INSTITUTIONAL EYE The shareholder versus stakeholder debate, rekindled 10 Mar, 2021

Have we been too early in celebrating the end of the profit-maximizing corporation and the advent of stakeholder capitalism? Perhaps not. After all, some 50 years have passed since Milton Friedman writing in the New York Times had baldly stated that the social responsibility of business is to maximize profits—a long enough period for any theory to start to fray. Importantly, hadn’t the all-powerful US Business Roundtable defenestrated Friedman, stating that purpose of the corporation is no longer maximizing returns to shareholders but a commitment to all stakeholders? So why is question?

The debate resurfaced last month after JP Morgan’s board rejected the switch to become a shareholder-focused entity. And if maximization interests of shareholders remains the legal touchstone for all board decisions in the US, the philosophical underpinnings will permeate our markets: By one count, foreign institutional investors own 20.6 per cent of the Indian equities.

A more important reason to ask the question is the implication this might have on company strategy, that increasingly focused on going green.

A modified version of this blog titled ‘Shareholder versus stakeholders, once more’ appeared in Business Standard on 10 March 2021. Subscribers to the newspaper can access it here or typing the following url:

To read the Full blog click here

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  • ESG
  • Stakeholders
  • Milton Friedman

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