Counting the Shareholder Out: When the Ruling Class Changes the Rules

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It comes as no surprise that Bloomberg News, which includes a section called Bloomberg Green, also features another called Good Business — a venue dedicated to “sustainable finance and leadership for a changing world.” His presidential campaign aside, Mike Bloomberg tends to get what he pays for.

It’s also not a surprise that Bloomberg journalist, Saijel Kishan, has written a piece for Good Business headlined “How Wrong Was Milton Friedman? Harvard Team Quantifies the Ways.” In this context, the target of the Harvard correction squad is, above all, Friedman’s 1970 article for The New York Times Magazine on shareholder primacy, the one in which, Kishan relates:

Friedman . . . declared that a corporation choosing social responsibility over maximizing profits was practicing socialism — a “fundamentally subversive doctrine,” he called it in 1970. In a free society, Friedman said, “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, which is to say, engages in open and free competition without deception or fraud.”

Kishan gives herself only a few lines to describe that piece, which may explain why it is unclear whether Friedman was labeling socialism or a “corporation choosing social responsibility” as “fundamentally subversive.” Friedman had no fondness for socialism (#understatement), but in this case, he was referring to “social responsibility,” a notion he thought had implications far beyond the corporate sphere, none of them good.

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A Useful Pandemic: Davos Launches New ‘Reset,’ this Time on the Back of COVID

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COVID-19 is a bad disease that has been used to breathe new life into bad ideas. And so it comes as no surprise that the World Economic Forum (“Davos”) is deploying the pandemic as an argument for what it labels, with characteristic modesty, “The Great Reset” initiative:

There is an urgent need for global stakeholders to cooperate in simultaneously managing the direct consequences of the COVID-19 crisis. To improve the state of the world, the World Economic Forum is starting The Great Reset initiative.

Even if we pass over the presumption of the reset’s name, this is a small classic of the prose of soft authoritarianism. There is an “urgent need” that must be met. There is to be cooperation and management, the world is to be “improved,” and all of this is to be put in place by “global stakeholders,” — a conveniently vague phrase, with more than a suggestion of democracy bypassed about it.

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How Advocates of ‘Corporate Social Responsibility’ Distort Shareholder Power

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Many years ago, Milton Friedman explained something that should never have needed explaining, when, writing for the New York Times Magazine, he reminded his readers what —and whom — a company is meant to be for:

In a free-enterprise, private-property system, a corporate executive is an employee of the owners of the business. He has direct responsibility to his employers. 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 . . . society, both those embodied in law and those embodied in ethical custom. . . .

What does it mean to say that the corporate executive has a “social responsibility” in his capacity as businessman? If this statement is not pure rhetoric, it must mean that he is to act in some way that is not in the interest of his employers.

The executives who retool a company’s mission to suit a particular conception of “social responsibility” are spending shareholders’ money on a moral agenda unrelated to company objectives, an affront that’s only made worse if their crusade depresses returns, share price, or both.

Friedman was writing in 1971. Since then, like so many bad ideas, corporate social responsibility has become institutionalized. To take a recent example, in 2017 JP Morgan Chase gave $500,000 to the Southern Poverty Law Center, an organization that, sadly, has strayed far from its original ideals. Had they learned of it, this gift would probably have irritated a good many shareholders. The employee who had to justify it was — you guessed it — the bank’s “head of corporate responsibility,” a title that signifies how deep the rot has gone.

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