Forty-four years ago, economist Milton Friedman changed the way corporations did business with his declaration that “there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game.”
Power-suited corporate executives turned their attention to increasing stock prices, upping dividend payments and boosting earnings, all as part of maximizing shareholder value.
Forty-four years later, we see:
- Businesses reporting their highest profit margins in history.
- CEOs with compensation packages tied to stock price and drawing salaries that are 354 times more than what the average worker earns.
- 216 non-banking companies having more than $1 billion in cash or short-term equivalents on hand.
Yet we also see:
- 70% of Americans feeling negative about their jobs.
- 48% of employees copping to having done something unethical or illegal in the last year, as reported in an Ethics Officer Association study.
- Capital spending and employee compensation as a percentage of gross domestic product at their lowest points since the mid-1950s.
- 47% of the 400 chief financial officers surveyed by Ernst & Young feeling that “they could justify potentially unethical practices to help business survive during an economic downturn.”
- Credit card companies more concerned with the cost of new cards and equipment than they are with consumer protection; automotive companies delaying vehicle safety recalls to save money; and Wall Street bankers receiving big bonuses for approving ill-secured loans that ripped apart the U.S. economy.
Think Milton got it a little wrong?
“Corporate managements are being pushed into subordinating everything … to immediate earnings and next week’s stock price.” ~Peter Drucker, management consultant
Lynn Stout, a Cornell Law School professor and author of “The Shareholder Value Myth,” notes that maximizing shareholder value isn’t a legal requirement except in times of business insolvency. It’s a managerial choice.
So perhaps the time has come for executives to take an oath of office. To choose, declare, and swear to:
- Protect the interests of all stakeholders of the company: customers, employees, suppliers, regulators, communities and creditors as well as shareholders.
- See business in today’s rapidly evolving and increasingly diverse environment as both an economic and social institution.
- Analyze a wide variety of quantitative and qualitative metrics, and tie executive compensation to both sets of metrics to balance economics and ethics.
“I have always recognized that the object of business is to make money in an honorable manner. I have endeavored to remember that the object of life is to do good.” ~Peter Cooper, industrialist and philanthropist
What say you?
Jane Perdue is a leadership futurist and founder of Braithwaite Innovation Group, focused on disrupting stereotypes and the leadership status quo. Perdue is @thehrgoddess on Twitter and blogs at LeadBIG.