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Capitalism Must Reform to Survive

6 11 0
16.01.2020

Companies today face an existential choice. Either they wholeheartedly embrace “stakeholder capitalism” and subscribe to the responsibilities that come with it, by actively taking steps to meet social and environmental goals. Or they stick to an outdated “shareholder capitalism” that prioritizes short-term profits over everything else—and wait for employees, clients, and voters to force change on them from the outside.

This assessment may seem harsh coming from someone who has always believed in the pivotal role companies play in the global economy. But there is no alternative. Our ecological footprint has expanded far beyond what the earth can sustain. Our social systems are cracking. Our economies no longer drive inclusive growth.

Today’s younger generations simply do not accept that companies should pursue profits at the expense of broader environmental and social well-being. We know that a free-market economy is essential for producing long-term development and social progress. We should not want to replace that system. But in its current form, capitalism has reached its limits. Unless it reforms from within, it will not survive.

Last year, the Business Roundtable, an organization representing many of the largest American companies, announced that it wanted to move away from shareholder primacy and toward a commitment to all stakeholders. It redefined the purpose of a corporation to promote “an economy that serves all Americans”—not just those who own shares.

The CEOs signing the Business Roundtable statement were a veritable Who’s Who of American capitalism. As chair of the Business Roundtable, JPMorgan Chase CEO Jamie Dimon was the first to endorse it. Among the 181 signatories were also Alex Gorsky of Johnson & Johnson, Ginni Rometty of IBM, Mortimer J. Buckley of Vanguard, and Tricia Griffith of Progressive.

The announcement was met with mixed reactions. Some saw it merely as a maneuver to preempt pressure from an ascendant left. Others dismissed it as disingenuous, a mostly symbolic move without concrete actions to back it up. How can a company claim to have implemented a major change, asked skeptics, if its quarterly reports still focus on maximizing the financial bottom line?

But such skepticism misses how significant the shift is—and the opportunity to turn it into real change. Since 1997, each previous set of principles endorsed by the Business Roundtable had put shareholder primacy first. For the group to drop that principle was revolutionary. But it is also true that unless these words are translated into collective actions, the revolution will be short-lived.

So what can be........

© Foreign Affairs