In 2019, some of the world’s biggest companies pledged to look beyond short-term shareholder value and protect the interests of all stakeholders. The coronavirus pandemic has put these commitments to the test, says Mirza Baig.

“The American dream is alive – but fraying for many. Income inequality has gotten worse. Forty per cent of American workers earn less than $15 an hour, and about five per cent of full-time American workers earn the minimum wage or less, which is certainly not a living wage… Simply put, the social needs of far too many of our citizens are not being met.”1

A growing sense of concern that economic inequality is undermining trust in business

These might sound like the words of a left-wing firebrand, a Bernie Sanders or Elizabeth Warren. In fact, they were written by Jamie Dimon, the billionaire chief executive of JPMorgan Chase, in his foreword to the investment bank’s annual report of 2018. Dimon’s letter indicated a growing sense of concern that economic inequality is undermining trust in business – and perhaps even the capitalist system itself.

The following year, Dimon was among the 181 American CEOs who signed the Business Roundtable’s (BR) updated “Statement on the Purpose of a Corporation”, which stressed the need for firms to safeguard the interests of all stakeholders – customers, suppliers, employees and local communities – as they seek to generate long-term shareholder value.2

A few months after the statement was published, COVID-19 struck. As economies were locked down to prevent the spread of the virus, the financial resilience of companies was put to the test. But the crisis has also served as a barometer of how far firms are willing to go to meet their stated commitments to stakeholders.

The crisis has tested how far firms are willing to go to meet their commitments to stakeholders

The pandemic is exposing deep societal fault-lines, including racial inequality and ongoing environmental degradation. At this historic moment, some companies have delivered on their promises. Many others have failed to back up their fine words with action.

Walking the walk?

September 2020 saw the publication of the first report from the Test of Corporate Purpose (TCP), an initiative designed to measure companies’ progress on stakeholder objectives. The TCP employed a mixture of qualitative and quantitative methods; it surveyed businesses, employees, investors and regulators, and used machine-learning techniques to sift through data from 800 large companies. It found the signatories to the BR statement failed to outperform their S&P 500 or European company counterparts on stakeholder metrics.3

Rising awareness of climate risks has led to the “greenwashing” phenomenon

Rising awareness of climate risks has famously led to the phenomenon of “greenwashing” – the tendency for companies to exaggerate their green credentials. The TCP finds something similar is happening when it comes to the stakeholder capitalism movement. Many firms have engaged in “purpose washing”.

Take Amazon, whose CEO, Jeff Bezos, was a signatory to the BR statement. The e-commerce giant’s revenues soared as lockdowns turbocharged demand for online services. But the company was criticised for failing its employees, many of whom have complained about inadequate protection and a lack of social distancing measures in its warehouses. Amazon fired at least six workers who spoke out against its practices in 2020. Tim Bray, a senior executive at Amazon Web Services, resigned in protest, citing a “vein of toxicity” in the company’s culture.4

Amazon is not the only firm to have failed the stakeholder test during the COVID-19 crisis. Employees at restaurant chains such as McDonald’s and Subway have been asked to continue working without paid sick leave. Many airlines have furloughed or laid-off staff, renegotiated contracts with their suppliers at lower rates, taken government aid – and still sought to pay executives large bonuses. British Airways and Ryanair are among the companies to have faced pushback from shareholders after announcing generous executive pay plans since the start of the pandemic.5

Stakeholders and corporate resilience

Other companies have done better. Several telecoms firms have raised the pay of frontline staff to thank them for their hard work in keeping essential communications operational during the pandemic.6 After panic buying emptied supermarket shelves early in the crisis, food retailers adapted quickly to rejig their supply chains and restock. The likes of Morrison’s and Danone expedited payments to support farmers and other small suppliers.7

Organisations with longstanding stakeholder commitments were among the standout performers in 2020

Organisations with longstanding stakeholder commitments were among the standout performers in 2020. Consumer goods conglomerate Unilever, which was one of the first major companies to adopt a stakeholder-focused approach under former CEO Paul Polman, donated $50 million worth of soap to the COVID-19 relief effort.8

Meanwhile, software services company (and BR signatory) SAP, which has long been a global leader in diversity and inclusion, was among the firms that announced new projects to tackle anti-black racism in the wake of George Floyd’s murder and the global Black Lives Matter protests. The company launched an initiative to support black-owned businesses impacted by COVID-19 and set a target to double the number of African American staff in its US division over the next three years.9

These sorts of measures are not just praiseworthy gestures on their own terms. Research shows diverse teams are more innovative,10 and happier workers more productive.11 Firms that enjoy close, trust-based relationships with their suppliers can respond more flexibly in a crisis, making them more resilient.12

These benefits are reflected in stakeholder-focused companies’ financial performance. Separate studies from S&P Global Market Intelligence and Morningstar showed firms with strong records on environmental, social and governance (ESG) criteria – usually a good proxy for corporate purpose – outperformed during the COVID-19 sell-off at the start of the pandemic.13, 14

The Friedman doctrine

Nevertheless, many investors remain suspicious of the move towards a stakeholder-led model of corporate governance, for some good reasons and some bad ones.

