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Larry Edelman

Can capitalism be saved by a concept born in Boston?

“We know that we have to look after shareholders and our other stakeholders,” said Bank of America chief executive Brian Moynihan (above).Pat Greenhouse/Globe Staff/File/Globe Staff

“The capitalist system is under siege. In recent years business increasingly has been viewed as a major cause of social, environmental, and economic problems. Companies are widely perceived to be prospering at the expense of the broader community.”

A news dispatch from the campaign trail, where progressive candidates rip into insurers, drug companies, and the one percenters who run them?

No, it’s the opening to a seminal 2011 article in the Harvard Business Review that lays out the concept of shared value, or “creating economic value in a way that also creates value for society by addressing its needs and challenges.” Its authors, Harvard Business School professor Michael E. Porter and Boston consultant Mark R. Kramer, are far from fiery populists.


They argued that corporate America “must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success.”

That concept got a big boost Monday, when the Business Roundtable, a group of some of the country’s most powerful CEOs, threw out one of their basic tenets — that corporations exist principally to serve their shareholders.

Instead, they said, they were committing their companies to a “free market economy that serves all Americans.” Along with profits for shareholders, companies must “deliver value” to customers, employees, suppliers, and the communities where they operate.

It’s taken years, and many people doubt their commitment, but some of America’s best-known chief executives are ditching the free market fundamentalism of the Chicago School for a more liberal definition of corporate citizenship — one that evolved, in good part, through the work of Porter and Kramer and other leaders in Boston’s academic, corporate, and political realms.

People such as Arnold Hiatt, the former CEO of Lexington-based Stride Rite and cofounder of Business Social Responsibility, a nonprofit that focuses on sustainable business strategies; Joseph Kennedy III, the Massachusetts congressman who has preached the gospel of “moral capitalism”; and Brian Moynihan, the Wellesley resident and CEO of Bank of America, and one of the 181 signers of the Business Roundtable’s statement. (Others include Jeff Bezos of Amazon, Tim Cook of Apple, Jamie Dimon of JPMorgan Chase, Thomas Kennedy of Raytheon, and Larry Merlo of CVS Health.)


The business group’s move reflects just how concerned corporate chieftains are that so many people see big companies as the enemy. They know there is a real danger that capitalism could yield to socialism or an undemocratic, crony populism if it can’t develop a bigger heart and more empathetic conscience.

“It’s a critical moment,” Porter said Thursday in an interview.

A little background. For nearly 50 years, since the end of the era of paternalistic capitalism embodied by Henry Ford, the first commandment of business has been that the needs of shareholders are paramount.

Executives who believe business has a social responsibility “are — or would be if they or anyone else took them seriously — preaching pure and unadulterated socialism,” Milton Friedman, a Nobel Prize-winning economist at the University of Chicago, wrote in 1970. “Businessmen who talk this way are unwitting puppets of the intellectual forces that have been undermining the basis of a free society these past decades.”

Friedman codified a belief that underpinned much of the thinking about corporate strategy that has held sway into the new century, as well as the “greed is good” mindset of corporate raiders such as Carl Icahn and the short-term “hit-the-quarterly-numbers” mentality so prevalent today among big investors.


There were exceptions. Hiatt took over Stride Rite in 1970 two years after the company bought his small shoe-making firm in Lawrence. Stride Rite was based on Harrison Avenue in Roxbury at the time. In a neighborhood with many children of single parents, “the first thing I did was to start a children’s center [for residents and his employees],” he recalled in an interview. “And that’s when I saw what a difference one could make with early education.”

Stride Rite went on to provide neighborhood children with health care services, and when it moved to Kendall Square, Hiatt opened a fitness center for employees, paid for smoking-cessation programs, and allowed workers to spend time volunteering at inner-city schools.

By the time Hiatt stepped down in 1992, he had delivered some of the most consistently high returns for shareholders among US companies, and was recognized as a model for progressive corporate leadership.

“For me it was trial and error,” he said.

Throughout the 1990s, corporate social responsibility gained momentum, particularly around environmental issues. But the efforts were not central to companies’ strategies, and often were seen as a cost that ate into shareholder profit. Porter and Kramer’s big contribution was to show that making shared value integral to every aspect of business could actually improve returns.


At Bank of America, Moynihan says, the choice isn’t between shareholders or other stakeholders.

“We call it the genius of the ‘and.’ We been at this for years. We know that we have to look after shareholders and our other stakeholders,” he said.

The bank makes investments, lends, and funds philanthropy to address income inequality, clean energy, health care, and affordable housing. According to Moynihan, it’s up to the private sector to take the lead because nonprofit and government spending isn’t enough to address all needs.

One example: Bank of America has a $300 billion initiative focused on creating a sustainable energy future, with $126 billion allocated over the past 12 years. In addition, the bank plans to be carbon neutral by 2020.

Last November, Joe Kennedy, a Democrat, stood up before the New England Council, a business trade group, to urge companies to push for action to help low- and middle-income workers instead of cutting taxes for the wealthy.

The Globe’s Jon Chesto reported that it was the first time Kennedy wove themes such as economic inequality, the environment, and access to health care into a plea for a more compassionate system that balances investors’ demands with society’s needs.

“A moral capitalism,” he later explained in an op-ed for The American Prospect, is “judged not by how much it produces, but how broadly it empowers, backed by a government unafraid to set the conditions for fair and just markets.”

In the Boston business community, many leaders are speaking out on issues such as paid family leave and equal pay for women (InkHouse CEO Beth Monaghan), transgender rights (Eastern Bank CEO Bob Rivers), and an end to managing companies for the short term (Panera cofounder Ron Shaich and hedge fund manager Seth Klarman).


When the Business Roundtable issued its statement, it was closely scrutinized by investors, who fear that shared value could mean lower returns for them.

Ken Bertsch, executive director of the Council of Institutional Investors, noted that the Business Roundtable’s list of stakeholders put investors last, even though they are the owners of public companies. He worries that group’s abandonment of the Friedman view of the corporation “seems to be part of an effort to erode shareholders’ rights.”

It’s that kind of thinking that riles up Porter. Too many investors, he says, still have a view that profit and social good are inconsistent.

“This is a historic moment in business,” he said. “Businesses have finally started to understand capitalism at a different level.”

Correction: Milton Friedman won the Nobel Prize in economics. An earlier version of this story misidentified the award. Separately, the story has been updated to note that Bank of America has a $300 billion initiative focused on creating a sustainable energy future, with $126 billion allocated over the past 12 years.

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