Milton Friedman believed that the sole responsibility of corporations was to maximize shareholder value (Friedman, 1970). We have come a long way since then and have adopted a Stakeholder Model which recognizes the interests of employees and their families, the community, suppliers, and customers, and even of competitors, government, and everyone in the region in which the company is located.
Many years ago, Henry Ford lost the lawsuit in which some of his shareholders (notably the Dodge brothers) sued for failing to distribute profits to shareholders. The Michigan Supreme Court held that Ford must distribute his profits to his shareholders rather than building a smelting plant (Dodge v. Ford Motor Co., 204 Mich. 459 (1919)). Ford had said that “My ambition … is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes” (Id. at 505).
The Michigan Supreme Court held, “A business corporation is organized and carried on primarily for the profit of the stockholders” and that “it was their duty to distribute on or near the first of August, 1916, a very large sum of money to stockholders” (Id. at 505, 509). It ordered Ford Motor Co. to pay out $19,275,385.96 in additional dividends (Id. at 491). As a result, Henry Ford took the company private, and bought out the other shareholders so as to have total control–obviously he would disagree with Friedman.
We now recognize that Milton Friedman was wrong; that the most socially responsible way with positive long-term results for the company and society is to take the interests of all stakeholders into account.
References:
Dodge v. Ford Motor Co., 204 Mich. 459, 170 NW 668; 1919 Mich LEXIS 720; 3 ALR 413 (1919).
Friedman, M. (1970, September 13). The social responsibility of business is to increase profits. The New York Times Magazine [electronic version]. Retrieved February 21, 2009 from http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html