Milton’s Mistake and the Return to Stakeholder-Driven Business
Long before Standard Oil and long before there were trusts for Teddy Roosevelt to bust, companies were community affairs. For the most part, they operated in and served a community. They may have served multiple constituencies within that community, but operations tended to be local, and when you see the people you serve every day at the grocery store, you tend to adopt a sense of responsibility for the welfare of the community. As a result, there wasn’t much of a role for government in business.
As the scope of corporations expanded into national enterprises, the community checks of earlier years broke down and government was forced to step in to protect the interests of the individual. This held through two world wars and was the overriding state of play through the working years of The Greatest Generation and during a period many of today’s most dissatisfied view with the greatest sense of nostalgia.
But things started to change in the ’70s. Milton Friedman’s profit above all else orthodoxy spread predictably, and in 1997, The Business Roundtable, one of the most powerful lobbying groups for America’s largest corporations changed their official doctrine, stating that, “The paramount duty of management and of boards of directors is to the corporation’s stockholders.” At the same time, government became increasingly uninterested, unwilling or unable to protect the individual.
Given these two developments, it’s not all that surprising to see what happened in the ensuing two decades. Management did what they were told to do. And no one cared to stop them.
Something always seemed off to me about this. And since I don’t see government playing a positive role anytime soon, it seems like it’s up to business to find its way back to its roots and to begin caring again for its whole community.
When we started VidMob, the way we tended to think about this was in terms of building a “stakeholder-driven” company. Sure, shareholders were always going to be an important part of the equation-after all, without them, there would be no company in the first place-but they were only one part of a broader whole. Our employees, our clients, the creative community in VidMob’s network, the physical communities within which our offices were located, our partners, these were all important stakeholders in addition to our investors, and we felt we would be a better company if we set out to serve them all.
We wrote about this two years ago. And our sense of stakeholder responsibility has expanded since with the growth of VidMob Gives.
So I couldn’t have been more excited to see the article in the New York Times last week about how the Business Roundtable had issued a new statement on the purpose of a corporation. According to this new directive, times had evolved and the purpose of a corporation must evolve as well. “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the group said in a statement. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
I’m appreciative of the language but skeptical of the results. After all, as long as the public markets care solely about quarterly earnings, I’m dubious about real change. But I do see this as a temporary disappointment. Change is coming, if only for the simple reason that it has to. Perhaps one of the most redeeming factors of globalization is that as the world gets smaller, everything becomes local once again. And as we saw 100 years ago, the more you bump into your constituents, the more you tend to develop your sense of empathy.
In the meantime, there’s a real opportunity for companies like VidMob to help define the model of the future. Unlike America’s largest public companies, our incentives are aligned today. We’ve seen that the deeper our moral compass is interwoven into our corporate behavior, the better it is for business. The best talent is looking for companies with a purpose. In fact, they’re demanding it. In this regard, we have a superpower, and I see it manifest itself in every month’s new employee onboarding sessions.
So while we remain somewhat unique in defining our own version of a stakeholder-driven model for capitalism, we’ll enjoy the benefits of having an advantage in attracting and retaining truly incredible people. But I’m glad to see this language picking up steam in the broader corporate world, and I look forward to a day when we truly lose this advantage because everyone else is doing it too. It’ll make life a little harder for us, but for all of the right reasons.