This short piece is a response to the recent statement by the Business Roundtable, a group that represents CEOs of big corporations, about the "purpose of a corporation."
This piece is also the best takedown I've seen so far of Milton Friedman's influential article, "The social responsibility of business is to increase its profits."[a]
Key passages:
> ...if the purpose of a business is to “increase its profits,” as Friedman argued, then it is not only “clear-headed,” but also justifiable for a business to use its political influence to dismantle the free market that Friedman cherished.
> ...the notion that the big public corporations are tribunes for the free market is quixotic. Big corporations are islands of socialism within our market economy: Their bigness protects them from competition for customers and workers.
> ...[Businesses] can (like Facebook) break promises to respect their customers’ privacy. They can (like Twitter and Google) generate ad revenue by facilitating the transmission of hate speech. They can (as Exxon used to do) propagandize against climate science. They can (like Jimmy John’s) use illegal contract terms to deter their low-skill workers from quitting low-paying jobs. They can (like the tobacco companies and now the tech companies) push addictive products onto children, or (like Purdue Pharma) create a generation of drug addicts. And they can engage in corporate lobbying. The biggest problem with Friedman’s theory is that corporations can—and, according to his theory, should—use their influence in Congress to block laws that stop corporations from causing such harms.
> ...Nor was Friedman correct that business executives are the employees of the shareholders. Legally, business executives are employees of the corporation, which—crucially—they, not the shareholders, control. The shareholders have a contractual relationship with the corporation that entitles them to a share of its profits and a vote on certain major corporate decisions. Time and again, CEOs have used their power over the corporation to bat away shareholders when they propose that the corporation should act in a socially responsible way. When an employer says “jump” to an employee, the employee jumps. When shareholders say “jump” to the CEO, the CEO sues them.
The author is Eric Posner.[b]
Go read it.
[a] https://timesmachine.nytimes.com/timesmachine/1970/09/13/223...
[b] https://en.wikipedia.org/wiki/Eric_Posner