Milton Friedman's September 13, 1970 New York Times Magazine essay, The Social Responsibility of Business is to Increase its Profits, is one of the most-cited statements of shareholder-value normativity in the modern American canon.12 Friedman's actual claim is narrower than the slogan: the executive of a public corporation, in his “official” capacity, “has [a] direct responsibility to his employers . . . to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both those embodied in law and those embodied in ethical custom.”13 Friedman's closing formulation, quoting his own Capitalism and Freedom, is even more carefully bounded:
There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. Milton Friedman, N.Y. Times Mag. 32, 33 (Sept. 13, 1970).12
Friedman is best read as an agency-theoretic argument: the executive is the stockholders' agent, and lawful profit-seeking within the “rules of the game” is the principals' presumptive instruction. The argument is silent on what the rules of the game should be; it is an instruction about decision rights inside the firm, not a libertarian charter against regulation, taxation, or fiduciary duty.14 Read with the “rules of the game” qualifier preserved, Friedman is largely compatible with what Stephen Bainbridge later formalized as director primacy on the means question paired with shareholder-wealth maximization on the ends question.15
Sixteen years after Friedman, Delaware supplied the case that doctrinal commentators most often read as a holding (rather than a dictum) of shareholder primacy. In Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., the Delaware Supreme Court held that “[t]he duty of the board . . . had thus changed from the preservation of Revlon as a corporate entity to the maximization of the company's value at a sale for the stockholders' benefit” once the breakup of the company had become inevitable.16 Revlon's scope is narrow — it operates only in the sale-of-control mode, when breakup or change of control is “inevitable” — but within that mode, stockholder-value maximization is the sole legally cognizable end. The court was explicit about the limit of stakeholder consideration in the auction setting: “[a] board may have regard for various constituencies in discharging its responsibilities, provided there are rationally related benefits accruing to the stockholders.”17 That instrumental-only qualifier is the doctrinal hinge of the modern Delaware regime.
Section 4Institutional voices — American Law Institute Principles; Business Roundtable 1997 → 2019
1994 · 1997 · 2019
The American Law Institute's Principles of Corporate Governance: Analysis and Recommendations, adopted in final form in 1994 after roughly fifteen years of drafting, attempted a synthesis. Section 2.01(a) recites that a corporation “should have as its objective the conduct of business activities with a view to enhancing corporate profit and shareholder gain”; Section 2.01(b) then permits the corporation to “take into account ethical considerations that are reasonably regarded as appropriate to the responsible conduct of business” and to make reasonable charitable, humanitarian, educational, and philanthropic contributions, even where doing so does not enhance profit or shareholder gain.18 The ALI text is the most widely cited statement of the post-war doctrinal settlement, appearing across casebooks and law-review treatments: shareholder gain is the presumptive objective; non-shareholder considerations are permissible additions, not independent fiduciary ends.
The Business Roundtable's two purpose statements bracket the institutional swing. In 1997, the Business Roundtable declared that “the paramount duty of management and of boards of directors is to the corporation's stockholders” and that “the notion that the board must somehow balance the interests of stockholders against the interests of other stakeholders fundamentally misconstrues the role of directors.”19 Twenty-two years later, on August 19, 2019, 181 CEOs signed the Statement on the Purpose of a Corporation, which committed each signatory company to “deliver value to all of [its stakeholders]” — customers, employees, suppliers, communities, and shareholders, in that order.20 Section 9 presents the empirical follow-through audit by Lucian Bebchuk and Roberto Tallarita, which found the institutional commitments that would have made the pledge binding — board approval, governance-document amendment, corporate-form change — largely absent.