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The Importance of Stakeholders to Profitability

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(Igor Kutyaev/Getty Images) The Business Roundtable shows that maximizing shareholder value is good for shareholders and stakeholders alike.

August 19 marked the second anniversary of the Business Roundtable’s Statement on the Purpose of a Corporation, which stated that corporate management’s primary responsibility was no longer to their shareholders but rather to a group of “stakeholders” — including “customers, employees, suppliers, communities and,” last but perhaps not least, “shareholders.”

In a Wall Street Journal opinion piece denoting that anniversary, the director and associate director of Harvard Law School’s Program on Corporate Governance offered evidence that the 181 CEOs who signed the statement “didn’t intend to make any significant changes to how they do business.” Rather, companies were, for example, still aligning director compensation with the company’s stock price, sending “a clear signal that shareholder value is the objective directors are expected to pursue.”

Well, of course it is. The Business Roundtable’s statement did nothing to change that. But that doesn’t mean that a business’s sole responsibility is to its shareholders. Business have always owed responsibilities to other stakeholders including customers, employees, suppliers, and communities as an integral part of their primary responsibility — to make a profit. In fact, the statement confirms that corporate management will continue to do the things that lead to profitability and — God forbid — shareholder value.

Obviously, every business has a responsibility to its customers. How can you make a profit if you fail to meet the needs of your customers? It’s rather silly to say you have a responsibility to your customers like it’s a revelation. Of course you do, and if you fail to do a better job than your competitors at meeting that responsibility, you will go out of business. Which, if you think about it, really doesn’t benefit any stakeholders.

With respect to employees, every manager knows a loyal workforce is essential for success. Your employees are your most valuable asset. If you fail to treat your employees fairly, they will quit and work for your competitors. In a free-market economy where employees can move from job to

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