Milton Friedman’s Cameo
What We Do...
Netflix's series “Working: What We Do All Day” explores what work means and what work is like for various professionals in differing roles and industries. After featuring workers, managers, and owners of various businesses, the series concludes with a mention of Milton Friedman. An influential economist, Friedman famously stated in 1970 that the sole purpose of a corporation was to make money for its shareholders. “Working” alludes to the fact that many businesses and scholars are expanding upon Friedman’s shareholder doctrine to embrace a stakeholder-oriented view towards corporations.
Shareholders v Stakeholders
In the more than fifty years since Friedman’s well-known essay, business leaders have been revisiting the purpose of a corporation, and moving beyond Friedman’s focus on shareholders to include a more comprehensive circle of stakeholders. Though stakeholders may not own shares of the company, they are directly affected by the actions of the company. Traditionally, stakeholders have been viewed as including customers, employees, suppliers, and investors. However, the umbrella of who is a stakeholder now often includes the communities, trade groups, and governments impacted by the company’s operations.
The Business Roundtable describes itself as an association of over 200 CEOs of “America’s leading companies”, that since 1972 has worked “closely with policymakers from both political parties to advance sound economic policies”. In August of 2019, the Roundtable updated their stated definition of a corporation to acknowledge all of a company’s stakeholders. Previously, it had stated that corporations exist principally to serve their shareholders. At the time of the change, the Roundtable said that “long-term interests of all of a company’s stakeholders are inseparable” and that no one group of stakeholders will flourish “unless all do”.
Business leaders aren’t the only ones who are highlighting the value in having a stakeholder-oriented approach. There is a growing body of empirical research quantifying and validating the benefits of a stakeholder view. Critics of Freidman’s focus on shareholder value say that it may lead to less effective risk management, as well as short-term thinking that tends to focus on cost reduction at the expense of other goals such as innovation or employee and customer satisfaction. Researchers have also questioned the moral and ethical considerations of Friedman’s shareholder doctrine. Still, Friedman’s ideas have remained highly influential for decades, impacting business leaders as well as policy makers.
July 5, 2023
Datta, Yogita. (2021). Friedman doctrine: Maximizing profits is neither good for society nor even for the shareholders. Journal of Economics and Public Finance. 7, 153.
Donaldson, T., & Preston, L. E. (1995). The stakeholder theory of the corporation: Concepts, evidence, and implications. The Academy of Management Review, 20(1), 65–91.
Friedman, M. (1970). A Friedman doctrine—The social responsibility of business is to increase its profits. The New York Times Magazine, Sept. 13.
Horvath, R., & Hastings, P. (2019). Stakeholder governance and the freedom of directors to embrace long-term value creation. Harvard Law School Forum on Corporate Governance.
Mulligan, T. (1986). A critique of Milton Friedman’s essay “The Social Responsibility of Business Is to Increase Its Profits.” Journal of Business Ethics, 5(4), 265–269.
George Serafeim | Professor of Business Administration | Harvard Business School
R. Edward Freeman is frequently cited as an early framer of stakeholder theory.
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston, MA: Pitman
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