Jamie Dimon. Photo / Supplied
When JP Morgan Chase CEO Jamie Dimon issued a letter on behalf of the powerful US Business Roundtable abandoning the idea that companies must maximise profits for shareholders above all else it reinvoked the debate on whether capitalism is dead.
The Roundtable statement came as US President Donald Trump and the candidates vying for the Democratic presidential nomination took aim at companies for putting profits before the needs of workers and customers on issues as varied as drug pricing, outsourcing and data privacy, reports the Washington Post. For decades, US wages have climbed only moderately as the pay of top executives at public companies has soared.
Thankfully for Dimon this new era of prudence did not affect his own pay packet.
According to US Securities and Exchange Commission filings his full compensation for 2018 totalled US$31 million, up from US$29.5m in 2017.
The compensation includes a base salary of US$1.5 million for Dimon and US$29.5 million from performance-based incentives.
Another irksome fact. Dimon is JP Morgan's second largest shareholder.
At the bank's annual meeting investors voted to approve his pay over the objections of a shareholder-advisory firm; with investors holding nearly 72 of the shares voting in favour of the non-binding approval just above the 70 per cent threshold that is viewed as a minimum by US corporate-governance experts. Institutional Shareholder Services had criticised the bank for not providing enough clarity to shareholders on how it determines the compensation.
These are the everyday contradictions at the heart of US capitalism — in practice — that spark critics to claim the US Business Roundtable's new statement about the purpose of a corporation is posturing.
The Business Roundtable's August letter said business leaders should commit to balancing the needs of shareholders with customers, employees, suppliers and local communities.
"Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity," said the Roundtable's statement. "We commit to deliver value to all of them, for the future success of our companies, our communities and our country."
The group — representing chief executives from 192 of the American most powerful companies — has named issues such as diversity, social inclusion and the environment as key to the new conversation.
Their statement came amid growing national debate in the US about the responsibilities of corporations at a time of stark economic inequality.
New Zealand CEOs ahead in the social license debate?
In response to a question in the Herald's CEOs survey, asking New Zealand chief executives whether their businesses have adopted commitments similar to the five outlined in the Business Roundtable letter, a large majority said they had.
They ranked their biggest responsibility as delivering value to customers (88 per cent) followed closely by investing in employees by supporting them to acquire new skills for a rapidly changing world (86 per cent).
Some 84 per cent say they are supporting the communities in which their businesses work and are protecting the environment by embracing sustainable business practices.
Eighty-one per cent say they are committed to generating long-term value for shareholders and 78 per cent say they deal fairly and ethically with suppliers.
These issues get to the heart of the debate over businesses' licence to operate.
Deloitte CEO Thomas Pippos said the Roundtable commitments may be a new sentiment in the US — "but it's not new in New Zealand".
"I see this not so much as copping out of capitalism, but recognising that business is part of society," said a property CEO. "If your actions as a business do not support or indeed actively undermine the society of which you are a part, then in the long term you are killing yourself. It's the difference between a symbiotic or a parasitic relationship with society as your host organism."
Others said societal expectations have changed and profit before all things is no longer acceptable. Leading with purpose is not only necessary but every day it is more strongly demanded by stakeholders. Companies best deliver long term value for shareholders by delivering good value for customers, and that in turn implies investing in employees, dealing fairly with suppliers, and generally being, and being perceived as, a responsible employer.
Others said they had been operating this way for some time.
Independent director Cathy Quinn said: "I think for some time most businesses have understood acting in the company's best interests and maximising wealth for shareholders requires companies to take into account wider interests. I don't think it's revolutionary, it's common sense."
"I actually don't think this idea is that new as ultimately if you focus only on short-term wealth at the expense of long-term health of the business (ie by not supporting your employees to re-train, supporting your local community, sustainable business practices), it will undermine your business," said a transport chief.
But Sam Stubbs, founder and managing director of Simplicity, noted that business in New Zealand had been funded and encouraged to think too short-term.
"It has been encouraged to focus on shareholder returns to the exclusion at times of other stakeholders."
Not all New Zealand respondents were in accordance with the changed stance in the United States.
Craig Stobo, chair of the NZ Local Government Funding Agency, saw the new approach as a luxury only large companies could afford. He said: "Nice for some. There is a clear shift in New Zealand to ESG-style reporting on stakeholder commitments by larger businesses. For most SMEs, however, the first rule of business is to stay in business."
Michael Lorimer, founding director of the New Zealand office of Grant Samuel, was unambiguous in his response: "The US Business Roundtable is wrong," he said. Others described the Roundtable's letter as "claptrap" and a "silly way to frame the issue".
Climate Change
Z Energy was already across a lot of this new approach but had not put it all into one statement as the US Business Roundtable had done, said Mike Bennetts, the firm's CEO and a key figure in the development of the Climate Leaders Coalition.
The coalition was launched in July 2018 to promote business leadership and collective action on climate change.
So far, 120 CEOs have signed the original joint statement, which commits their organisations to take voluntary action on climate change including measuring and publicly reporting their greenhouse gas emissions, setting a public emissions reduction target, and working with suppliers to reduce their emissions.
Coalition members have also committed to support the Paris Agreement and New Zealand's commitment to it, the introduction of a Climate Commission and carbon budgets enshrined in law.
In July 2019, to mark its first anniversary, the coalition launched a second higher ambition pledge reflecting the latest science that illustrates the need to limit global warming to 1.5 degrees and aligns with the Government's ambitions in the Zero Carbon legislation. The coalition hopes to transition new and existing signatories to this more ambitious pledge over time.
Organisations from all sectors of the economy are represented in the coalition and together the signatories make up 60 per cent of New Zealand's gross emissions.
But a tech services head cautioned: "This is urgently needed in all organisations. Not just the PR spin on it but genuine 'action for change'. In some companies this will require existential thinking and planning for wholesale change [e.g. a plastics company might need to reinvent itself]."
ESG reigns?
ESG refers to environmental, social and governance factors which are central to measuring the sustainability and ethical impact of an investment in a company or business. These criteria help to better determine the future financial performance of companies (return and risk). The sustainability focus is critical and seen as very much in shareholders' long-term interests — particularly to secure the critical social licence to operate.
A property CEO added that this broader approach was about recognising business is part of society.
"If your actions as a business do not support or indeed actively undermine the society of which you are a part, then in the long term you are killing yourself."
A casino operator noted "as a casino group we deal with long-term social licence issues as an integral part of doing business".
In the Māori business sector, one leader pointed out that "Māori economic development is about our people, and how we conduct our business for today for future generations".
And the last word goes to a logistics firm head — who agreed with the five principles but warned: "let us not forget the responsibility to generate acceptable and increasing profitability".
Where the Deloitte Top 200 Young Executive winners have ended up.