Article by Inc. Magazine

Image by Diego Jimenez on Unsplash

Some 50 years after Milton Friedman declared that “the social responsibility of business is to increase its profits,” his doctrine of shareholder primacy is having its day of reckoning. Many entrepreneurs have been skeptical for some time of a system that incentivizes squeezing profits out of the business and handing them off to shareholders not involved in operations. Indeed, companies like Airbnb and Patagonia have stated they want to create value for all stakeholders, not just shareholders, and there’s a strong argument that the stakeholder approach is better for the bottom line over the long term.

Friedman’s narrative, published in September 1970, set the stage for decades of corporate behavior prioritizing the interests of shareholders above all else. But half a century later, market forces have exacerbated inequality, while deregulation has let companies off the hook for things like air and water pollution and climate change.

Opposition to the Friedman doctrine has been building for some time (last year, the Business Roundtable announced that the purpose of a corporation is to create value for all stakeholders, not just shareholders), and is accelerating with the pandemic. With inequality and natural disasters in the spotlight, leaders in business and finance are rallying for a new narrative.

Enter Imperative 21, a network of business associations created in the early weeks of Covid-19 and representing more than 70,000 businesses, with the ambitious goal of ushering in a more inclusive, stakeholder-focused economic system. The founders include the leaders of B-Lab, an organization that runs a rigorous certification process for companies interested in identifying as having a societal mission. Investors are also represented in Imperative 21 through the Global Impact Investing Network (GIIN), and large corporate CEOs through Chief Executives for Corporate Purpose (CECP), an association originally founded by Paul Newman.

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