CEOs say it all the time: they have a responsibility to “maximize shareholder value.” Fund managers say it too: CEOs have a responsibility to maximize profits for shareholders. That’s the job of a corporation.
But companies have not always seen themselves as serving stockholders first.
The big change began with a professor. At the University of Chicago, economist Milton Friedman (who would later win the Nobel Prize) wrote this in the New York Times Magazine in 1970:
“There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.”
Profits for whom? For shareholders, Friedman wrote.
“Some called it slumpflation,” said Rick Wartzman of the Drucker Institute and author of the upcoming book “The End of Loyalty.” “’Inflump’ was another one that circulated. But most famously it was stagflation.’”This
was a new idea that began to take root. Throughout the decade of the ’70s, the old postwar business model was crumbling under pressure from inflation and weak growth.
The downturn exposed American companies as uncompetitive in an increasingly global environment.
“Many companies had gotten fat and lazy during the ‘golden age of American business,'” Wartzman said. “We just didn’t see the seams starting to come apart until the late ’60s and early ’70s.”