In this excerpt from the Capitalisn't podcast, Luigi Zingales describes the different ways in which we can view corporate responsibilities.
Milton Friedman said that companies’ sole social responsibility is to make profits and put their shareholders first. But fights for social and economic equality are playing out across the United States, and companies are finding it near impossible not to weigh in.
Steve Kaplan, the Neubauer Family Distinguished Service Professor of Entrepreneurship and Finance and the Kessenich E. P. Faculty Director at the Polsky Center for Entrepreneurship and Innovation argues that the pursuit of profits has helped shareholders, but it has also played a part in lifting billions of people around the world out of poverty. It would be hard to measure companies’ performance by any other gauge, he notes.
But Luigi Zingales, the Robert C. McCormack Distinguished Service Professor of Entrepreneurship and Finance and director of Booth’s Stigler Center for the Study of the Economy and the State, says that being a good steward of employees, communities, and the environment can help maximize shareholder value. But he further argues that shareholders are concerned about more than just making money, and that companies should focus on maximizing shareholder welfare, not shareholder value.
What looks like corporate altruism is frequently something else, finds Marianne Bertrand, the Chris P. Dialynas Distinguished Service Professor of Economics and a Willard Graham Faculty Scholar. Her research demonstrates that corporate charitable giving is often designed to curry favor with influential politicians.
Luigi Zingales: If you think that a corporation is simply a group of individuals who decide together how they want their business to be conducted, going the direction of the shareholder primacy is pretty obvious.
If you think that the corporation is a superior entity that is given a superior power, the power of limited liability, by special permission of the state, then it's a completely different business because you can argue that the government has a right to demand some greater goal to a corporation, because with greater power comes greater responsibility.
A year of crises has heightened the debate about what corporations owe society.Is the Friedman Doctrine Still Relevant in the 21st Century?
Companies spend almost three times the amount on politically motivated charitable giving than they spend trying to influence politicians through PACs.How Corporations Use Charitable Giving to Wield Political Influence
Booth researchers are questioning if our personal data is making tech giants too powerful.Competition Is Fierce in the Tech Sector. Isn’t It?
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