Milton Friedman's "Shareholder" Theory Was Wrong • Hacker News Board

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#31

Post by dragonwriter » Fri, Aug 23, 2019, 2:53 AM UTC

manicdee wrote: post #29

dragonwriter wrote: post #27

> On Monday, the Business Roundtable, a group that represents CEOs of big corporations, declared that it had changed its mind about the “purpose of a corporation.” That purpose is no longer to maximize profits for shareholders, but to benefit other “stakeholders” as well, including employees, customers, and citizens. CEOs are employees. A group of employees just voted that they aren't responsible to the people that p…

This was not about responsibility and accountability, but mission and direction. A company should be able to state that its mission is (for example) to deliver the best electric cars in the world, and be able to do so without pressure from shareholders to fire the CEO when the CEO focuses on building production capacity instead of maximising quarterly profits.

> A company should be able to state that its mission is (for example) to deliver the best electric cars in the world, and be able to do so without pressure from shareholders to fire the CEO

“A company” is an abstraction. Who is declaring the mission? The shareholders? Or the CEO?

Yes, if the shareholders declare a mission, the CEO shouldn't generally be fired for pursuing it effectively.

If the CEO declares a mission, and the shareholders don't agree that it represents their interests for the firm, they absolutely should create pressure for the CEO to either reverse course or be removed.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#32

Post by btomtom5 » Fri, Aug 23, 2019, 5:40 AM UTC

donatj wrote: post #4

> “short-sighted and muddle-headed” in matters of public import. vs > Many business executives realized that wage and price controls would serve their business interest (no doubt by holding down the cost of labor and other inputs) and didn’t care whether they harmed the economy at large. Those are the same thing. They were short sighted because price controls would serve their business interest in the short term.

Yea, I also took issue with this point initially, but I think the author was pointing out that Friedman's complaint of CEOs "short-sightedness" at its core was asking CEOs to exhibit a sort of social responsibility--the very same responsibility that he criticizes.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#33

Post by Gibbon1 » Fri, Aug 23, 2019, 5:52 AM UTC

tolmasky wrote: post #6

These are arguably identical statements. I think Milton Friedman's "Theory" was descriptive, not prescriptive: ultimately shareholders can sway a corporation, and thus the corporations' "duty" is "to" them. If public opinion moves in a way that makes it so a corporation would become unpopular and unprofitable by harming customers and "stakeholders", then they are effectively "harming" their shareholders, who would be…

> By understanding that corporations are ultimately essentially accountable to their shareholders

No. Corporations are ultimately accountable to and exist at the pleasure of the state, full stop.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#34

Post by PeterStuer » Fri, Aug 23, 2019, 7:40 AM UTC

Gibbon1 wrote: post #33

tolmasky wrote: post #6

These are arguably identical statements. I think Milton Friedman's "Theory" was descriptive, not prescriptive: ultimately shareholders can sway a corporation, and thus the corporations' "duty" is "to" them. If public opinion moves in a way that makes it so a corporation would become unpopular and unprofitable by harming customers and "stakeholders", then they are effectively "harming" their shareholders, who would be…

> By understanding that corporations are ultimately essentially accountable to their shareholders No. Corporations are ultimately accountable to and exist at the pleasure of the state, full stop.

Are you sure you do not have that backwards? One could argue that in practice in many democracies politicians, executives of 'the state', seem to exist at the pleasure of the corporations that fund their election. The idea that 'the state' and 'corporations' are two fully separate entities is an oversimplification that is so far from reality that it is an unuseful model for reasoning.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#35

Post by tengbretson » Fri, Aug 23, 2019, 7:40 AM UTC

Tools tend to work best when they have one job and do it well. A company is a tool for generating profit for shareholders. If we need tools for social good that's fine, we should absolutely make them, but forcing one tool to be used for a purpose it wasn't designed for sounds like a great way to get no social good or profits.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#36

Post by PeterStuer » Fri, Aug 23, 2019, 7:43 AM UTC

dredmorbius wrote: post #17

travbrack wrote: post #2

What are the chances that corporations will actually behave any differently because of this? My uninformed guess would be slim to none, but maybe I'm just cynical.

That's one of author and law professor (and son of jurist Richard) Eric Posner's arguments: "this new philosophy will not likely change the way corporations behave. The only way to force corporations to act in the public interest is to subject them to legal regulation."

Which carries the implicit assumption legal regulation does serve the public interest and is not captured by other interests.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#37

Post by Ma8ee » Fri, Aug 23, 2019, 7:43 AM UTC

I don't think any part of this should be controversial. The purpose of a business can be whatever you want it to be, whether it is to make money or make the world a better place. But either way, the corporation is a part of society, and reaps the benefits from that, but also has responsibilites to it. That means that all the stakeholders should have some influence. And stakeholders are everything from shareholders to employees to the local community to the environment.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#38

Post by viklove » Fri, Aug 23, 2019, 5:50 PM UTC

bassman9000 wrote: post #25

uknowmejoe wrote: post #3

How does this prove it was wrong? The end goal is still to maintain long term profits. Once a company becomes unprofitable it dies. Friedman gets credited with it, but it's basic econ.

This. Plus, if the way to be long term profitable is to be more socially and ecologically responsible, because that's what the market is asking for, then corporations will adapt or die.

The problem is that they're currently in the process of dying, but they're bringing (quite literally) the entire planet down with them. That is not an acceptable outcome. The market cannot regulate itself.

Re: Milton Friedman's "Shareholder" Theory Was Wrong

#39

Post by manicdee » Mon, Aug 26, 2019, 5:00 PM UTC

dragonwriter wrote: post #31

manicdee wrote: post #29

Earlier quoted context omitted.

This was not about responsibility and accountability, but mission and direction. A company should be able to state that its mission is (for example) to deliver the best electric cars in the world, and be able to do so without pressure from shareholders to fire the CEO when the CEO focuses on building production capacity instead of maximising quarterly profits.

> A company should be able to state that its mission is (for example) to deliver the best electric cars in the world, and be able to do so without pressure from shareholders to fire the CEO “A company” is an abstraction. Who is declaring the mission? The shareholders? Or the CEO? Yes, if the shareholders declare a mission, the CEO shouldn't generally be fired for pursuing it effectively. If the CEO declares a mission…

Why should the shareholders have any determination of direction? They are there to invest in a company, not run a business. If they don’t like the direction they can invest elsewhere.