Maximizing Shareholder Value Still Matters the Most

On a scale of 1(strongly disagree) to 5 (strongly agree), how would you rate the following statement: “The Maximizing primary goal of every public company should be to maximize shareholder value?” We recently posed this question to almost 300 undergraduate students at a prominent business school.

The results: less than half, only 44 percent agreed or strongly agreed, while 34 percent disagreed or strongly disagreed (22 percent were neutral) — in my opinion, not a resounding vote of confidence for capitalism. I wondered if Milton Friedman, the University of Chicago Nobel laureate and original champion of shareholder value maximization, would be turning in his grave. Should executives of public companies put shareholders first? The answer matters to investors.

The Social Responsibility of Business is to Increase its Maximizing.


It’s been over 50 years since Friedman made the case for shareholder maximization in his seminal 1970. New York Times Magazine article titled. The Social Responsibility of Business is to Increase its Profits. A piece that I think should be mandatory reading in every business school, if for no other reason than to encourage a lively debate. Friedman was unequivocal in terms of what the executive’s responsibility was: “To conduct business in accordance with [shareholders’] desires, which generally will be to make as much money as possible while conforming to their basic rules of the society, both embodied in law and those embodied in ethical custom.” Let’s unpack what Friedman had to say.


Let’s start with “conduct business in accordance with [shareholders’] desires” Executives of company are employees of the owners or shareholders, and as such have a direct responsibility to them — an argument that is the basis for what we now call the principal-agency theory of the firm. When making corporate decisions, executives should be looking out for the interests of the shareholders. 

What about other stakeholders?

In August 2019, a group of nearly 200 influential CEOs of the largest American companies created quite a stir by adopting a document known as the Business Roundtable (BRT) Statement on the purpose of a corporation. While recognizing that each individual company served its own corporate purpose, the CEOs shared a fundamental commitment to all of their stakeholders, and in particular:

Generating long-term value for Maximizing.


What I found fascinating was that there was no mention of which stakeholder group. If any, was the primary group. But shareholders were the last to be mentioned.
It’s been over two years since the signing. What’s changed for these signatory companies? As it turns out, not much! In an extensive empirical study by Harvard Law School professors Lucian Bebchuk. Roberto Tallarita, they concluded that the BRT Statement was mostly for show. With the signatories not intending or expecting to bring about any material changes in their treatment of stakeholders. Here’s what the authors found:


The BRT companies generally did not add any language that improv. The status of stakeholders and most retained a commitment to shareholder primacy;
Most corporate governance guidelines reflected a shareholder primacy approach. An even larger majority did not include any mention of stakeholders.


Examining over forty shareholder proposals regarding the implementation of the BRT. Statement that submit during the 2020 or 2021 proxy seasons. None of these companies accepted that the BRT Statement require. Any changes to how they treat stakeholders.


Let’s go back to the Maximizing of the social responsibility of a corporate.

Friedman’s claim was that businesses per se can’t have responsibilities. “Only people have responsibilities [not businesses] 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.

”According to Friedman, if an executive act in a socially responsible manner. Such as refraining from increasing product prices in order to prevent inflation. Or making expenditures to reduce pollution beyond what require law. In order to improve the environment. Then that executive was effectively spending shareholders’ money.