Inclusive Economy | September 14, 2020

Fifty years later, resetting capitalism from shareholders to stakeholders

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, Sept. 14, 2020 –– Milton Friedman’s 1970 essay, The Social Responsibility of Business Is to Increase Its Profits,” turns 50 this week. It has not aged well.

Corporate and business voices assembled across the media landscape to bury Friedman’s doctrine of “shareholder primacy” and champion the advent of “stakeholder capitalism” responsible to workers, communities, suppliers and the environment as well as to investors.

But a year after 181 CEOs in the Business Roundtable pledged themselves to the stakeholder approach, the birthday bashing should also prod accountability from would-be reformers.

“It is good that the business community has awaked,” economist Joseph Stiglitz said in The New York Times. “Now let’s see whether they practice what they preach.”

Corporate accountability is key to the success of ‘stakeholder capitalism’


An advocacy campaign to “shift the cultural narrative about the role of business and finance in society” launched with a full-page ad in the Times, slick social-media messaging and a music video.

“We need an economic system that is designed for interdependence, invests for justice, and accounts for all stakeholders,” said B Lab’s Jay Coen Gilbert, an organizer of the effort. “The RESET is about a great alignment of interests to fix a broken system to make capitalism work for everyone and for the long term.”

Imperative21 also includes B Team, Chief Executive for Corporate Purpose, Coalition for Inclusive Capitalism, Conscious Capitalism and JUST Capital.

“Capitalism, as it exists today, is wildly out of step with our evolving world,” Global Impact Investing Initiative’s Amit Bouri, said in his own video

Public benefit

In Fortune, Leo Strine, former chief justice of the Delaware Supreme Court, along with Colin Mayer and Jaap Winter, would require all companies with more than $1 billion in revenues to enshrine such purpose in their charters.

We are calling for the universal adoption of the (public benefit corporation) for large corporations,” they wrote.

Cornerstone Capital Group’s Erika Karp said the phrase “long term” goes a long way toward driving the thoughtful deployment of financial, natural and human capital.

“Investors and corporations have learned a better and more holistic way to serve our shareholders for the long term,” Karp says in the Times. “That is free-market economics for the 21st century.”

New narrative

That capitalism itself needs the reset, the reimagining that impact investing represents was one of the takeaways from last week’s GSG Impact Summit.

In the discussion (watch the video replay), Omidyar Network’s Chris Jurgens challenged impact investors to themselves be more accountable to stakeholders.

“How is impact investing addressing power and justice? Are parts of impact investing perpetuating current concentrations of power?” he asked. “Are we willing to step in and say some of the most fundamental rules have to be changed to fix the economic system and get at who has power and who doesn’t in this system?”

Impact On: Impact investing’s confident and compelling new narrative