Hugh Wheelan: Now the Business Roundtable has caved in to RI’s demands, we must support them

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On Monday September 14, RI published Duncan Austin’s piece arguing that Milton Friedman’s famous 1970 article in the New York Times had created a ‘feedback loop’ by which corporations shape the bounded market domain to include what is profitable and exclude what is costly – such as a price on carbon emissions.

Consequently, Austin argued that the high profile, August 2019, US Business Roundtable statement on the purpose of the corporation, conspicuously did not mention the role government or public policy might play in meeting a broad set of stakeholder issues. 

He said: “If the 181 CEOs are sincere about addressing a wide swath of environmental and social issues that continue to beset modern society, a helpful next step might be to publish a similarly succinct statement describing what they believe is an appropriate relationship between corporations and government for a 21st Century marked by global public goods challenges.”

By Wednesday September 16, the Business Roundtable (BRT) had caved in to RI’s demands ;0)

We can dream…

The major new announcement – obviously long-planned – by the CEOs of the BRT expresses their intention to ‘lead by example’ and to ‘support sound policies’ for climate change. They issued a general call, too, for ‘businesses and governments around the world to work together’ to address climate change.

This seems like a significant milestone, and we should all be digesting it and engaging with it positively. 

Not only does the announcement completely repair the omission of a role for public policy in their 2019 statement, but on a longer perspective it marks an important culmination to a slow but gradual turnaround in the corporate stance on climate policies. 

In the mid-1990s, there was an organized, near-monolithic corporate opposition to climate change policies that effectively scuppered the Kyoto Protocol of 1997 and has been the headwind into which national and international policy efforts have long since struggled. 

This statement, for the first time, begins to put the wind of US, and hence multinational, corporate influence into the sails of efforts to promote climate policy. 

Of course, there is a long way to go. This is a statement of intention and much work lies ahead to develop and implement ‘sound policies.’ The details of the statement matter, and, as should be expected of an effort to represent 200 large companies, there are important qualifiers. 

The inescapable tension between economic and environmental goals appears, inevitably, in the qualifier that a carbon price ‘be environmentally and economically effective’. Yet, such is the way our economy is currently organized, the ‘environmental effectiveness’ of a carbon price increases in inverse proportion to its ‘economic effectiveness’. That is intrinsic. We would not be in this position if that were not the case.  

In addition, while the call for business and government coordination on climate change is a promising signal, it should not obscure the need to hold up to scrutiny and hopefully reconfigure the deeper nature of the relationship between corporations and governments. 

This is still characterized by an unhealthy degree of influence that corporations have over the public sector; the result, as Austin argues, of ‘Friedman’s Feedback Loop’ and its counterpart ‘government is the problem’ loop. 

It is exactly 40 years since Ronald Reagan, freshly inaugurated as President, proclaimed from the steps of the US Capitol: ‘government is the problem.’ 

That has become a powerful self-fulfilling narrative over the subsequent four decades, leading to an inexorable de-legitimization of government and depletion of its capabilities, in stark contrast to an ascendant corporate sector over the same period.  

But, ultimately, healthy systems emerge from healthy relationships and much work still needs to be done to rebalance the relationship between governments and corporations that goes beyond just lobbying for action on climate change. 

These are all important issues that require attention, but that should not detract the responsible investing community from recognizing this statement as a significant and welcome milestone.

Social change on big issues is hard and this is a step in the right direction. 

Now to keep pressing!