The Business Roundtable's new Statement on the Purpose of a Corporation has provoked substantial commentary. With the statement, the nation's leading CEOs underlined their commitment to delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, and generating long-term value for shareholders.
As executive director and chief investment officer of the Florida State Board of Administration and chairman of the Council of Institutional Investors, I applaud the roundtable for its intent. Business plays a critical role in society, and clearly has broad responsibilities that must be met to create long-term value.
That said, as CII has noted, the roundtable did not get the words quite right. The roundtable statement suggested to us and others that accountability of management to shareholders was at best on par with accountability to other stakeholders. We would have preferred that the roundtable say more clearly that fair treatment for customers, employees, suppliers and communities is necessary to create sustainable, long-term shareholder value. The mark of success is delivery of that long-term value.
Accountability to shareholders, as owners of public companies, is the hallmark of our system. While we see valid alternative structures of ownership, such as mutual companies and benefit corporations, the traditional shareholder-owned corporation plays a dominant role. And of course, as investors, we seek value from investing in corporations to achieve long-term value for our beneficiaries, which, for CII, include millions of pension participants and their families.
CII's difference with the roundtable will strike some observers as subtle, but we think it is critical. CII published a "CII-inflected" markup of the roundtable statement to show the differences. Board effectiveness and accountability to shareholders are the linchpins of corporate governance, and we must be careful not to undermine that structure.
The Florida State Board of Administration has more than $200 billion in funds under management, including more than $160 billion in the Florida Retirement System defined benefit plan. Global equity accounts for more than half of our holdings, and we also invest indirectly in private companies that also importantly are accountable to shareholders. Long-term performance for shareholders is critical for our plan participants. SBA is fully aligned with the CII position.
While we are talking about stakeholders, an additional stakeholder that must be treated fairly for long-term credibility and sustainability of the corporation is the bondholder. Fixed-income holdings make up nearly a fifth of SBA's funds, and are important as well for CII's other members. Short-term financial engineering at the expense of bondholders is a concern, just as are corporate underinvestment in employees or research and development.
With my strong support, CII has pursued a dialog with the roundtable that has been productive, and we and the roundtable plan to continue that exchange. Increased CEO attention to long-term results, which requires fair treatment of employees, communities, customers and suppliers is all for the good. Notwithstanding our concern with the roundtable's wording, we are encouraged by the roundtable's recognition for what is required to succeed long term.
Ashbel C. Williams Jr. is executive director and chief investment officer of the Florida State Board of Administration, Tallahassee, and chairman of the Council of Institutional Investors. This content represents the views of the author. It was submitted and edited under P&I guidelines but is not a product of P&I’s editorial team.