Start with the bad reasons. Many investors continue to view Milton Friedman’s doctrine of shareholder primacy as an inalienable truth. In a famous essay published in 1970, Friedman argued “there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud”.15

But much has changed over the past half-century. The escalating climate crisis shows the damage companies can inflict when they attend solely to on-balance sheet costs, without assessing externalities such as environmental impact.

Many investors continue to view Milton Friedman’s doctrine of shareholder primacy as an inalienable truth

Friedman’s doctrine also rests on an outdated notion of trickle-down economics, which decades of flat wage inflation, widening inequality, stagnating productivity and – more recently – populist politics have worked to undermine. The 2020 Edelman Trust Barometer showed these issues are eroding trust in the economic system: of the 34,000 respondents to the consultancy’s global survey, 56 per cent said capitalism does more harm than good.16

The shareholder-focused view tends to perceive stakeholders as actors with conflicting interests. This misses the fact good companies should be able to develop a strategy, a code of conduct, a culture and a set of values that grows the pie for all stakeholders – including shareholders. Over the long term, looking after stakeholders is not just morally right; it makes good financial sense. Even Friedman recognised this: his essay concedes that “it may well be in the long-run interest of a corporation” to devote resources to providing “community amenities”, as this may make it easier to attract employees, reduce losses or generate “other worthwhile effects”.

The true enemy of sustainable outcomes is not profit, but short-termism. Strategies designed to boost short-term value often threaten to diminish businesses in the long run. Take stock buybacks, which aim to lift share prices using liquidity that might have been allocated to investments in long-term productive capabilities or shoring up balance sheets. Bloomberg data shows the biggest US airlines spent 96 per cent of their free cashflow on buybacks over the last decade, draining resources that could have given them a protective buffer to weather the COVID-19 crisis. When these businesses suffered during the pandemic, the damage was felt by all stakeholders, shareholders included.17

Measuring purpose

Other criticisms of the turn towards corporate purpose carry more weight. As academics Alex Edmans and Tom Gosling of the London Business School have argued, companies’ stated purpose can be so generic as to be meaningless. The BR statement says nothing about how the signatories will go about meeting their various aims – such as “supporting communities” and “dealing fairly with suppliers” – which may be one reason they have mostly failed to deliver on their pledges. (These are the sort of hollow claims Friedman disparaged in his essay as “general exhortations from on high”.)

CEOs may pursue pet causes rather than material social issues

Edmans and Gosling argue that without more clarity, CEOs may pursue pet causes rather than material social issues, rendering the stakeholder agenda a form of managerialism by other means. Some BR signatories have blocked shareholder resolutions that demand an explanation as to how they will enact the transition to stakeholder primacy. This is despite evidence that shows reduced accountability by companies to their investors tends to bring a fall in long-term value without any corresponding benefit to other stakeholders.18

Thankfully, the pandemic has spurred progress on the development of metrics that can be used by shareholders and other stakeholders to measure companies’ track records and hold them to account. As well as TCP, we have seen the emergence of JUST Capital’s stakeholder capitalism ranking, which provides a useful comparison of firms’ performance on stakeholder issues.19

In addition, the World Economic Forum has created the Stakeholder Capitalism Metrics, a set of 22 indicators across four main pillars – governance, planet, people and prosperity – against which companies’ performance can be measured. Importantly, the metrics are designed to cohere with existing frameworks, such as the UN Sustainable Development Goals, to ensure comparability and consistency across companies’ non-financial disclosures.

These are welcome developments, but as stakeholder metrics become more mainstream, there is a risk companies will focus on “easy wins” and engage in box-ticking to improve their performance. Investors, policymakers and wider society need to be alert. Are stakeholder outcomes being recorded as derivative indicators of business-as-usual practices, or are they truly embedded into the corporate purpose? This is the key question we need to ask of companies if we are to prevent further purpose washing.

Zero-sum game?

In the immediate future, the pandemic will continue to influence areas of stakeholder focus. Companies’ treatment of suppliers, customers and employees will come under intense scrutiny. Executive pay is set to be another headline issue in 2021. As shareholders, we would expect companies to use their discretion to cut pay-outs to reflect the broader experience of their stakeholders during the pandemic.

