Have we got Milton Friedman wrong?

I can’t tell you how many times I’ve heard speakers at sustainability conferences (or on podcasts now) citing Milton Friedman’s doctrine that the sole responsibility of business is to deliver shareholder value as almost the root of all evil. As the starting gun for rampant capitalism that fired up climate change and trampled social justice. But are we right to see it in that way?

Friedman’s essay, ‘The Social Responsibility of Business is to Increase Its Profits’, was published in the New York Times on the 13th September 1970. He argued that executives have a responsibility to the owners of the business and, ‘That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.

’The second half of that sentence is hardly mentioned: ‘conforming to the basic rules of society’ in law and custom. In 1970, after 25 years of corporate consensus in the aftermath of the Second World War, pushing businesses and investors to encourage competition and innovation might have been what society wanted and needed.

But what would Friedman see as the ‘basic rules of society’ today, and the ‘ethical custom’ within which business should operate? Maybe this is how we can square the circle between capitalism and sustainability.  Leaders still have to maximise shareholder value (and whatever we may think, the result for those who don’t is often terminal), but within the laws and customs of a society that increasingly recognises that profits at any cost aren’t sustainable. So that the responsibility of business leaders is to deliver value to shareholders within Friedman’s ‘ethical custom’ of society.

Laws are evolving that restrict profits at all costs. Take one example in the USA, what we might call the home of shareholder value. Businesses are now subject to the ‘Break Free from Plastic Pollution Act’, making them legally responsible for the post-use management of their products and packaging. Maximising value to shareholders now involves this. And if you want to sell to the 39 million ‘consumers’ in California, you are subject to ‘Truth in Labelling for Recyclable Materials’ regulation which stops you claiming recyclability for your products and packaging unless you’ve invested in making sure it can be, and actually does get, recycled. This is just one example, and the rules of society ‘embodied in law’ are far from comprehensive on sustainability. But the direction of travel (trends in regulation, reputation, recruitment and retention) is what investors look at and it is towards new ‘basic rules of society’ within which maximising shareholder value has to occur.

Maybe that’s what Milton wanted for us all along.