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Revisiting Milton Friedman’s Critique of Stakeholderism

The Nobel laureate economist argued that CEOs and boards should focus on maximizing shareholder value, not stakeholder value.

Exactly 50 years ago, economist Milton Friedman argued that corporate boards should focus on maximizing shareholder value and not get wrapped up in trying to achieve other objectives. The conventional wisdom in boardrooms today seems to be that Friedman was wrong. In fact, though, a lot of what he wrote was spot on. Sadly, the current emphasis on “stakeholder value” is one part enlightenment, one part public relations, and one part an attempt by corporate directors to get a freer hand to run companies as they personally see fit.

True, as the ESG (environment, social, governance) movement contends, there are legitimate reasons to take into account the interests of stakeholders other than shareholders. But it takes sophisticated reasoning, not just hand-waving, to address the critique of Milton Friedman, the libertarian icon who won a Nobel memorial prize in economics in 1976.