Sep 24, 2020
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Friedman’s Dictum Is Finally Laid To Rest: So What’s The Function Of Companies Now?

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Nobel Prize winning economist Milton Friedman in 2003. Photographer: Jon Freilich/ Bloomberg News. BLOOMBERG NEWS Milton Friedman pictured above among the architects of neoliberalism the daddy of the Chicago School a Nobel laureate dominated economic thinking in the second half of the 20th century. He is often remembered for his belief that a firm s sole function was to maximise shareholder profit

 

Outlining the Friedman doctrine in a 1970 article with the New York Times he said the social responsibility of business is to increase its profits. For the last twenty years this has been the obsession the mantra of the corporate world: generate value for shareholders. So long as it can be done inside the law — and if necessary by stretching it — forget about generating value for anybody else: the workforce suppliers consumers or society as a whole

 

Deliver value to the shareholder and in keeping with Friedman and his school the market will safeguard everything else. Finally too late increasingly US companies have realized that this is not the case. The market cannot perform miracles and the belief of ​​maximizing shareholder profit is not only ethically questionable but unsustainable

 

Capitalism has succumbed to the tragedy of the commons and in its death throes is dragging the planet down with it: the Business Roundtable the largest business lobby in the U. S. represented by 181 CEOs of the largest companies with around a 30% of total market capitalization has finally come to the conclusion that a firm s mission must transcend being profitable for shareholders and that the considerations of different stakeholders are so much more important

 

At their meeting on August 19 Business Roundtable CEOs authored a brand new mission for the company: they threw away the ridiculous simplistic and harmful theories of neoliberal capitalism and the Chicago School and replaced them with a text of 300 words where shareholders were mentioned tangentially on the end

 

Less concern for generating shareholder benefit and so much more for contributing to a much better world however idealistic and vague it could seem. Here s the text: Statement on the Purpose of a Corporation Published by the Business Roundtable Aug. 19 2019 PROMOTED UNICEF USA BRANDVOICE | Paid Program
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#WhatsWorking: How To Build A More Just And Equitable Economy The Ideas Are Flowing Americans deserve an economy that enables all people to succeed through labor and creativity and to guide a lifetime of meaning and dignity

 

We believe the free-market system is the best technique of generating good jobs a powerful and sustainable economy innovation a healthy environment and economic opportunity for all. Businesses play a vital role inside the economy by creating jobs fostering innovation and providing essential goods and services. Businesses make and sell consumer products; manufacture equipment and vehicles; support the national defense; grow and produce food; provide health care; generate and deliver energy; and offer financial communications and other services that underpin economic growth

 

While each of our individual companies serves its own corporate purpose we share a fundamental commitment to all of our stakeholders. We commit to: Delivering value to our customers. We are able to further the tradition of American companies leading the style in meeting or ­exceeding customer expectations. Investing in our employees

 

This starts with compensating them fairly and providing important benefits. It’s also supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion dignity and respect. Dealing fairly and ethically with our suppliers. We’re dedicated to serving pretty much as good partners to the other companies large and small that help us meet our missions

 

Supporting the communities where we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses. Generating long-term value for shareholders. [They] provide the capital that enables companies to speculate grow and innovate. We’re ­committed to trans­parency and effective engagement with shareholders. Each of our stake­holders is essential

 

W­e decide to deliver value to all of them for the long run success of our companies our communities and our country. The once-privileged shareholders do not appear until the penultimate paragraph and with the generation of value always contingent on long term benefits. The document seemingly buries the foundations of neoliberal capitalism recognizing them as a huge and expensive mistake

 

In the true world economic theories aren’t overruled with a simple declaration of principles. Sure the document is important however it simply a declaration of principles. It’s important by way of what it says and it is also important by way of who says it. It is also important that the corporate world now understands that the foundations it has operated on for goodbye are deeply harmful

 

The question now could be a way to put words into practice. For many years companies world wide led by supposedly intelligent people have caused incalculable damage to the environment and people s lives stretching and breaking the law with a view to satisfy the supposedly sacrosanct principle of maximizing shareholder profit

 

With time and perspective if we survive long enough Friedman will certainly be seen as among the great villains of the 20th century a man who presided over an era where the human species has created the conditions for its own annihilation. There’s little room for optimism and well-meaning statements of principles are rarely definitely worth the paper they re written on

 

But for the folks who began their managerial careers when Friedman s pernicious principles were practically law a metamorphosis like this could a minimum of bring about reflection and a much-needed change in attitude. The Business Roundtable s declaration of principles is now out there. It possibly too little too late and it s unlikely it is going to change the style companies success is measured a minimum of inside the short term

 

It s right to be skeptical but it really is a minimum of a transparent admission of error. Time will tell

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