Stop Blaming Milton Friedman!

54 Pages Posted: 31 Mar 2020 Last revised: 4 Jun 2020

See all articles by Brian R. Cheffins

Brian R. Cheffins

University of Cambridge - Faculty of Law; European Corporate Governance Institute (ECGI)

Date Written: March 11, 2020

Abstract

A 1970 New York Times essay on corporate social responsibility by Milton Friedman is often said to have launched a shareholder-focused reorientation of managerial priorities in America’s public companies. The essay correspondingly is a primary target of those critical of a shareholder-centric approach to corporate governance. This paper argues that it is erroneous to blame (or credit) Milton Friedman for the rise of shareholder primacy in corporate America. In order for Friedman’s views to be as influential as has been assumed, his essay should have constituted a fundamental break from prevailing thinking that changed minds with some alacrity. In fact, what Friedman said was largely familiar to readers in 1970 and his essay did little to change managerial priorities at that point in time. The shareholder-first mentality that would come to dominate in corporate America would only take hold in the mid-1980s. This occurred due to an unprecedented wave of hostile takeovers rather than anything Friedman said and was sustained by a dramatic shift in favor of incentive-laden executive pay. Correspondingly, the time has come to stop blaming him for America’s shareholder-oriented capitalism.

Keywords: shareholder value, shareholder primacy, corporate social responsibility, Milton Friedman

JEL Classification: G34, K22, L21, N22

Suggested Citation

Cheffins, Brian R., Stop Blaming Milton Friedman! (March 11, 2020). University of Cambridge Faculty of Law Research Paper No. 9/2020; European Corporate Governance Institute - Law Working Paper No. 523/2020. Available at SSRN: https://ssrn.com/abstract=3552950 or http://dx.doi.org/10.2139/ssrn.3552950

Brian R. Cheffins (Contact Author)

University of Cambridge - Faculty of Law ( email )

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