fan of the idea that companies should broaden their focus to a somewhat nebulous group of “stakeholders.” Organizations have purposes. We don’t ask, say, the K-12 school system or the public libraries to start new companies. We don’t ask hospitals to collect taxes or fix the environment. We don’t ask universities to carry out defense spending. Companies have a purpose, which is ultimately about providing goods and services that customers want to buy. That goals is not synonymous with pursuing social welfare. But it’s what they are set up to do.

When I hear discussions of how corporations should have a much broader social focus, I tsometimes feel as if the discussants are in the grip of a category confusion, like someone who rinses their vegetables in the shower and then tries to bathe in the kitchen sink. Here’s the confusion as expressed in an October 1990 opinion column by Donald Kaul, who was a prominent op-ed columnist, mainly with the Des Moines Register, from the 1970s through the 1990s. Kaul wrote: 

We have come to rely upon capitalism for justice and the government for economic stimulation, precisely the opposite of what reason would suggest. Capitalism does not produce justice, any more than knife fights do. It produces winners and energy and growth. It is the job of government to channel that energy and growth into socially useful avenues, without stifling what it seeks to channel. That’s the basic problem of our form of government: how to achieve a balance between economic vitality and justice. It is a problem that we increasingly ignore.

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