Corporate America’s perceived integrity has been frayed in the eyes of the public for so long it’s practically threadbare. Some would even say it’s almost disappeared, as Big Business trails the presidency, banks and criminal justice when it comes to credibility.
Now, as Americans face the greatest health crisis in a century and as our economy faces its greatest crisis ever, Big Business has an obligation to do better in the upcoming post-COVID-19 era, as taxpayers have yet again bailed out these corporations to the tune of hundreds of billions of dollars.
Indeed, some corporations are waking up to the enormous responsibility that comes with economic power, not just to generate growth and create opportunities for Americans but to be a positive force for progress in society. In response to the recent protests prompted by the appalling killing of George Floyd by police, many CEOs have spoken out forcefully and eloquently about the vital role companies can play in promoting social justice.
That’s a good and necessary start, but it’s going to take a lot more to regain the trust of the public, especially when there are so few people of color calling the shots at corporations. Lowe’s, Merck, TIAA, and fashion company Tapestry are all run by Black CEOs. But they are the only four companies in the Fortune 500 that are headed by Black leaders. It’s just one example of corporations talking the talk but failing to walk the walk.
In the last four decades, some corporations have eschewed their ethical responsibility, resulting in a variety of selfish practices including excessive inflation of the prices of products and or services, unacceptable environmental practices, excessive executive compensation, offshoring of manufacturing jobs and abuse of America’s gig workers.
To right these wrongs, companies should reform and better balance their compensation practices, embrace unionization when fairly petitioned, and help train the next generation of corporate leaders to be more socially and ethically conscious.
In the post-COVID-19 era, CEOs must lead with integrity, which means vigorously embracing the five “Principles of Corporate Governance” reflected in the Business Roundtable’s “Statement on the Purpose of a Corporation,” which was adopted in August 2019.
Expressed simply, these stated principles are: delivering value to customers; investing in employees; dealing fairly and ethically with suppliers; supporting the communities in which they work; and generating long-term value for shareholders who provide the capital.
Corporate leaders can start by raising lower-level and middle-class wages, by keeping jobs in America instead of outsourcing them, and by ensuring that America’s 1.6 million gig workers have fairer wages and better senses of job security — all while being open to unionization when petitioned by their employees.
As President Franklin Delano Roosevelt importuned in his efforts to advance business integrity shortly after the Great Depression, we need to make union membership a civil right. Specifically, this means enacting comprehensive labor-law reform, ruling in favor of workers when management is not negotiating in good faith, and, especially, joining organized labor through the provisions of a new “Employee Free Choice Act.”
Corporate leaders can also start by addressing the discrepancy in the pay ratio of employees and CEOs. Since 1978, average CEO pay has grown 940%, while average worker pay has grown a paltry 12%. It’s this colossal — and, frankly, indefensible — imbalance that highlights the imperative for more responsible actions by Big Business in the post-COVID-19 era.
America’s private-sector leaders have always had a major influence on the country’s confidence and economic standing, and until the 1980s, such influence was preponderantly for the better.
It was then, however, that Milton Friedman’s decade-earlier opinion piece in The New York Times Sunday Magazine titled “The Social Responsibility of Business is to Increase Its Profits” began to dominate the private sector. In it, Friedman argued that the only obligation a corporation has is to increase profits for shareholders, with no mention of any responsibility to employees, communities and customers.
Friedman’s doctrine will have no place in the post-COVID-19 world ahead. Instead, corporate America should follow the advice of former president of Ford Motor Company and former dean of the Stanford Business School Arjay Miller, former president of General Electric Reginald Jones, and former CEO of Utah International Edmund Littlefield, the three business leaders who responded to Friedman’s polemic by attesting that a truly responsible CEO has equal responsibility to employees, shareholders, customers, communities and the nation.
These three leaders also believed that CEOs have an obligation to preserve their companies over the long term. They argued that the leaders of the future should be strategically capable, socially sensible and politically sophisticated. And they fought to help preserve a vibrant economy growing from the bottom up, which they believed was the very best thing for their companies and corporate America, and thus for the nation.
Training the next generation of leaders is paramount. Not only do we need to introduce the Business Roundtable’s principles of corporate governance into business-school education, we must also bring the insights of social ethics to bear on current economic realities so that students and junior executives can learn to identify key social ethics issues and assess the ability of markets to meet the major justice challenges.