This is one of the most important stories of the year:
Shareholder Value Is No Longer Everything, Top C.E.O.s Say
Chief executives from the Business Roundtable, including the leaders of Apple and JPMorgan Chase, argued that companies…
Nearly 50 years ago economist Milton Friedman proposed a theory called shareholder value, declaring that public companies have a legal obligation to maximize shareholder value at all costs. The public business sector slowly entered an era where short-term thinking became standard, leading to regular layoffs and putting profits above people.
In the end, Friedman’s theory has been proven wrong. If you invested in the S&P 500 prior to the widespread adoption of shareholder value (1976), you’d make an average annual return of 7.6%. From 1976 through 2013? 6.4%.
A 1.2% difference may not seem like a lot. But compounded over years, it’s significant.
This statement issued by The Business Roundtable will not turn things around overnight. But it’s a huge step in the right direction — towards companies that prioritize employees, customers, the environment and communities over profits. To be clear, profits are important — without profits, a business is not sustainable. But profits at all costs destroys more value in the long term.