REDEFINING CORPORATE PURPOSE: Finance professionals consider the ethical implications of the shift to a purpose that factors in all stakeholders' interests

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Date: Mar. 2021
From: Strategic Finance(Vol. 102, Issue 9)
Publisher: Institute of Management Accountants
Document Type: Article
Length: 1,020 words
Lexile Measure: 1390L

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IN ECONOMIST Milton Friedman's Capitalism and Freedom, he discusses capitalism, social welfare, and the roles of government and business in a free society. He postulated, "There is one and only one social responsibility of business--to use its resources and engage in activities designed to increase its profits." This concept became the basis of shareholder capitalism or primacy, which maintains that the sole purpose of a corporation is maximizing profitability and shareholder value. A corporation might provide better employee pay and benefits, improve the quality of its products or services, or increase its commitment to social programs in the communities in which it operates--actions that might appear to be undertaken at the expense of the company's shareholders--but they weren't entirely altruistic. Improved employee relations increased productivity, stronger customer loyalty strengthened the company's competitive position, and an enhanced image in the community created goodwill, boosting the company's value.

Other business leaders and economists take a different, perhaps more ethical approach--that the company's purpose should be to serve the interests of all its constituencies, including customers, suppliers, employees, and the community at large. The recent surge of interest in corporate environmental, social, and governance (ESG) policies and corporate social responsibility (CSR) has led to wider acceptance of the ethical factors within a more expansive view of a company's purpose.


The transition to this more inclusive paradigm gained new momentum in August 2019 when the Business Roundtable issued a Statement on the Purpose of a Corporation. Signed by 181 CEOs, the statement sets a new standard...

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Gale Document Number: GALE|A654001992