Team Sahoja | October 27

Economics Nobel Laureate Milton Friedman was Wrong!

Maximizing Shareholder Value Should Not be the Overriding Goal for a Corporation

A progressive group of thinkers, sociologists and business leaders have for years been wrestling with the idea of what a corporation’s true goal should be, arguing the most beneficial for society as a whole and the most resilient, financially successful long term is one which provides value beyond just shareholders.

This same thought process contributed to the creation two years ago of our company Sahoja, which was incorporated as a for-profit Delaware Corporation in July 2019. Sahoja had a different vision than maximizing shareholder value for a limited few, rejecting this concept as the key goal for a corporation.

Coincidentally, The New York Times on Sunday September 13th published many details about Milton Friedman’s theories and comments by some leading business leaders and others. It was exactly 50 years ago in September 1970 that the economist Milton Friedman published his doctrine “The Social Responsibility of Business Is to Increase Its Profits.” Milton Friedman’s won the Nobel Prize for Economics in 1976.

Marc Benioff of Salesforce said, “I didn’t agree with Friedman then, and the decades since have only exposed his myopia. Just look where the obsession with maximizing profits for shareholders has brought us: terrible economic, racial and health inequalities; the catastrophe of climate change. It’s no wonder that so many young people now believe that capitalism can’t deliver the equal, inclusive, sustainable future they want.” 

Daren Walker, Chief Executive of Ford Foundation, opined, “Friedman’s thinking became ideology. Gone were the days when someone like my semiliterate grandfather, with only a third-grade education, could work as a porter and benefit from a profit-sharing plan provided by a company that dignified his work. In their place were new conditions in which our social contract frayed, and our economy tilted out of balance — fomenting the unsustainable inequalities that plague America today.”

Sahoja’s founders recognized the tremendous impact of financial inequality which the world at large is beginning to acknowledge. One means of achieving this is to open the company’s ownership to all who are part of the company eco system – employees, management, investors, vendors and everyone else who interacts with the corporation. Most importantly, consumers & customers should be shareholders. This is because without consumers a corporation cannot survive. A corporation exists because of its customers and those who buy from it. Sahoja’s shareholders will be anyone who wants to be one, without any limits. Its members should be shareholders and owners.

Milton Friedman was right in the sense that a corporation’s goal should be to maximize shareholder value, but this works only if stakeholders are not short changed, and the shareholder orbit encompasses anyone and everyone who wants to be a part owner of the corporation.

Therefore, Sahoja modifies Milton Friedman’s statement as follows: Maximizing Shareholder Value Should be the Overriding Goal for a Corporation if All Stakeholders Including Customers and Consumers are also Shareholders!