With the Covid-19 pandemic reinforcing concerns about economic inequality, left-behind communities, discrimination, and climate change, there is increasing pressure on corporations to do more than sell a good widget at an affordable price. Responding to the changing public mood, the US Business Roundtable declared last year that, “Each of our stakeholders is essential. We commit to deliver value to all of them, for the future success of our companies, our communities, and our country.”

But this way of framing the issue is unhelpful. A corporation’s stated objectives should help guide its choices. If all stakeholders are essential, then none are. In an attempt to please everyone, the Business Roundtable will probably end up pleasing no one. Recent evidence even suggests that the corporations that signed on to the group’s “stakeholder capitalism” statement have been more likely to lay off workers in response to the pandemic, and less likely to donate to relief efforts.

Nevertheless, is the shareholder-centric view propounded by Nobel laureate economist Milton Friedman wrong? Friedman’s rationale was that because managers are employed by shareholders, their duty is to maximise profits — and thus the share price — over time. While this approach was widely embraced by corporate executives in the US and the UK over the past 50 years, its basic logic was misunderstood. To many observers, the idea that businesses should favour millionaire investors at the expense of long-term workers is appalling.

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