Corporate Power & Accountability
The Shareholder Doctrine That Quietly Reshaped the World
A single op-ed published in 1970 may have done more to reshape daily life than almost any piece of legislation passed in the same decade.
The Idea
In September 1970, Milton Friedman wrote a piece for the New York Times Magazine arguing that a corporation has one — and only one — social responsibility: to increase its profits. Everything else, he said, was a misuse of shareholder money. This idea, elegant in its simplicity, became the operating philosophy of global capitalism for the next half-century. It is known as shareholder primacy. The logic runs like this: a corporation is not a person with moral duties; it is a legal instrument owned by its shareholders. Executives are agents acting on the shareholders' behalf. If they divert resources toward environmental programmes, community investment, or employee wellbeing beyond what is legally required, they are effectively taxing shareholders without consent — imposing their own values on other people's money. What makes this doctrine worth examining closely is not whether Friedman was right or wrong, but how thoroughly it colonised institutional thinking. By the 1980s and 90s, it had rewired how executive pay was structured (stock options tied performance to share price), how boards were composed, how activist investors operated, and how 'success' in business was defined and measured. The counterpoint, now resurgent, is that corporations are not simply private property — they exist only because society grants them legal rights: limited liability, perpetual existence, access to public infrastructure. That grant implies obligations. Whether those obligations are real, enforceable, or just good rhetoric is the live question.
In the World
In August 2019, the Business Roundtable — an association of the chief executives of nearly 200 of the largest American corporations — released a statement redefining the purpose of a corporation. For decades, the group had formally endorsed shareholder primacy. Now, with signatures from the heads of Amazon, Apple, JPMorgan Chase, and others, they declared that companies should serve not just shareholders but all 'stakeholders': employees, customers, suppliers, and communities. The reaction was telling. Some greeted it as a turning point, evidence that the Friedman consensus was finally cracking. Others were more sceptical. Lucian Bebchuk, a professor at Harvard Law School, led a team that systematically contacted the signatories' institutional investors — the actual shareholders — and found that almost none of them had been consulted before the statement was released. His conclusion: the declaration was not a structural commitment but a piece of public relations, with no binding mechanism and no change to how any of the companies were actually governed. Three years later, an analysis of the same companies found that their behaviour during the pandemic — on furloughs, executive pay, and share buybacks — was statistically indistinguishable from companies whose leaders had not signed the statement. This gap between what corporations say about accountability and what changes in practice is not a scandal. It is, in many ways, the precise shape of the problem.
Why It Matters
Understanding shareholder primacy is not just an academic exercise — it is a lens that clarifies an enormous amount of what otherwise seems like corporate irrationality or bad faith. Why do profitable companies still conduct mass layoffs? Because labour costs affect quarterly earnings and quarterly earnings affect share price. Why do some firms resist transparency on environmental data? Because disclosure creates liability risk before it creates market reward. Why do executives sometimes make decisions that seem obviously bad for the company long-term? Because their compensation is indexed to short-term metrics. None of this requires malice. It is the logical output of a system built around a specific definition of what corporations are for. Knowing this, you can start to read corporate behaviour — announcements, reports, restructurings — with a sharper eye. You can ask not 'what does this company value?' but 'what does this company's incentive structure reward?' Those are often very different questions, and the distance between their answers is where accountability lives or dies.
A Question to Ponder
If corporations can only be reliably moved by incentives rather than declarations, what would it actually take to redesign those incentives — and who would need to want that badly enough to make it happen?
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