A can’t-miss opportunity to make corporations more pro-consumerSeptember 11, 2019
Last month, in a stunning about face, the Business Roundtable swept aside decades of advocacy for “shareholder primacy” — the notion that the interests of stockholders must be placed above all other considerations. The organization, whose members are all CEOs of major U.S. companies, now believes that corporations must serve the interests of a broader set of stakeholders, including consumers, employees and the communities in which they operate.
For some, this move signals the end of the shareholder era ushered in by the economist Milton Friedman in 1970. That year, Friedman authored a now-infamous op-ed in the New York Times arguing that corporations needed to be singularly focused on the interests of their shareholders. Attending to the claims of other stakeholders (like workers, consumers and communities) could only lead to trouble.
While it wasn’t the only vision for the corporation circulating in business circles in the early 1970s, over the ensuing decades, this idea dominated business thinking and provided executives with a reason to dismiss criticism and accusations of misconduct. But the Business Roundtable reversal indicates that there is an opportunity for activists to force a reimagining of the corporation, one that can make these powerful institutions more accountable to the public.
Friedman’s op-ed came at a moment of intense social conflict in the United States. And the economist had little patience for those who wanted businesses to address the concerns of consumer movements, environmentalists and minority groups seeking more equal treatment in society. In just one example: mere months after the first Earth Day, Friedman listed “avoiding pollution” as one of the demands that corporations should ignore. Addressing such concerns would interfere with the market’s ability to “determine the allocation of scarce resources.”
Friedman’s voice was loud, but while his view would become central to business practices in the following decades, at the time he did not speak for all in the business community. In fact, a group of executives, politicians and business school professors were thinking in very different terms.
In 1972, the Nixon administration organized and hosted a conference titled “The Industrial World Ahead: Business Looks at 1990.” The world was undergoing such an intense period of social and economic change, some in the administration believed, that American corporations needed to start thinking more broadly about the future. When the conference opened on February 7, speaker after speaker insisted that the 1500 conference attendees were witnessing a major economic transformation. National economies were merging, and the lines between business and government had blurred.
Friedman himself was absent, but his op-ed loomed over the proceedings.