What the Business Roundtable Pledge Means to Tech—Whether Companies Signed It or Not
In light of a recent pledge by 181 corporate leaders to expand their priorities beyond driving shareholder value, several big technology companies have said they fully support the new standards. But don’t expect a major shift in corporate culture—many of the firms say the agreement doesn’t really change the way they operate.
Earlier this week, the Business Roundtable, an association of CEOs for some of the nation’s largest companies, pledged to run their businesses in the interest of all stakeholders, including employees, suppliers, and the surrounding community. The agreement signaled a shift from the more traditional business practice of placing shareholder value above all else.
Leaders from tech companies including Apple, Amazon, Salesforce, Oracle, and Cisco all signed the pledge. And though they are not part of the Business Roundtable, companies like Google, Microsoft, and Intel also say they support the philosophy, and carry it out by doing things like tying employee compensation to specific goals or releasing progress reports on environmental impact or social responsibility.
But the Business Roundtable agreement raised all sorts of new questions about how companies will push the needle forward with the new commitment. For example, will they review all wage practices to ensure fair and balanced pay? Will they agree to stop using offshore bank accounts? Would they tie executive compensation to improvements in their carbon footprint? Might they opt for a product feature that will benefit consumers or society, even if it’s not the best for the company’s bottom line?
Overall: Does this agreement mean businesses promise to be good corporate citizens?
“It really is kind of a wait and see,” says David Larcker, director of the Corporate Governance Research Institute at Stanford University. “Is this P.R., or is this substantive where things are going to change?”
For true change, Larcker said that the change has to start with the board. The board, which likely has to bring other stakeholders like employees to the table, now has to evaluate the company across a broad spectrum of goals versus solely on financial performance. In some cases, that could mean shareholder value would decline as the company invests in other priorities like environmental impact.
“There’s likely to be an economic tradeoff, and everyone needs to be prepared to understand what that is,” Larcker says.
Cisco, which signed the Business Roundtable pledge, suggested the agreement is less about change and more about formalizing commitments to standards that companies may already have in place.
“Cisco and many other companies have been taking action towards balancing the interests of all stakeholders for some time,” said a Cisco spokesperson. “This statement now reflects the way in which our companies do—and should—operate.”
For example, Cisco said it has entire teams dedicated to things like environmental impact and supply chain, and those people’s evaluations, bonuses, and promotions are tied to specific goals.
Intel similarly releases reports on things like employee satisfaction and social impact. It also has linked executive and employee compensation to corporate responsibility since 2008. That includes evaluating environmental impacts and employee diversity factors, the company said.
Following the announcement of the Business Roundtable pledge, Microsoft President Brad Smith took to Twitter in support of the agreement and suggesting that his company has always operated this way.
We agree with the @Bizroundtable. Companies need to serve multiple stakeholders, not shareholders alone. That’s how we’ve been running @Microsoft for years – and our return to shareholders hasn't done too badly following this approach. https://t.co/OrBJyctQbv— Brad Smith (@BradSmi) August 21, 2019
Along with releasing transparency reports, Microsoft has a board committee responsible for overseeing issues related to environmental sustainability, culture, and the company’s employees among other things. That board works with management to review Microsoft’s policies and performance.
Google, meanwhile, has long touted that it has always managed for the long-term and not for short-term shareholder priorities. This means also prioritizing its users, sticking to its mantra, ”don’t do evil,” and maintaining a culture high-risk, high reward projects, including allowing employees to spend 20% of their time working on creative projects.
“Google is not a conventional company,” reads a letter to shareholders from Google founders Larry Page and Sergey Brin leading up to the company’s 2004 initial public offering. “We do not intend to become one.”
And though all of these tech companies have committed to running their companies for the betterment of their customers, employees, and the world at large, they haven’t exactly maintained a squeaky clean image.
Google, for example, has been scrutinized for reportedly planning to develop a censored search engine for China, mishandling sexual misconduct allegations, and its dual-class voting structure that gives founders and top executives the ultimate voting power. Similarly, Microsoft has been criticized for an alleged sexist culture that included claims of sexual harassment of female employees. And Cisco was accused of helping the Chinese government run surveillance on its citizens.
So while the belief that shareholder takes priority is clearly dying off, what’s really changing? In Larcker’s words, the commitment is ”worth watching; it’s not revolutionary.”
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