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Good morning.
It has been nearly a year since the Business Roundtable released its statement of corporate purpose, putting the interests of employees, customers, communities and the environment on equal footing with shareholders.The change found widespread acceptance among leaders of Fortune 500 companies, and even among investors. Most of the criticism came not from people who disagree with the goals, but rather those who wonder how the words will be translated into action, and what metrics will be used to measure progress and hold companies accountable.
But there remain a few holdouts who cling to the idea of shareholder primacy. Ex-Exxon CEO Rex Tillerson–who did a turn as Trump’s Secretary of State–appears to be one of them. “I probably would have resisted that if I were still on the executive committee there,” Tillerson said of the BRT statement in a recent interview with Insigniam Quarterly. “I don’t think it’s healthy for a group of CEOs to get together and say we’re just all going to agree to behave this way—because everybody’s business is different. Their organizations are different. When you start trying to covey up like a bunch of quail to protect yourself, I’m not sure you’ve got your eye on your own shareholders’ interests.”
This weekend, economist Greg Mankiw–who served as chief economic adviser to President George W. Bush–weighed in with an op-ed piece in the New York Times. CEOs aren’t qualified to make broad social decisions, he argued. The BRT approach “expects executives to be broadly competent social planners rather than narrowly focused profit maximizers. It’s unlikely that corporate executives, with their business training and limited experience, have the skills to play this role well.” Maximize profits, he argues, and you have the best chance of maximizing social welfare.
Mankiw goes on to acknowledge three caveats to his welfare rule, in keeping with classical economics:
1) You need government to protect property rights and the rule of law, and prevent corruption.
2) While free markets may yield the largest economic pie, they do not ensure it is sliced equitably. Government must do that.
3) Market activities can have significant adverse side effects–like carbon emissions that lead to climate change–which may need to be corrected by government action.
Pretty big caveats, wouldn’t you say? In a theoretical world with well-functioning government, Mankiw’s view may make sense. But in the world we inhabit, where governments’ ability to address big problems like inequality and climate change has been heading south for decades, having our best business minds turn more attention to society’s pressing problems makes sense to me–for the sake of society, and for the long-term interests of their shareholders. (By the way, the unexpected punchline of Mankiw’s column was that he was switching party loyalties, and voting for Joe Biden.)
More news below. And speaking of inequality, do you consider yourself upper class, middle class or lower class? The answer partly depends on where you live. This calculator will give you an answer.
Alan Murray
@alansmurray
alan.murray@fortune.com
TOP NEWS
Tencent in India
Tencent has ceased operations for its hit WeChat app in India after the government there banned it, and dozens of other Chinese apps, most likely due to rising geopolitical tensions between the countries. Tencent told users: "We value each of our users, and data security and privacy are of utmost importance to us. We are engaging with relevant authorities and hope to be able to resume service in the future." South China Morning Post
Reliance ascent
Reliance Industries has displaced Exxon as the world's biggest energy company after Saudi Aramco. Mukesh Ambani's company, which operated the world's biggest oil refinery complex, saw its shares jump 46% this year, while Exxon's are down 39%. Fortune
Google suit
The Australian Competition and Consumer Commission (ACCC) has sued Google for allegedly misleading consumers into giving away more personal data than they thought they were giving away. The apparent duping took place four years ago, when Google changed its privacy policy and got users to click "I agree." ACCC chairman Rod Sims: "We believe that many consumers, if given an informed choice, may have refused Google permission to combine and use such a wide array of their personal information for Google's own financial benefit." ABC
British quarantine
The U.K. has abruptly imposed a two-week quarantine on travelers returning from Spain, due to a resurgence in COVID-19 cases there. The tourism industry is appalled, given the implications–who would want to travel abroad on holiday when you might unexpectedly find yourself confined on return? Even the British transport secretary, Grant Shapps, found himself caught out by his own department's surprise move. Guardian
AROUND THE WATER COOLER
PPE supplies
Accounting and operations experts Ge Bai, Tinglong Dai and Shivaram Rajgopal, of Johns Hopkins and Columbia, write for Fortune that the U.S.'s biggest personal protective equipment manufacturers (3M, Honeywell and MSA Safety) have not disclosed their supply-chain reliance on foreign countries. They write: "Making essential supply chain information public would immediately empower market participants, including activist investors, some of whom are ESG investors seeking positive social and environmental impact." Fortune
Junk food
Citing obesity as a major risk factor for COVID-19 susceptibility, U.K. Prime Minister Boris Johnson has gone to war with junk food. His government is banning junk-food ads before 9 p.m., and "buy one get one free" deals altogether. Johnson previously expressed a "libertarian" attitude towards the consumption of unhealthy food, but that all changed when he ended up in intensive care earlier this year. BBC
Digital tax
Europe's drive to establish a "digital tax" on the local revenues of Big Tech doesn't seem to be going anywhere fast. France, the prime driver, has paused its enthusiasm in the face of sanctions threats from the U.S. Germany is happy to leave the subject to the OECD, where global talks are taking place. Spain, Italy, the U.K., Austria and Czechia all have national digital taxes coming up, but none this year. Politico
Ryanair loss
Ryanair, the giant Irish budget airline, lost around €185 million ($216 million) in the first quarter thanks to the coronavirus crisis. It now says a second wave is its "biggest fear." Quarterly revenues were down from €2.3 billion to €125 million, and passenger numbers were down from 41.9 million to just half a million. Flights resumed at the start of this month, and Ryanair said it intends to be operating 70% of its normal schedule in September. The Journal
This edition of CEO Daily was edited by David Meyer.
