What does it mean,” Milton Friedman asked, “to say that the corporate executive has a ‘social responsibility’ in his capacity as businessman?” His answer was simple. The singular responsibility of business leaders is to increase profits “without deception or fraud.”
And for the past fifty years that’s what business leaders did: boost profits, pay higher dividends, and let each shareholder decide what’s good for society. They operated within the law, but with little concern for the wider societal impact of their actions.
But there is change in the air. Obeying the law is no longer enough. Business leaders are being expected to go further than the law requires. To play by and inform new rules of corporate behaviour. The latest example of this comes from the Business Roundtable in the United States. In 1997 it said that duties to stakeholders are a “derivative of the duty” to shareholders, but this year it redefined the purpose of a corporation to promote “an economy that serves all Americans.” Its newfound principles for business leaders: value your customers, invest in your employees, treat your suppliers ethically, support the communities and protect the environment where you work, and generate long-term value for your shareholders.
The restated principles are what Jamie Dimon, JPMorgan’s chief executive and the Roundtable’s chairman, has called “an acknowledgment that business can do more to help the average American.” The same ideas have already taken root in the UK. The country’s revised corporate governance code starts by saying that a successful company is one that’s “generating value for shareholders and contributing to wider society.”
What explains this dramatic shift? Technology, climate change and inequality are rewriting the rules of our lives and people feel locked out of the decisions that govern them.
In the fifty years since Friedman’s article, chief executives in the US have seen their compensation go from 24 times more than the average worker to 200 times more. Those average workers have, since the financial crisis, seen their wages grow by a meagre eight per cent. In Britain, they remain at crisis level.