The Best Way To Increase Shareholder Value Is To Stop Focusing On Shareholder Value

The reign of Milton Friedman’s (pictured) notion of maximizing shareholder value comes to an end with the Business Roundtable’s recent Statement on the Purpose of a Corporation. SOUTH CHINA MORNING POST VIA GETTY IMAGES

Almost 200 of America’s most prominent CEOs belonging to the Business Roundtable recently redefined the ultimate mission of corporations, overturning the focus on “maximizing shareholder value” that has reigned supreme for the past 20 years. Originally proposed in 1970, Milton Friedman’s doctrine of shareholder value promised a clear-cut method for guiding the efforts of corporate executives. His proposal was simple, attractive — and completely misguided.

Friedman criticized the social responsibilities of business, calling businesspeople who gave weight to matters like the well-being of their employees or protecting the environment “unwitting pup­pets of the intellectual forces that have been undermining the basis of a free society.” And yet, Milton’s mantra of maximizing shareholder value above all else was embraced by corporations for decades. But with the Business Roundtable’s recent Statement on the Purpose of a Corporation, executives appear to be changing their tune to broaden the focus of their organizations from an exclusive concentration on the financial profits of shareholders to an extension to other stakeholders: their employees, supply chains and the global environment.

This changing tide is important, of course, because of the inherent societal good implied in…