On Monday, the Business Roundtable lobbying group released a statement redefining the “modern standard for corporate responsibility.” The statement is signed by 181 CEOs in a commitment to lead their firms “for the benefit of all stakeholders – customers, employees, suppliers, communities, and shareholders.” The statement received a good deal of media attention and garnered headlines like the one in the NY Times “Shareholder Value is No Longer Everything, Top C.E.O.s Say”.
Despite the attention, the statement is short on actionable specifics. Arguably, the best way to maximize long-run shareholder value is by taking steps to effectively serve customers, employees, suppliers, and the community. There may be tradeoffs between serving these stakeholders, but there are also likely to be many synergies.
What struck me most about the statement was the omission of any discussion related to taxes. Certainly, the purpose of a corporation is not to pay taxes, but the government is undoubtedly a significant stakeholder in any tax-paying business.
The statement raises interesting questions about taxes and corporate responsibility. For example, is tax compliance part of a business’s social responsibility? What does it mean for a firm to be socially responsible when it comes to paying taxes? Does serving the community mean paying more taxes? Or do firms better serve the community by deploying their capital directly or by investing in hiring and innovation?
Some recent research suggests firms characterized as socially responsible actually pay less tax (Davis, Guenther, and Williams 2016). I wonder whether this might change in the future. The statement does mention that businesses have a responsibility to support the national defense (presumably this is done primarily by paying taxes). However, the statement could also be viewed as a counter-argument to politicians who are clamoring to increase tax burdens on business by reminding the public of the broader stakeholder groups that benefit from successful businesses. I suspect most CEOs already know they need to serve all these stakeholder groups (though they may lose sight of that on occasion). My guess is this statement is more about reminding the media and the public of that fact.
Citation:
Angela K. Davis, David A. Guenther, Linda K. Krull, and Brian M. Williams (2016) Do Socially Responsible Firms Pay More Taxes?. The Accounting Review: January 2016, Vol. 91, No. 1, pp. 47-68.