“A key economic and social phenomenon in the United States is the concentration of wealth and economic power in fewer hands, a development that has become compounded by the general reluctance in American society to acknowledge or discuss issues of economic or political power.”
– J. B. Atleson, Maryland Law Review, 1985, P. 841
It’s not personal, it’s business…
Milton Friedman’s famous 1970 New York Times article, “A Friedman Doctrine – The Social Responsibility of Business is to Increase Its Profits” (Friedman, 1970) has provided ideological cover for corporate inaction on social issues for decades. And while I’m far from the first to critique his assertion, it’s now more important than ever that business accepts the mantle of addressing the monumental challenges of our time and raises its moral standards, especially in light of the de facto abdication of responsibility by many governments. The issues we face – rampant and growing inequality, accelerating environmental degradation, questions concerning the rise and uses of powerful technologies such as AI – require engagement from all parts of our society. No longer can business continue to act as thought it is exempt from the responsibility of action.
So, then, in response to Friedman, are there cases in which managers’ duty to shareholders are legitimately trumped by a more fundamental duty to other stakeholders?
In short, yes. I assert that there are at least two circumstances in which managers should have priorities other than their primary duty to shareholders to increase profits:
- When corporations are disproportionately powerful (through outsized political spending or extreme market participant power imbalances), or
- In the face of long-tail, society-wide systemic issues.
Here I will describe these sets of circumstances, show that they are both currently relevant and in evidence, and outline why they require a larger scope of responsibility for business managers. I will primarily address arguments made by Friedman, restricting my discussion to corporate managers, as he did. I will also focus primarily on the United States’ market economy and political sphere, as they are most clearly illustrative.
When Corporate Power Undermines its Prescribed Constraints
Friedman’s argument for the supremacy of profit maximization relies on two presuppositions. The first is that insofar as corporate managers act solely to increase profits for the company’s owners, there exists a separate arena for addressing our collective social responsibility – namely our “established elaborate constitutional, parliamentary and judicial provisions to control these functions” (Friedman, 1970). The second is his concept of market participant “unanimity” – that “no individual can coerce any other, all cooperation is voluntary” (Friedman, 1970). While these may be true in an ideal or more provincial world, in our modern society both premises are dubious at best.
First, any idea that the sphere of business and our political mechanisms for social change are separate and mutually exclusive is antediluvian. In the U.S., prior to the landmark Supreme Court decision in ‘Citizens United v. Federal Election Commission’ (2010), corporate political spending was tightly restricted. ‘Citizens United’ has since opened a flood of corporate political spending. While corporate personhood does not (yet) include voting rights, increased corporate political spending has been associated with significant effects on electoral outcomes (Hall, 2016), tax policy (Slattery, Tazhitdinova, and Robinson; 2023), and environmental regulatory enforcement (Heitz, Wang, and Wang, 2020). These show how this spending has effectively neutralized the right of individual voters to collectively enact “the preferences and desires of the public” (Friedman, 1970).
A proponent of Friedman’s mandate might suggest that this is nothing more than corporations acting rightly “within the rules of the game” and adhering to “that which is required by law” (Friedman, 1970), and that if a democratic majority wishes to change these legal boundaries they should do so. However, the very mechanisms by which our society might update and enforce limitations on corporate action are made dysfunctional by corporate actors’ further profit maximization via the political sphere, and we are left with only “the symbols, the iconography, and the language of a democracy but internally corporations and oligarchs have seized all the levers of power” (Hedges, 2025). Thus, due to the necessity of returning effective social decision-making to the democratic realm, it becomes the responsibility of managers to act in a manner that would in all likelihood result in less profits to owners but would help to preserve the machinery we’ve developed to enact “the social responsibility of individuals, not of business” (Friedman, 1970).
Friedman’s second presupposition, that we all participate in the market economy of our own volition, is also not reflected in reality. Again, here, Friedman evokes an idealized market, in this case one in which corporate and individual actors have equal power and mobility. However, for many individuals, the decisions about whether to participate, the degree of participation, and with whom are severely limited if effectively available at all – and this is evidenced in their roles as consumers and as employees. In the role of consumer, individuals appear to have a vast array of choices, but market concentration of industries shows that to be illusory (Grullon, G., Larkin, Y., and Michaely, R., 2019), which is particularly relevant to the concentration of corporate power.
More importantly, in the employer/employee relationship individuals have even less agency. Modern corporations have such vast resources and scale that true parity is only glimpsed in rare and unusual circumstances such as the Coronavirus pandemic (De Cauwer, S. and Christiaens, T., 2020; Acevedo, D., 2020). Otherwise, corporations routinely move production (and thus employment) to more cost-effective jurisdictions, a phenomenon at least partially responsible for wage and employment polarization (Barbe, A. and Riker, D., 2018) and which individuals have minimal capacity to counter due to relatively limited resources and familial and communal ties. Corporate actors also dominate communication to greatly influence the Overton window, causing “the inability of certain views to find effective expression, resulting in the perception that certain views of the causes or remedies of social or economic ills are outside the allowable range of debate” (Atleson, 1985).
