The end of (solely) Shareholder Value


100 years ago, in 1919, the Michigan Supreme Court made a comment in their ruling of Dodge v. Ford saying (in its common paraphrased form), “The purpose of business is to maximize shareholder value.

In 1970, Nobel Laureate in economics Milton Friedman repeated this in an essay in the New York Times entitled “The Social Responsibility of Business is to Increase its Profits.”

Trouble for Friedman and his followers is that this has never been true. This doctrine ignores the fact that companies exist to serve customers, not shareholders. That companies employ employees, who only work if treated in a reasonable manner. That companies are based in some community, who will turn on them if they are bad neighbors. I’ve explained all this on-stage and on this blog years ago.

Finally, 100 years later, 200 CEOs from major companies are saying the same. In the New York Times yesterday:

Nearly 200 chief executives, including the leaders of Apple, Pepsi and Walmart, tried on Monday to redefine the role of business in society — and how companies are perceived by an increasingly skeptical public.

Breaking with decades of long-held corporate orthodoxy, the Business Roundtable
issued a statement on “the purpose of a corporation,” arguing that companies should no longer advance only the interests of shareholders. Instead, the group said, they must also invest in their employees, protect the environment and deal fairly and ethically with their suppliers.

Check out the rest of the details at The Business Roundtable. And welcome to the true purpose of business.

By "Luni"


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