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The “Maximizing Shareholder Value” Theory Just Bit the Dust

leonkaye headshotWords by Leon Kaye
Brands Taking Stands
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The Milton Friedman Doctrine is no more. Now, doing business is more than about maximizing shareholder value. And it’s about time.

For the past half century, the conventional wisdom in the business world held that a company’s first and foremost responsibility was to its shareholders. The 1976 winner of the Nobel Prize in Economics, Milton Friedman, long ago proclaimed that a company’s primary responsibility was to maximize profits for shareholders – and that those shareholders would then decide for themselves what social initiatives, if any, they would pursue.

We’ve seen a shift underway for some time, but now the business community has launched a drastic change in course. A group that represents the most prominent CEOs in the U.S. has agreed that nowadays, it’s no longer only about a company’s shareholders.

Today, 181 CEOs affiliated with Business Roundtable signed a letter agreeing that from now on, company executives need to think about how their companies can benefit all stakeholders: customers, employees, suppliers, local communities and shareholders.

“The American dream is alive, but fraying,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co. and the Business Roundtable’s chairman, in a public statement. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

In recent years, companies have been attacked across the political spectrum for a bevy of reasons. President Trump has hardly been shy about companies’ decisions to move jobs overseas; one of his potential opponents in next year’s presidential election, Massachusetts Senator Elizabeth Warren, has suggested many plans focused on holding corporations accountable, including one that would mandate some members of corporate boards be chosen by company employees.

Not everyone will be satisfied with these CEOs’ chess move, according to Jena McGregor of the Washington Post. “The firms also opened themselves up to a range of criticisms, raising questions about how much the new statement would lead to real change,” she wrote.

Aside from the criticisms and suggestions that this shift is not going far enough, it is clear American capitalism is in need of a reset. “Capitalism, at least the kind practiced by large global corporations, was under assault from all sides, and CEOs were getting the message loud and clear,” wrote Allan Murray for Forbes.

And in the end, for anyone who has felt wronged by a corporation, here are a few examples of how many of America’s largest companies will enact such change, according to yesterday’s announcement:

  • Companies are to do more to bring value to customers, while striving to exceed customers’ expectations.
  • Employees can expect more training and education to help them adapt in a rapidly changing world.
  • Suppliers can expect to be treated fairly and ethically.
  • There will be more support for communities where companies have a presence; and, companies must promise more of a commitment to preserving the environment.
  • As for shareholders, they can expect more transparency and a commitment to generating long-term value.

Milton Friedman is probably sending more than a side eye from the heavens above, but it’s a far different world now than in the 1970s. For the most part, products are commoditized and most are made abroad; the planet is heading to a climate crisis; global supply chains are often linked to human rights violations and environmental degradation; and many employees don’t have the job security, not to mention benefits such as health care that were far more generous and affordable back in the 1970s.

Change can’t happen fast enough; Business Roundtable is, at a minimum, now part of this conversation, one that can no longer be kicked down the road.

Image credit: Roberto Júnior/Unsplash

Leon Kaye headshotLeon Kaye

Leon Kaye, Executive Editor, has written for Triple Pundit since 2010. He is also the Director of Social Media and Engagement for 3BL Media, and the Editor in Chief of CR Magazine. His previous work can be found at The GuardianSustainable Brands and CleanTechnica. Kaye is based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas.

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