Over the past few weeks a lot has been written about the “Statement on the Purpose of a Corporation” issued by the Business Roundtable in the United States.

The Business Roundtable, an association of chief executive officers from America’s leading companies, has shifted its position on who a corporation principally serves.

The original statement, published in 1997, suggested that companies exist to serve its shareholders. The new statement, signed by 163 chief executive officers, states that “While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.”

This “stakeholder approach” to corporate responsibility is not in itself ground-breaking. Nor is it a recent invention. In Johnson and Johnson’s corporate credo developed in 1943, the company lists patients, doctors and nurses as its primary stakeholders, followed by employees, customers, communities and finally shareholders.

Indeed, the shift to a stakeholder approach may not be as profound in practice as some have suggested. Even the Business Roundtable have said that the previous statement “does not accurately describe the ways in which we and our fellow CEOs endeavour every day to create value for all our stakeholders, whose long-term interests are inseparable.”

Given this, it is possible that chief executive officers only support the stakeholder approach to the extent that it benefits both themselves and the shareholder. And we should not necessarily decry this. Adam Smith, sometimes referred to as the “father of economics”, argued that individual self-interest can produce optimal outcomes, the source of his so-called “invisible hand”.

Even Milton Friedman, the much-maligned University of Chicago economist who is often held out as being the most vocal advocate for shareholder primacy, was not ignorant to the possibility that looking after the needs of stakeholders is not necessarily at odds with generating superior returns for shareholders in the long run. Famously, Friedman wrote:

“It may well be in the long-run interest of a corporation that is a major employer in a small community to devote resources to providing amenities to that community or to improving its government. That may make it easier to attract desirable employees, it may reduce the wage bill or lessen losses from pilferage and sabotage or have other worthwhile effects.”

However, as committed as the Business Roundtable might be, circumstances will prevail that are not supportive of the stakeholder approach. Uncompetitive markets result in companies benefiting at the expense of consumers. Seemingly sensible incentive schemes can drive perverse outcomes. And a company’s products, despite being highly valued by its customers, can have broader, deleterious consequences (fossil fuel companies producing carbon dioxide, social media companies empowering covert actors, and technology companies producing “e-waste” are three examples of the latter).

The signatories to the revamped Statement on the Purpose of a Corporation would have you believe that they can be trusted to manage these types of scenarios. We should be cautious taking them at their word. History shows that even well-intentioned chief executives find it extraordinarily difficult to drive the required change in a system where the incentives endorse the status quo. And in some cases, regardless of how hard they might try, they do not have the ability to do so. The most lucid corporate purpose statement won’t save us here.

It is therefore noteworthy that the Business Roundtable has omitted the idea of accountability from its statement. If chief executive officers are serious about serving all stakeholders, how will they be held accountable?

Milton Friedman also had something to say about this. He believed that corporations should conform “to the basic rules of society, both those embodied in law and those embodied in ethical custom.” But more importantly, as laissez faire as he was, he acknowledged that there was a role for government to “enforce compliance” and hold those who don’t “play the game” accountable.

Arguably this is the most important piece of the puzzle. Strong public institutions that develop good policy and hold corporations accountable. It is also the piece that is currently missing.

The recent financial services Royal Commission was a demonstration of what can happen when boundaries are established but not enforced. In a recent speech delivered by Commissioner Kenneth Hayne, he asked us to “grapple closely” with what the seemingly endless calls for Royal Commissions in Australia “are telling us about the state of our democratic institutions.”

But more relevant to this essay, Commissioner Hayne also provided his view on purpose statements and industry codes in the Royal Commission’s final report. He labelled them as mere “public relations puffs”, proposing that the only way they can be effective is by making them enforceable:

“If industry codes are to be more than public relations puffs, the promises made must be made seriously. If they are made seriously (and those bound by the codes say that they are), the promises that are set out in the code … must be kept. This must entail that the promises can be enforced by those to whom the promises are made.”

To be sure, the stance taken by the Business Roundtable should be applauded. Their intentions are without question noble. But more powerful would be a description of how they are going to hold themselves accountable to the statement and create the conditions that deliver value for all their stakeholders over the long-term.

Of course, this exercise would reveal the costs (financial and otherwise) that are associated with being genuinely committed to positive outcomes for all stakeholders. For some chief executive officers, the price would be too high. And because, like all of us, chief executives have their limits, so too does self-regulation.