It is, surely, a sign of the times. These days Fortune magazine, famed for its list of the 500 biggest companies, also publishes a “Change the World” list – the 50 companies doing the most to incorporate providing benefits for society into their business model.
There are implications for farmers and ranchers in the trend Fortune’s new list epitomizes.
To understand the future of the trend, it helps to review the very different past trend that it’s challenging, the essence of which was captured in the title of a 1970 Milton Friedman article, “The Social Responsibility of Business Is to Increase Profits.” Though it was hailed as revolutionary, Friedman was actually just making explicit a thought that had long been implicit.
As early as 1919, Michigan’s Supreme Court decided a precedent-setting lawsuit against Henry Ford, who had suspended large special dividends to shareholders and was lowering the price of Fords to enable more people to buy them.
The court ordered Ford to pay the special dividends because “a business corporation is organized and carried on primarily for the profit of the stockholders.”
There have always been those who deemed this view too narrow but, according to Brian Cheffins, an expert on corporate law at Cambridge University, it was “widely presumed to be good law.”
Indeed, in 2015 the chief justice of the Supreme Court of Delaware, where so many big US companies are incorporated, argued that “directors must make stockholder welfare their sole end, and that other interests may be taken into consideration only as a means of promoting stockholder welfare.”
Recent years, however, have seen the growth of something called the “shared value” movement, a new challenge to Friedman’s position. The movement seeks business solutions to societal problems and urges companies to seek profit in doing good. The best way to generate profits, shared-value advocates say, is to care about more than profits.
Along those lines, Harvard Business School professors Michael Porter and Mark Kramer, the originators of the concept, famously declared that shared value isn’t philanthropy or social responsibility but “a new way to achieve economic success.”
Two very profitable companies, Nestle and Walmart, are among those that have signed up as partners of the Shared Value Initiative.
Endorsing the trends, the Business Roundtable, a group representing the CEOs of nearly 200 big companies, last year renounced the idea that the sole purpose of a corporation is to generate profits for its owners.
Instead, the CEOs said, “we share a fundamental commitment to all of our stakeholders” – customers, employees, suppliers, communities and shareholders.
It’s worth repeating that these companies aren’t rejecting the claims of shareholders. They believe, with Porter and Kramer, that serving all their stakeholders will make them more profitable in the long run. Fortune’s criteria for picking companies include “the benefit the socially impactful work brings to the company” in terms of profitability and shareholder value.
Critics have dismissed all this as mere public relations, an attempt to fend off public pressure by pretending to agree with it. It’s easy to see their point. How many companies, after all, base their CEOs’ compensation on anything other than economic returns?
But even if, so far, companies only talk the talk, they clearly feel increasing public pressure to consider the interests of other stakeholders. The last time the pressure felt this strong was probably during the New Deal years of the 1930s.
Moreover, some companies are already walking the walk. I was reminded of this a few weeks ago when I moderated a Farm Foundation dialogue.
One of the panelists was Rory McAlpine, vice president of government and industry relations for Maple Leaf Foods, a packaged meats company based in Mississauga, Ontario, Canada, that has revenues of $3.9 billion, 13,000 employees and a determination “to be the most sustainable protein company on earth.”
“We see ourselves as a shared value company,” McAlpine said. Among many steps Maple Leaf has taken to put its sustainability vision into action, last year the company declared it had become carbon neutral. “And that means immediately,” McAlpine said. “It’s not an aspirational goal. It’s now.”
Maple Leaf said it achieved carbon neutrality through its own efforts – reducing water usage, for example – and by purchasing offsets to its remaining carbon emissions, investments in “credible and independently verified, high-impact environmental projects” in the US and Canada.
The projects included wind energy and reforestation. In the future, McAlpine said, they could include carbon farming, “the monetization of regenerative agriculture.”
That would be good news for farmers and ranchers, giving them new opportunities to do well by doing good. There could be offsetting bad news, however. For this meat company agrees with critics that meat production and consumption have an environmental impact: “We literally adopted the view that, yes, it’s appropriate to eat meat, but you should eat meat in moderation.” Maple Leaf has waded into the plant-based meat-substitute business.
That there are risks to Maple Leaf’s approach is obvious and McAlpine didn’t shy away from addressing them. One big risk: its sustainability focus puts Maple Leaf at a cost disadvantage to competitors and, for now, it isn’t trying to recuperate its increased costs by raising prices.
Over time, though, Maple Leaf believes that its stance will give it competitive advantage and increased profits. It believes that consumers will want sustainably produced products and will pay more for them; that retailers will increasingly want to sell such products — will indeed demand them; that good employees will only want to work for companies committed to sustainability.
Whether shared-value companies succeed or fail matters to farmers and ranchers. For more on the subject, watch McAlpine’s presentation.
Former longtime Wall Street Journal Asia correspondent and editor Urban Lehner is editor emeritus of DTN/The Progressive Farmer. This article, originally published September 1 by the latter news organization and now republished by Asia Times with permission, is © Copyright 2020 DTN/The Progressive Farmer. All rights reserved.