Is the end nigh for Milton Friedman?

The Business Roundtable statement on the purpose of the corporation signed by nearly 200 US Business leaders is a key milestone on the long road away from an obsession with maximising shareholder value. In acknowledging a “fundamental commitment to all our stakeholders“ the statement goes no further than many European businesses have already done. However, until now the huge influence of US business has been seen mainly to uphold the Friedman doctrine that the sole purpose of business is to increase its profits within the law and ethical custom. So, this is new, and it is a remarkable and heartening development.

Cynics will be quick to accuse the signatories of rushing to put on more environmentally friendly clothing in which to repackage business as usual – changing the language without changing the behaviour. A vital element, therefore, is that businesses should enable and welcome public scrutiny. People are also right to look for action beyond better accountability. So, what change can we expect from a business whose leaders say “we share a fundamental commitment to all our stakeholders…” and who commit “…to deliver value to all of them”? Here are three.

One mark of a truly purpose-led business is that it sees itself as a social organisation and therefore cares about people. For a large company shifting from being there to maximise profit, to a new mindset of existing to benefit society, there are bound to be some painful changes. The US leaders list their acceptance of a commitment to customers, suppliers, employees, and the communities on which the business depends. Committing to put the good of people at the heart of business success throws into sharp relief those profitable things currently done which do not benefit society, and activities and behaviour that does not respect the dignity of people. What are these companies newly committing to purpose going to stop doing, or do differently now, in order to care more about people, and show that they do? How are they going to innovate to become more purpose-led and stay profitable?

Second, if a company is genuinely led by a purpose beyond profit, and not simply interested in having a statement on the wall, then the purpose will also be evident in the strategy and the outcomes. Is there a compelling narrative that explains how the strategy follows from the purpose, and how the social and environmental outcomes delivered by the strategy link back to the purpose? This is far from easy in practice, but it is fundamental to bringing the purpose to life. 

Third, is how the company sees itself in the context of wider society, both contributing to its broader needs and acting responsibly. A purpose-led company, focused on benefiting society and respecting people through the core business will seek to use its influence and agency to develop informed citizenship, and better-informed customers. It will go beyond risk mitigation and having environmentally friendly policies to seek ways of collaborating with others to address the most urgent systemic issue of climate change and innovating to explore the business opportunities created by the problems of people and planet. It will accept that as a part of society a company has a responsibility to pay tax and contribute to better regulation. These points are not included in the US business leaders' statement. Maybe they will be in version 2.0.

Nevertheless, let us not cavil too much. However imperfect this statement, it marks the emerging consensus across the Atlantic that the fundamental idea which has dominated business thinking and action in the US and UK for the past 40 years is now past its sell-by date. The default for too many businesses is still that the purpose is to maximise profit. When that default shifts to a purpose that benefits society, we will all be much better off.

Charles Wookey, CEO, A Blueprint For Better Business