HBR Blog Network has an interesting article today, "Capitalism’s Future Is Already Here". The thesis of the article is that we should reject Milton Friedman's dictum,"the purpose of the corporation is to maximize shareholder returns", which first appeared in the New York Times in 1970. This type of thinking lead to a now outdated set of management practices according to the author because Friedman does not recognize the growing needs of society.
The focus of management should now be the customer and by serving the customer well, you serve the shareholder's best interest. This concept was first presented by Roger Martin, an academic who I have a great deal of respect for. Martin's special talent, in my opinion, is that he always finds the perfect balance between sound theory and workable practice. However, this time I think he got it wrong. Yes, a corporation should always make the customer the priority and the focus of management. (As I tell my students, if it does not affect the customer or put you out of business, it is not an important decision.) Focusing on the customer gives the corporation the flexibility (opening) to consider societal issues, but what is the framework for selecting the issues. Simon Synek of Golden Circle fame would probably say to pick the societal issues and let the customers pick your corporation/product to identify with. The problem with this logic is that homeless dogs and homeless children would be equally valid social objectives for a corporation. Perhaps we should have corporations commit to the UN Millenium Development Goals (UN MDG) or at least one goal. Probably no large corporation would have the courage to pick "human rights" but maybe startups could make that commitment and eventually we would have large corporations committed to human rights. Corporate support in the U.S. for the UN is almost non-existent so the UN MDG is probably not a workable model, but it points us in the direction to address Martin's shortcoming.
This closing comment from the article sums up the important point very well:
"It’s a shift in what society demands of the managers of its most powerful institutions: from narrow definitions of their owners and decisions that serve their short-term interests, to broad acceptance of the responsibility that comes with power and leadership concerned with what is best for society. In the shift, we are learning that an argument about the proper activities of managers can be logical, can be strongly argued, can influence decades of practice in the world’s largest corporations – and can still be plain, flat, dead wrong."
Changing the way that corporate managers think about society in the context of their decisionmaking is one of the objectives of the modern business education. Eventually everyone will realize that Friedman actually did leave us the room to be good corporate citizens.