Rick Wartzman, of the Drucker Institute, writing in the Wall Street Journal under the banner of “…a New Era of Social Responsibility”, depicted today’s CEOs as occupying the ‘hotseat‘ in the face of a groundswell of support for the idea that corporations should be responsive to the interests of stakeholders other than just shareholders. This in defiance of a principle that has guided business leaders for a half-century.

In 1970, economist Milton Friedman famously pronounced that the “one and only” social responsibility of business was to maximize shareholder wealth. This notion was quickly—perhaps eagerly—accepted as doctrine, and has prevailed as the conventional wisdom ever since. Meanwhile, hourly productivity increased by 70% while workers scratched out inflation-adjusted compensation gains of less than 12% and of course, corporate profits skyrocketed.  Simultaneously, Gallup tells us every year like clockwork that only about a third of US workers are engaged at work, and McKinsey reports the average life expectancy of an S&P 500 company has declined from 61 years to less than 18. Income and wealth inequality have become major social ills, coarsening our politics and threatening the very future of capitalism. Should we mention climate change?…or Enron?

Perhaps we can’t lay all of this at the feet of Dr Friedman, but this is the reality we face here in the early morning of the third millennium—and, need I say, it ain’t pretty.

But take heart, dear reader—help may be on the way!

For years, icons like legendary Wall Street lawyer Marty Lipton have been warning of the perils of ‘short-termism’ to little avail. But in August 2019, the Business Roundtable—which for over two decades had warmly embraced a Friedmanesque statement institutionalizing shareholder primacy as the sole purpose of  corporations—published a new statement articulating “…a fundamental commitment to all [emphasis added] of our stakeholders”, which it goes on to characterize as “Customers, Employees, Suppliers, Communities, and Shareholders”.

We are also witnessing a significantly growing interest in ESG (Environmental, Social, Governance), particularly in the investment community, where fully a quarter of all managed funds integrate ESG performance metrics as an important factor in investment decisions, recognizing its financial relevance. ESG Investing has clearly become a thing, and is adding impetus to sustainability and the development of corporate cultures that recognize the financial benefits of the sort of stakeholder focus the Business Roundtable somewhat belatedly adopted.

And no less than BlackRock, the world’s largest asset manager with a portfolio exceeding $10 trillion, has called for a “fundamental reshaping of finance” and identified climate risk as investment risk. BlackRock CEO Larry Fink has predicted massive capital shifts as companies and investors reallocate capital into sustainable strategies. Marc Benioff, Chairman of Salesforce, goes even further, stating at the World Economic Forum in Davos that, “…capitalism as we have known it is dead, and this obsession we have with maximizing profits for shareholders alone has led to an incredible inequality and a planetary emergency.“

Contrary to what Milton Friedman—or Oliver Stone’s prototypical Wall Street villain, Gordon Gekko—may have thought, it’s not irrational to expect businesses to add value to the environment, communities and societies in which they operate, and those they depend upon to function. An adaptive process is underway and gaining steam. Some will say it may be too late, but it never is. 

We’ve yet to find a better expression of this notion than that provided by Ralph Waldo Emerson a couple centuries ago: