Another Case Study
For the past several years I have discussed the tension between the current realities of healthcare in the United States and the aspirations of those who would reform the system. Sometimes it is good to pause and realize this tension is not peculiar to the world of healthcare. The tension between present business realities and the aspirational statement of the Business Roundtable offers interesting comparisons.
Since at least the 1970’s, corporations have operated with the premise their primary goal is to increase shareholder return. In a press release 19 August 2019, the Business Roundtable, a consortium of corporate CEO’s, announced a new “Principles of Corporate Governance.”
While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders. We commit to:
Harry G. Broadman, a corporate consultant, has looked at present realities and concluded “The Road to Reinventing ‘Corporate Purpose’ is Full of Reckless Stakeholders and Potholes.”
“With the continued reluctance of independent U.S. government regulators to alter long-ingrained, misdirected requirements pertaining to corporate governance practices; the unprecedented rupture in the U.S. economy’s terrain engendered by the Covid19 pandemic; and the highly erratic and statist economic policy actions of a President, it is clear the alteration of American businesses’ aspirations, no matter how well-intentioned they might be, cannot be fulfilled in a vacuum.”
The parallels with the healthcare system seem obvious. He then considers what he calls the corporate myopia of focusing on quarterly returns.
“The impact on the attention span of C-suites and boardrooms to broader matters concerning companies’ health is palpable. Every quarter companies issue artfully worded press releases as to whether or not their financial performance met “consensus estimates” made by stock analysts. It is almost a full-time job for corporate investor relations officers.
The fact is three-months is an extraordinarily—make that “an excessively”—short period to meaningfully assess the results of changes in corporate policies, management moves, the introduction of new products and services and so on. It certainly does not create the most inviting environment for experimentation and innovation within a U.S. public company—activities that require patience and long-run investment. Yet those are the attributes that have made American companies the envy of the world.”
Even in healthcare, where many corporations are legally non-profit entities, this corporate mentality is pervasive. At a minimum, it contributes to an unwillingness to conduct local experiments of uncertain financial impact that might improve clinical care at some ill-defined point in the future.
He also considered the question “How Salient are Workers as Stakeholders?” He looked at the differential effects of the pandemic on employees as compared to other stakeholders and noted disparate effects. In some industries, unemployment has soared, but so have stock prices. He observed that even if unemployment is reduced by rehiring, many individuals will still be scarred and may never “catch up.” In an industry like healthcare, the knowledge, skills, and attributes of the staff are the business and represent the intellectual capital that is the firm’s chief asset. Unfortunately, the business bias toward other forms of tangible capital items such as buildings, equipment, (and cash,) may blind them to the importance of maintaining their human capital resources, which are both mobile and non-fungible. Can corporations refashion their objectives? Perhaps, but like in healthcare, the forces of the status quo are powerful countervailing forces. The big question remains for both—has the pandemic made it essential to make fundamental changes for the organization to survive? Maybe.
8 March 2021
 “The previous corporate governance statement issued by the BRT, as well as many of the U.S. corporate governance standards and practices over the last decades have been based on a theory first published by economist Milton Friedman in a 1970 essay. Friedman’s theory considers a company’s responsibility to maximize profits for its shareholders as its only means to achieve economic success. The theory specifically excludes any responsibility of a corporation towards society, whose interests are to be guarded by the government, rather than the business sector.” Cristina Stoica. Redefining the purpose of a corporation—theory or practice? Accessed 8 March 2021 at https://www.sustainalytics.com/esg-blog/redefining-corporate-purpose-business-roundtable/
 https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans. Accessed 8 March 2021.
 Broadman HG. The Road to Reinventing “Corporate Purpose” is Full of Reckless Stakeholders and Potholes. Forbes.com., 30 September 2020. Accessed 31 December 2020 at https://www.forbes.com/sites/harrybroadman/2020/09/30/the-road-to-reinventing-corporate-purpose-is-full-of-reckless-stakeholders-and-potholes/?sh=22ee07937605.
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