According to 1976 Nobel Prize winning economist Milton Friedman, the purpose of business is to increase shareholder value.
Wait, what!? What about everybody else that contributes to a business’s success? If Friedman’s right, 80% of contributors are unimportant, or, at minimum, just replaceable cogs in a machine.
“But, Neal,” you cry, “the shareholders provide capital.” Yeah, and the other stakeholders provide things too. Customers provide demand, revenue, and marketing. Employees provide their time, effort, and talents. Suppliers provide materials, products, and tools. And the community provides the infrastructure.
“But you pay employees and suppliers to do their part.” Yeah, and you pay the community in taxes and shareholders in dividends and increased value to do theirs.
You see, everybody provides something vital and everyone gets something in return. So why should shareholders be singled out as more important?
Reality check, all stakeholders are important, and all deserve their due, and that’s just one area where Friedman’s thinking falls flat. The other is in his assertion about the purpose of business. The purpose of business is not to provide a return to investors/shareholders, it is, rather, to help people. Yeah, you heard me, to help people. Business’s fundamental purpose is to help people with things they can’t do, don’t want to do, or don’t have access to. And if you’re grumbling that business is about making money, c’mon, when you really think about it, isn’t providing for some need people have what every business is fundamentally for? If you still say no, then tell me how a business exists without providing anything.
Okay, that’s settled then, businesses are in business to help first and then get paid for doing it. Thus, Friedman was dead wrong. Not only is making money for shareholders not the purpose of business, it can’t be the purpose of business because it is only an outcome.
Bottom line: Know what you help people do and then help them do it. If you manage that well, you can help all of those stakeholders that help you make it happen. It’s a circle. Get to work.
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