Who should companies serve first: customers or investors? | The Tylt

Who should companies serve first: customers or investors?

In August 2019, nearly 200 of the country's top CEOs gathered for a meeting of the Business Roundtable to discuss various pro-business policies. In this year's meeting, CEOs went back to basics to answer the simple question: What is the purpose of a corporation? For years, the answer has been to serve company stakeholders, or investors. But in today's age, companies are beholden to customers and their demands more than ever before. Customers are aware of their buying power, and they aren't afraid to use it. This realization is exactly why the BRT decided to officially announce a new purpose for all corporations: to serve customers and employees, first. Are they right?

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Culture
Who should companies serve first: customers or investors?
A festive crown for the winner
#CustomersFirst
#InvestorsFirst
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Who should companies serve first: customers or investors?
#CustomersFirst
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The decision from the BRT might seem either random or obvious to you, but it is nevertheless quite significant for the future of business in the U.S. Axios' Mike Allen explains:

[The CEOs] expanded their mission beyond mere wealth creation to include everything from taking care of employees to helping their communities.

A corporation that exists beyond capitalist greed? Surely, it's too good to be true! The decision proves customer decision-making actually has made a difference. Years of boycotts, social call-outs, and, where appropriate, shaming have held companies accountable for their actions. As Allen puts it bluntly:

A rising number of consumers make purchasing decisions based on a company's social purpose.

If corporations want to avoid a publicity nightmare, the solution is simple: understand your customer and act in such a way that makes them proud.  

#InvestorsFirst

Prioritizing the customer and community over stakeholders sounds like a bright and happy idea, but in reality, corporations will always be beholden to investors; they can't sidestep their fiduciary responsibilities. Axios' Allen warns:

I hear several general counsels cringed — and protested — when they saw this document.

Plus, some critics argue the decision to place customers' interests above stakeholders is merely semantics. It's more of a publicity stunt than a sign of change, per Forbes' Ken Roberts:

True leaders understand, they reason, that if you aren't watching out for your customers and your employees, you can't really be watching out for your shareholders. It's semantics, little else.
#CustomersFirst

According to the Wall Street Journal, this kind of change has been a long-time coming. Regulators and policy-makers have been calling for reform among big business for years, and the decision from the BRT could be a productive start:

Democratic presidential candidate Elizabeth Warren has argued that the primacy of shareholder returns has worsened economic inequality, enriching wealthy investors at the expense of workers. Last year, she proposed legislation that would require the directors of big companies to consider stakeholders beyond the shareholder when making decisions.

It's time for businesses to recenter on the people who make the system possible: employees and customers. 

#InvestorsFirst

Not everyone is on board with the large-scale switch. Per Quartz's Heather Landy:

Another powerful lobby, the Council of Institutional Investors (CII), is taking exception, lamenting that the Business Roundtable has literally placed shareholders last. The council said that the new language references these investors “simply as providers of capital rather than as owners.” It urged boards and managers not to lose focus on long-term shareholder value.

According to the CII, "accountability to everyone"—meaning customers, employees and the community—"means accountability to no one."

FINAL RESULTS
Culture
Who should companies serve first: customers or investors?
A festive crown for the winner
#CustomersFirst
#InvestorsFirst