Policymakers may move to enshrine elements of the new corporate purpose agenda in law

Over the coming years, policymakers may move to enshrine elements of the new corporate purpose agenda in law. The UK Companies Act already states companies’ boards of directors need to consider the impact of their decisions on external stakeholders, including the environment and local communities. Similarly, the European Union’s Shareholder Rights Directive aims to promote a stakeholder-friendly, long-term approach among institutional investors, asset managers and companies.

Despite the fuss around the BR statement, the US continues to lag on stakeholder protections. While the new administration has been hailed for promoting stakeholder values – on the campaign trail, Joe Biden called shareholder capitalism “a farce” and said stakeholder capitalism represents “the spirit and values that helped build this nation”20 – laws over corporate responsibility are controlled by individual states.

Somewhat ironically given his comments, Biden was a senator for the famously business-friendly Delaware for decades (almost 68 per cent of Fortune 500 companies and 89 per cent of US-based initial public offerings are incorporated in the state).21 According to Delaware law, company boards must “act in a manner that furthers the interests of the stockholders” whenever these interests clash with those of other stakeholders.22

A successful company generates value for everyone

The wording here, with its implication that shareholders and other stakeholders must inevitably come into conflict, is indicative of the short-termism that continues to obstruct the transition to a more sustainable economic model. No one is denying there will be times when companies must decide between competing priorities. But a more enlightened view would be to recognise that, over the longer term, the interests of shareholders and other stakeholders are aligned. A successful company generates value for everyone, from company executives and their employees to investors and wider communities.

This is the shift in mindset that needs to happen among shareholders, companies and policymakers everywhere if corporate purpose is to become more than a catchphrase. As long as business is seen as a zero-sum game, the road towards stakeholder capitalism will continue to be littered with broken promises.


  1. ‘Annual Report 2018: Chairman & CEO letter to shareholders’, JP Morgan Chase & Co, 2019
  2. ‘Business Roundtable redefines the purpose of a corporation to promote ‘An economy that serves all Americans’,’, Business Roundtable, August 19, 2019
  3. Bronagh Ward and Vittoria Bufalari, ‘COVID-19 and inequality: A test of corporate purpose’, KKS Advisors and TCP, September 2020
  4. Mihir Zeveri, ‘An Amazon VP quit over firings of employees who protested’, The New York Times, July 22, 2020
  5. George Steer, Philip Girogiadis, ‘Ryanair hit by big shareholder revolt over chief executive’s pay’, Financial Times, September 17, 2020
  6. Nic Fildes, ‘BT, Verizon and Virgin Media raise pay for frontline workers’, Financial Times, April 6, 2020
  7. James Ridler, ‘Coronavirus leads Danone to speed up supplier payments’, Food Manufacture, April 17, 2020
  8. Klaus Schwab, ‘Covid-19 is a litmus test for stakeholder capitalism’, Financial Times, March 25, 2020
  9. ‘Taking action towards social justice’, SAP News, June 22, 2020
  10. Rocío Lorenzo, Nicole Voigt, Miki Tsusaka, Matt Krentz, and Katie Abouzahr ‘How diverse leadership teams boost innovation’, Boston Consulting Group, January 23, 2018
  11. ‘Happy workers 13% more productive, finds Oxford Saïd research’, Saïd Business School, October 17, 2019
  12. Oliver Balch, ‘For sustainable, read resilient as companies strengthen relationships with suppliers’, Reuters, October 5, 2020
  13. Holly Black, ‘ESG stocks shine in COVID-19 crisis’, Morningstar, July 21, 2020
  14. Esther Wieldon, Robert Clark, Michael Copley, ‘ESG funds outperform S&P 500 amid COVID-19, helped by tech stock boom’, S&P Global Market Intelligence, August 13, 2020
  15. Milton Friedman, ‘A Friedman doctrine: The social responsibility of business is to increase its profits’, The New York Times, September 13, 1970
  16. ‘2020 Edelman Trust Barometer’, Edelman, January 2020
  17. Brandon Kochkodin, ‘US airlines spent 96 per cent of free cash flow on buybacks’, Bloomberg, March 16, 2020
  18. Alex Edmans and Tom Gosling, ‘How to give shareholders a say in corporate social governance’, December 6, 2020
  19. JUST Capital
  20. Corey Ciorciani, Nick Merrill and Dan Shwerin, ‘CEOS: If you really believe in stakeholder capitalism now is your chance to make it real’, Fast Company, December 15, 2020
  21. ‘2019 annual report statistics’, Delaware Division of Corporations, 2020
  22. The statement is from a law firm commissioned by Delaware-incorporated JPMorgan to investigate the possibility of becoming a benefit corporation, or B-corp, following a shareholder proposal. The company rejected the idea. Read the law firm’s report here

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