The Decline of Milton Friedman's Shareholder Doctrine
Milton Friedman’s shareholder-first doctrine is in decline in favour of the stakeholder doctrine, which posits that businesses should create value not just for shareholders but also for all stakeholders.
For decades, Milton Friedman’s shareholder-first doctrine dominated corporate strategy. Friedman argued that a company's sole responsibility is to maximize profits for its shareholders, suggesting that businesses should focus exclusively on financial returns.
This perspective shaped business education, corporate governance, and financial markets worldwide. However, the premise that maximizing shareholder value inevitably leads to societal benefits has increasingly been challenged. Critics argue that this doctrine, in its narrow focus, often leads to externalities such as environmental degradation, income inequality, and a lack of accountability for social and ethical responsibilities.
The 21st century has witnessed a growing recognition of the limitations inherent in Friedman's philosophy. Evidence suggests that the relentless pursuit of profit often comes at the expense of broader societal well-being. Corporate scandals, environmental disasters, and social injustices – coupled with growing public awareness – have highlighted the need for a more balanced approach to business strategy. This realization marks the decline of Friedman's doctrine and sets the stage for the rise of the stakeholder approach.
The Rise of the Stakeholder Doctrine
In contrast to Friedman’s philosophy, the stakeholder doctrine posits that businesses should create value not just for shareholders but also for all stakeholders—customers, employees, suppliers, communities, and the environment. This perspective has gained significant traction recently, as firms face increasing pressure from investors, consumers, and regulators to act ethically, sustainably, and inclusively.
According to the Financial Times article 1), despite the attacks on Environmental, Social, and Governance (ESG) principles from various quarters, the stakeholder doctrine remains robust and continues to flourish. This is evident from the growth of sustainable investment funds, the increasing adoption of ESG criteria in corporate strategy, and the broader recognition that businesses must align their operations with societal goals. The shift from a purely financial orientation to a more inclusive approach reflects a deeper understanding that long-term value creation depends on sustainable and equitable practices.
Social Profit Orientation: A Strategy for the Future
Building on this evolving narrative, our academic article 2) offers a compelling case for a social profit orientation as the right strategy for modern firms. This concept extends the stakeholder doctrine by emphasizing that firms should prioritize social profits—benefits to society as a whole—over purely financial gains. Social profit orientation does not negate the importance of financial returns; rather, it integrates them within a broader framework that considers the well-being of all stakeholders.
The argument is that firms with a social profit orientation are more likely to achieve sustainable growth and long-term success. They tend to be more resilient to economic downturns, as they build stronger relationships with stakeholders, foster loyalty, and reduce risks associated with environmental, social, and governance issues. Empirical evidence supports this perspective: companies that adopt socially responsible practices often enjoy better financial performance, reduced cost of capital, and improved reputational capital.
A Call to Action: Embracing the Future of Business
The shift from shareholder primacy to stakeholder inclusivity represents a fundamental transformation in how businesses operate and create value. It is not merely a trend but a strategic imperative driven by societal demand, regulatory pressure, and evolving market dynamics. Companies that fail to adapt to this new paradigm risk losing their competitive edge, market relevance, and public trust.
In conclusion, Milton Friedman’s shareholder-first doctrine is increasingly viewed as outdated and unsustainable in the face of 21st-century challenges. The future belongs to the stakeholder doctrine and social profit orientation, which recognize that true business success lies in contributing to the well-being of society. As your academic article argues, this is not just a moral imperative but a pragmatic strategy for achieving sustainable, long-term profitability. Businesses that embrace this approach will not only thrive in the modern economy but also play a crucial role in shaping a more equitable and sustainable future.
Tor W. Andreassen is a Professor of Marketing at NHH and DIG.
1. “The Stakeholder Doctrine is Flourishing Despite Attacks on ESG,” by Financial Times, 2024. Available at: Financial Times
2. «Social Profit Orientation: Lessons from Organizations Committed to Building a Better World», by Leonard L. Berry, Tracey S. Danaher, Timothy Keiningham, Lerzan Aksoy, and Tor W. Andreassen published in Journal of Marketing, 2024