The ghost of Milton Friedman will haunt the markets until companies fix CEO pay

Fifty years ago this week, the New York Times Sunday Magazine published an essay by the Nobel prize-winning economist Milton Friedman. The central premise of the Friedman Doctrine was that to continue to prosper, American business needed to stay globally competitive—and that required executives to focus only on profits and share price. He called for executives to ignore the distraction of the myriad social responsibilities that go beyond the legal minimum.

Friedman’s call to action worked. Within a decade or so, business schools had begun to teach that the purpose of business is to maximize “shareholder value,” a mantra that eventually rang out from practically every company boardroom.

But in recent years, the narrative of business purpose has, thankfully, evolved. Today Friedman’s doctrine, like many relics of the 1970s, is viewed as a bit of a cartoon. The New York Times Magazine and DealBook reprinted his manifesto this week on Sept. 13, on the anniversary of the original, with commentary from a range of contemporary observers and scholars of business. The voices of some experienced business leaders and of economists, like Glenn Hubbard of Columbia Business School, still stand by Friedman but offer the caveat that his theory only really works if shareholders are patient and long-term oriented. But capital markets are far from patient. The nosiest, noisiest, and most persistent shareholders are usually those looking for a quick gain, and the market famously rewards businesses that discount the future and externalize costs onto communities and the environment.

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