Should companies focus only on shareholder wealth?

Emily Lambert | Mar 01, 2019

Sections Economics Public Policy

Collections IGM Poll

In the corporate world, the past half century has largely belonged to shareholders. The late Milton Friedman famously wrote in a 1970 article that companies should focus on maximizing profits and “make as much money as possible while conforming to the basic rules of society.” His argument, made six years before he won a Nobel Prize in Economic Sciences, was hugely influential and has shaped finance and US policy making ever since.

But in the past few years, some economists and other academics have challenged the notion that a company should only care about profits. Among them, Harvard’s Oliver Hart (another Nobel laureate) and Chicago Booth’s Luigi Zingales write that shareholders may value social objectives alongside money. (For more, see “Should public companies do more than maximize profits?” Fall 2018.)

Chicago Booth’s Initiative on Global Markets put this issue before its US panel of economic experts, asking whether it’s best for society if corporate leaders make their decisions through the lens of shareholder wealth. While many of the economists voiced support for shareholder preeminence, 62 percent of respondents disagreed, and the response was more pronounced when weighted by panelists’ confidence.

The respondents included Hart, who reiterates the point he made with Zingales. “Companies should maximize shareholder welfare not wealth,” he writes. “If shareholders care about workers and the community, the company should too.”

Kenneth Judd, Stanford
“I doubt that the shareholder-maximizing efforts of the makers of OxyContin was good for society.”
Response: Disagree

Steve Kaplan, Chicago Booth
“While alternatives may seem attractive, they are difficult, if not impossible, to measure, implement, and govern.”
Response: Strongly agree

Richard H. Thaler, Chicago Booth
“The Supreme Court declared that corporations have rights like citizens. With rights come obligations. Firms can choose to be good citizens.”
Response: Strongly disagree