Andrei StanescuEvaluating the decisions of CEOs and their boards used to be straightforward, or so it seemed. During my years of service on corporate boards, if I heard the comment, “we’re here to maximize shareholder value” once, I must have heard it a thousand times. There was discussion of other performance criteria, but the shareholder value standard remained dominant. Nevertheless, these companies managed to perform well against competitors.
Now the Business Roundtable has announced a set of criteria that appears to complicate things for better or worse. Its new Statement on the Purpose of a Corporation, signed by 181 CEOs of major companies, changes the criteria for judging business decisions to include consideration of all stakeholders. It calls for companies to deliver value to customers, invest in employees, treat suppliers fairly, support communities that host company operations, and protect the environment while generating long-term value for shareholders.
"A decision by Doug McMillon ... has given us an opportunity to put the Business Roundtable’s new criteria to the test."
The Roundtable has drawn criticism for its statement from observers who note its vagueness and the fact that it doesn’t say much about just how the criteria are to be met. Alfred Rappaport, a long-term student of corporate governance, has asked how, for example, the needs of all constituents are to be met in decisions concerning issues such as pricing, the allocation of resources, incentive compensation, or investments in socially motivated initiatives? He asks how a CEO avoids addressing the needs of one stakeholder too much or too little for too long? Others have suggested that the new statement will be paid lip service only.
Let’s give it a test drive right here. Within the past few weeks, a decision by Doug McMillon, CEO of Walmart (and, by implication, the Walmart board), has given us an opportunity to judge the Roundtable’s new criteria. (Worth noting: McMillon was named chairman of the Business Rountable on September 19.)
Following the killing of two store workers by an angry former employee at a Mississippi Walmart and a mass shooting around a Walmart store in El Paso, Texas, the Company announced it would:
- No longer sell ammunition that could be used in military-style assault weapons or handguns
- “Respectfully request” that customers not openly carry firearms into its stores
- Ask Congress to increase background checks and consider an assault rifle ban
The decision was expected to reduce Walmart’s share of ammunition sales in the United States from 20 percent to 6 percent. It was praised by gun control advocates such as former Representative Gabrielle Giffords and called “shameful” by the National Rifle Association. As one observer noted, “Any decision that a company that is that big and that ubiquitous makes is going to please some people and upset others.”
Imagine that you’re a Walmart shareholder. You’ve been asked to grade McMillon’s decisions on the basis of the new criteria proposed by the Business Roundtable. The scale is the time honored F for failure up to A for high excellence.
As a Walmart shareholder, what grade would you give Doug McMillon? Why? What do you think?
References:
Michael Corkery, Walmart to Limit Ammunition Sales and Discourage ‘Open Carry’ of Guns in Stores, The New York Times, September 4, 2019, pp. B1 and B4.
Alfred Rappaport, “How CEOs Can Forge a New Kind of Shareholder Value,” Bloomberg Opinion, September 4, 2019, bloomberg.com.
