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Bruce Bialosky

When Will Business Leaders Wake Up?

More often than we care to admit, business leaders of major American corporations think that playing footsie with political leaders will lead to positive results. Hopefully, the Tech industry has woken up to the fact that being “woke’ isn’t everything it is cracked up to be. Recently, the leaders of a major business organization stepped into it.

The Business Roundtable is a group formed so that Chief Executive Officers (CEO’s) of major corporations could interact with each other and help formulate public policy regarding matters that concern them. It was formed in 1972.

A group of 181 CEO’s recently signed a statement announcing that they were changing the definition of “the purpose of a corporation.” Milton Friedman coined the commonly accepted definition of the modern corporation in an article published in the New York Times Magazine on September 13, 1970. The Nobel Laureate — and certainly one of the most renowned economists of the 20th century — stated the purpose of a corporation and its chief executive is to conduct business for the benefit of the owners (shareholders). “That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.”

The Roundtable announced that the statement by Friedman was now out the door. They were now going to consider other stakeholders than just the shareholders. The new statement refocused to include the interests of customers, employees, suppliers and the communities around them.

This is a baffling statement on many levels and displays how many of these executives forget the roots of their corporation which almost all started as small entities – perhaps in someone’s garage or basement.

It seems sometimes that major corporations forget their primary purpose is to serve the needs of their customers and not their shareholders. If they don’t serve the needs of the customer, then they will never serve the needs of the shareholder. We all have many times experienced major corporations acting more like government entities and callously disregarding the needs of the customer thinking they are just a number like clueless government workers. They forget the three steps to solving a customer problem: 1) We are sorry; 2) It is our problem; and, 3) We will fix it. You cannot succeed financially without having the needs of the customer as your first priority.

It may seem sometimes that these major entities forget taking care of their employees is a primary focus. Small businesspeople completely understand that turnover with their employees can be a killer. Hiring costs, training costs and bad customer relations are all impairments to financial success. Government today does intercede in any attempt to treat employees as family and certainly larger corporations face different challenges. But still do you really need to define that happy employees are a major stakeholder in your success?

Large corporations have at times treated their suppliers like trash. Ask anyone who sold product to department stores and got strung out 90 days or more on payment. Those of us who run small businesses know suppliers are our partners. Keeping them happy helps to get problems resolved on a timely basis. Ask yourself if you are going to run to help the company that always pays you on time or are you going to jump for the person who pays you late regularly? We all understand working with our suppliers means they will work with us.

What was the great revelation here? Friedman wrote of acting lawfully and within common ethical bounds. That means taking care of the communities in which you do business. Helping the less fortunate is not just good business, but being good members of the community.

The apparent reason for this announcement was to appease the forces crying out that large corporations are evil, even with little evidence of such. Why not argue the points made above and counter their malicious attacks? Some companies run ads telling of their good deeds and their happy customers and employees. Why not more? Maybe you don’t get it that you are in a battle and the opponents of capitalism fight dirty.

The Business Roundtable has opened themselves up to arguing with Senator Warren. You know, the presidential candidate that has a plan for everything. She has the Accountable Capitalism Act (ACA) which is, of course, the opposite of capitalism.

She wants to nationalize the charters of “very large American Corporations.” That is now stated as companies with $1 billion in annual revenue. Once she gets in charge and inflation hits, the U.S. will be like a banana republic where a billion dollars in sales will be reachable by the local mechanic. How soon will it be before Warren and her cohorts take to lowering the criteria to $500 million, then $250 million, and on and on to nationalize all corps.

She wants to tell you, CEOs, how to run your corps and how you pick your board members. You adopted this new definition of purpose that did not make her happy because she thinks you are evil (just listen to her speeches). The only way you are redeemable is if she and her colleagues tell you how to do it. She directly asked to use your new definition as a fulcrum to get you to endorse her ACA because that is the next step in your salvation.

Instead of accepting a victory for what you did, she immediately dug in for more. You need to draft another statement coming out strongly against ACA as a socialist attack on our successful capitalist system. Keep capitalism in the hands of people who actually believe in the system.

Did you really think doing this was going to appease the Senator Warrens of the world? Such a foolhardy move. How can you people be so smart and yet so stupid about dealing with politicians?

Major corporate leaders are often accused by those seeking greater governmental control that they look for short term results because they must report their results quarterly to the SEC. The stock of the company fluctuates based on those results. The real short-sightedness of corporate leaders is when they get in bed with governments thinking there will be a good long-term outcome. They forget that the important word in free enterprise is FREE.