Businesses that put profit first will beat those that prioritise other goals. What is forgotten in this debate is Friedman defined shareholder capitalism as businesses pursuing profit within the rules of the game. And those rules need to change.
Last week’s announcement by the US-based Business Roundtable that the purpose of business ought to shift from generating shareholder value to stakeholder value has been met with a mix of enthusiasm and scepticism. But whatever the intention behind it, it is little more than a distraction from the big problem: aligning profit with social value.
Shareholder capitalism, the brainchild of Milton Friedman, views the purpose of business as providing a return for shareholders alone. Stakeholder capitalism would expand the purview of executives to a range of actors beyond shareholders, with the Roundtable’s release specifying workers, customers, and the broader community.
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Alan Schwartz AO is a businessman, investor and philanthropist.
