By all indications, 2020 will be remembered as a momentous conjuncture that exposed the true character of corporations. The confluence of the COVID-19 pandemic, economic turbulence and the insurgent anti-racist movement is challenging corporations to rethink their purpose and its influence on the culture, strategies and practices that collectively define the character of the organization.
But the COVID moment, it turns out, also marks two related anniversaries: a 50th well-known to participants in the corporate purpose debates; and a 15th, less prominent but still notable for its prescient diagnosis.
First, a look back. For decades, academics, practitioners and civil society have debated the critical question of corporate purpose. This year marks the 50th anniversary of economist Milton Friedman’s (in)famous declaration that "the social responsibility of business is to increase its profits."
The Friedman doctrine would become the mantra for both business and government, laying the groundwork for the ascent of shareholder primacy and its accomplices — deregulation, low taxation and unfettered global supply chains and markets. The doctrine’s unwavering focus on profits provided the foundation for the emergence of financial markets as the arbiter of well-being in the eyes of corporate leaders and policymakers alike.
By the early 1990s, the corporate social responsibility (CSR) movement took shape as an antidote to the dominance of shareholder primacy. With its focus on symptoms rather than root causes, CSR arguably loosened the grip of shareholder primacy while falling well short of the transformative change advocated by those seeking to dethrone financial metrics as the paramount measures of corporate performance. Twenty-five years later, John Elkington, a godfather of the CSR movement, would capture this shortfall via his "recall" of the Triple Bottom Line framework, pointing to its failure to drive systemic change in company conduct.
In 2005, inspired by the continued entrenchment of the Friedman doctrine and the failure of CSR to dislodge it, a group of legal and management scholars, civil society, labor and business launched Corporation 2020. (Disclosure: I was a co-founder together with my colleague Marjorie Kelly.) Inspired by the growing but disparate discontents with the status quo, Corporation 2020 sought to give voice to the fledgling repurposing movement by mobilizing the collective voice of critics of shareholder primacy.
The first of its six design principles embodied this goal: "The purpose of the corporation is to harness private interests to serve the public interest." These few words were designed as a call-to-action to confront the dominant corporate form rooted in the atomistic, hegemonic notion of profits and share price above all and to galvanize a diversity of voices bound by shared grievance into a force for change. Unifying participants was the belief that the prevailing paradigm was simply incapable of addressing the multiple exigencies threatening planetary well-being.
Years later, management professor and author Colin Mayer would concisely capture the fallacy of this model: "Corporations … do not and should not revolve around their shareholders any more than the planets revolve around the earth."
Soon after the launch of Corporation 20/20, the global crisis of 2007–08 laid bare the outsized influence of financial markets on corporations. The ensuing global financial crisis shed light on the excessive risk-taking by investment banks and the effects of the exotic financial instruments that roiled the global economy. Credit contracted, consumer demand faltered and companies shed workers, leading to unemployment rates exceeding 10 percent.
The perfect storm of unstable financial institutions, a credit crunch and plummeting demand exposed the risks of the untenable entanglement of the real and financial economies. Through the lens of Corporation 20/20, the recession was proof-positive of the risks of financialization and the urgency of redefining corporate values and the concept of value itself to embrace a blend of human, social, intellectual and manufactured capital.
Under such a reimagining of value and purpose, finance capital would play a subordinate role as a supportive enabler of value creation rather than an end itself. In retrospect, while Corporation 20/20 fell well short of achieving its transformative vision, its legacy continues to inform the discourse surrounding the urgency of corporate redesign.
Now, another 2020 is upon us. Once again, the preeminence of shareholderism is in play, a reminder of its continued intransigence even in the most stressful economic times. As the United States confronts the triple crises of COVID-19, massive economic dislocation and the systemic racism, financial markets regularly experience wild swings seemingly detached from conditions in the real economy. Stock indices have undergone precipitous swings as investors — including sports gamblers seeking alternative outlets to closed stadiums — fuel the irrational exuberance that typically portends stock bubbles.
Meanwhile, these indices seem to operate in a parallel universe decoupled from the realities of massive unemployment and deep concerns about the timing and prospects of economic recovery. As in the earlier dot-com bubble and the Great Recession, and as the real economy hemorrhages jobs and assets, we are reminded once again of John Maynard Keynes’s characterization of the "casino" and "beauty contest" nature of the stock market driven primarily by speculation and emotion.
Will 2020 mark a turning for corporate redesign? Early indications are mixed, at best. The crisis has spawned voluminous corporate statements of empathy, commitments and, in some cases, concrete actions to alleviate the adverse effects of the crises on workers and communities. In other cases, the corporate response reveals a reassertion of shareholder primacy manifested in increased dividend payments, stock buybacks and CEO salaries. At the same time, scholars and journalists disenchanted with the existing model of capitalism press for reimagining, reinventing and resetting the status quo.
Now, a few months since the onset of the COVID-19 crisis, with a growing movement against systemic racism, uncertainty and volatility are inevitable for many more months and, likely, well beyond.
No analogous historical moment provides a playbook for addressing such multi-layered, profound disruption. Corporations face an extended period of intensifying scrutiny as they grapple with the pressures to survive and thrive amidst the powerful crosscurrents that are reshaping the nature of work, consumption, trade, supply chains and every other core aspect of business.
While stressful times are inevitable, crises historically have been precursors to systemic change. In the current moment, such change is an opportunity to re-energize the corporate repurposing movement.
It is time for Corporation 2030.
