Shareholder Capitalism vs Stakeholder Capitalism…what’s all the fuss?
Kenneth Miller | Updated January 2022
It’s been more than a half-century since economist Milton Friedman proclaimed the “one and only” social responsibility of business is to maximize the enrichment of shareholders. During the interim, this ‘Friedman Doctrine’ became the pervasive and largely unquestioned conventional wisdom—though we shouldn’t ignore the late GE CEO Jack Welch, who called it “the dumbest idea in the world”–though quite belatedly–or Harvard Business School Professor Joseph Bower who labeled it “pernicious nonsense” almost immediately after Friedman put forth the notion.
In 1997, Friedman’s doctrine was adopted by the Business Roundtable (BRt) as its officially sanctioned Purpose of a Corporation, but in August of 2019, the Roundtable flipped a 180, adopting a new definition of Corporate Purpose articulating “…a fundamental commitment to all [emphasis added] of our stakeholders…”, which it identified as Customers, Employees, Suppliers, Communities, and Shareholders—in that suggestive sequence.
Within a few months thereafter, The World Economic Forum (WEF) unveiled its Davos Manifesto, which states,
“The purpose of a company is to engage all its stakeholders in shared and sustained value creation. In creating such value, a company serves not only its shareholders, but all its stakeholders – employees, customers, suppliers, local communities, and society at large.”
Since then, critics from academia to the US Senate have leveled attacks on the concept of either stakeholder capitalism itself or BRt’s implementation thereof in terms ranging from ‘an ill-conceived feckless notion’ to a ‘PR stunt’.
Some observers, notably author Kurt Anderson, see Friedman as an Evil Genius; others as simply a genius. As Anderson points out, the debate seems part of the larger cultural struggle that has afflicted America and other advanced countries since—not coincidentally—circa the 1970s. Another, anonymously offers this alliterative perspective:
Free Market Capitalism, as we have practiced it for at least the last half century–recently labeled ‘Shareholder Capitalism’–is premised on the presumption, promotion, and purity of personal greed and the parochial pursuit of proprietary power.
The social systems and societal structures that have evolved over the course of human history, however, have been intended and designed explicitly to preserve and protect the broader best interests of the group at large–the tribe; the community; the country–and all its constituent members.
If this seems incongruous, it is.
We think this to be an important discussion; one with potentially far-reaching impact on how we wish to structure our economic and social being–who and what we want to be when we grow up, if you like. A great deal has already been said and written, but we have yet to come across an alternative to the binary choice to which these analyses invariably seem to devolve. We’ll be monitoring related developments and offering further analysis, what we think are relevant facts, and our own humble ideas about what those analyses and facts may imply for the way forward we might choose to follow.
The fundamental question may prove to be whether these seemingly competing schools of thought are really all that mutually-exclusive.
#Think about it.