When workers do attempt to manufacture parity and organize through collective bargaining – a rare thing now as union participation is the lowest it has been in over four decades (OECD, 2021) – it still does not guarantee a negotiation between equals. Atleson, here using the sobriquets “capital” and “labour”, highlights the magnitude of the imbalance:
Labour often has to marshal all its resources to fight on these marginal adjustments; capital can, as it were, fight with one hand behind its back and still achieve in most situations a verdict that it finds tolerable. What many see as major conflicts in which labour seems often now to have the advantage are conflicts only on such issues as labour deems it realistic to contest, and these never touch the real roots of ownership, inequality, hierarchy, and privilege. (Atleson, 1985, p. 868)
To his credit, Friedman does allow that “unanimity is not always feasible” and begrudgingly admits that he can “not see how one can avoid the use of the political Mechanism altogether” (Friedman, 1970) – and this at a time when corporate political spending was much more restricted, as mentioned above, and job security for the average American worker was far greater (Kambayashi, R. and Kato, T., 2017), having begun its decline the same year Friedman penned his piece (Farber, 2010). As we see, political and market developments since that time, particularly in the U.S., make that point all the more salient and necessitate a broader mandate from corporate managers than myopic profit maximization.
Corporate Responsibility in Addressing Systemic Societal Issues
Apart from the above critique of the real-world validity of Friedman’s arguments, there lies a further, more foundational arena that warrants corporate “social responsibility”. The systemic issues that we now face, such as climate change, unprecedented wealth and income inequality, and resulting political instability, necessitate action from all components of society, including corporate actors. If managers limit their mandate to profit maximization and ignore the scale and magnitude of the potential adverse impacts of these issues, they abdicate their responsibility to humanity. Because of the interconnectedness of the modern world, both in commerce and more generally, corporate managers should have broader priorities akin to those of universal owners.
Universal owners are large asset owners (specifically not fund managers) such as endowments, pension funds, and sovereign wealth funds which are distinctive due to their effectively infinite investment time horizon. Their portfolios are so substantial and broadly diversified that they “cannot diversify away from systemic risks…and can only mitigate whole-system threats by effecting change in the real economy…. Universal ownership theory posits that long-term diversified owners of capital cannot stock-pick their way out of systemic risks, since a fully diversified portfolio will own the effects of externalities too” (Quigley, 2020).
Of course, a corporate manager can mitigate some risks by planning, strategy, and entering or exiting alternate product categories or business lines, for instance, but to neglect these broader systemic issues will eventually undermine the footing upon which their business, free markets, and our society are built and function. Ironically, all of this threatens to have the exact consequences that Friedman suggested could follow corporate social activism – namely, it not only “harms the foundation of a free society,” but if left unchecked would almost certainly “affect the possible survival of business in general” (Friedman, 1970).
Now one could argue, as Friedman certainly would, that a manager’s decision to address these issues does, in fact, ultimately lead to increased profits and thus is acting in the benefit of corporate owners – “a by-product of expenditures that are entirely justified in [their] own self-interest” (Friedman, 1970). However, the potential impacts of these systemic issues go “beyond the traditional horizons of most actors – imposing a cost on future generations that the current generation has no direct incentive to fix” (Carney, 2015). While the ownership composition of any corporation varies, the time horizons for almost any objective those shareholders might have, aside from those of universal owners, is limited (and is often very short, on the order of quarters or years). The mismatch between the shortsightedness of the current embodiment of Friedman’s mandate and the longer timespan of human history and potential destruction our collective future is irreconcilable. So, then, in light of our society’s current existential threats, the proposition that the only responsibility of managers is increased profits for their owners cannot be justified.
Conclusion
Given the lack of separation of the business and political sphere, lack of real agency of many consumers and employees, and the enormity and urgency of our many global challenges, the philosophy that managers’ only responsibility is to increase profits is short-sighted at best. Friedman’s assertion that for people working in “the great virtue of private enterprise”, individual responsibility “makes it difficult for them to ‘exploit’ other people” (Friedman, 1970), is demonstrably false. As we see above, presuppositions supporting his claims are not evident in our present society, if they ever were. Given the state of the world now and the changes since Friedman’s article was published, might even he admit that managers of a corporation, with often global reach and extraordinary power in our current system, should employ its influence to do more than “use its resources…to increase profits” (Friedman, 1970) – but also to affect positive change, if for nothing more than the salvation of our civil society from which they often benefit most?
References (not otherwise linked above)
Acevedo, D. (2020) ‘Essentializing Labor Before, During, and After the Coronavirus Pandemic’. Arizona St. Law Review, 52, p.1091.
Atleson, J.B. (1985) ‘Reflections on Labor, Power, and Society’. Maryland Law Review, 44, p.841.
Carney, M. (2015) Breaking the tragedy of the horizon – climate change and financial stability [Speech]. Lloyd’s of London, London. 29 September.
De Cauwer, S. and Christiaens, T. (2020) ‘The Multitude Divided: Biopolitical Production During the Coronavirus Pandemic’. Rethinking Marxism, Dossier “Pandemic and the Crisis of Capitalism”, pp.118-127.
Farber, H.S. (2010) ‘Job loss and the decline in job security in the United States’. In Labor in the new economy. University of Chicago Press, pp. 223-262.
Friedman, M. (1970) ‘A Friedman doctrine – the social responsibility of business is to increase its profits’, New York Times, 13 September, p. 17.