In a much-cited, much-discussed 1970 article the New York Times entitled “The Social Responsibility of Business is to Increase its Profits” the renowned economist Milton Friedman harshly criticized those in the business community who maintained that private enterprises had a mission to promote desirable social ends. What the Times labelled a “Friedman doctrine” reputedly constituted a major turning point in corporate legal theory and corporate governance. In particular, Friedman’s essay has been credited with—or blamed for—launching a still ongoing era of “shareholder primacy” where corporate executives have assumed their job is to maximize shareholder value. In my working paper Stop Blaming Milton Friedman! I show that the historical evidence does not tally with the hype.

Economists Oliver Hart and Luigi Zingales have argued Friedman’s article can “be seen as providing the intellectual foundation for the ‘shareholder value’ revolution.” (The citation for their paper and for all other sources canvassed in this post are available in my working paper.) A Newsweek columnist suggested in 2019 that “for almost 50 years, American CEOs have loosely followed what is known as the Friedman Doctrine.” Oxford management theorist Colin Mayer, a staunch shareholder primacy critic, has said of this “doctrine” “(f)ew social science ideas are both so significant and misconceived as to threaten our existence.” It strains credulity that an entire school of academic thought could have this sort of impact, let alone a single newspaper essay that was not even 3000 words in length. At the very least, those who ascribe to Milton Friedman substantial responsibility for American companies prioritizing shareholder interests make a series of implicit erroneous assumptions about his essay and subsequent developments.

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