* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.
It is 50 years since economist Milton Friedman said companies exist purely to maximise profits. This pandemic has shown us it's time for a reset
We’re at a moment of profound risk. And historic opportunity.
Increasing divisiveness and inequality, declining belief in capitalism, and accelerating climate emergency — all exacerbated by a global pandemic and its disparate economic impacts — threaten business, democracy, society, and our home planet.
To address these profound challenges, we have to look at root causes, not symptoms. And we have to look at them holistically, not one by one.
If we look closely we can see clearly a deeper, more fundamental problem: an economic system that serves the few, not the many.
In September 1970, the American economist Milton Friedman set the trajectory for our current economic system to reward the maximization of profits for shareholders no matter the cost to people, communities, or the natural world on which all life depends.
Fifty years on, we are in dire need of an reset that will lead to a more just economy designed to work for everyone and for the long-term.
We need a reset consistent with the three imperatives of a 21st century economy: to design for interdependence; invest for justice, and account for all stakeholders -- that means for workers, customers, suppliers, communities, the environment, and of course shareholders.
Here’s the good news: a reset is in all our shared interest. Without it we won't achieve the global development goals meant to save the planet and its most vulnerable people.
We need an economic reset for workers who deserve a voice, health care and a living wage.
A reset for women whose leadership we need and whose pay gap we must close, for Black, Indigenous, and People of Color who deserve equitable access to investment, leadership, and ownership.
A reset to create sustainable value for long-term shareholders.
And, last but not least, a reset for nature because we can’t live safely in a home on fire or under water.
In short, we need a reset that moves us away shareholder primacy and towards stakeholder capitalism.
Here’s more good news: Stakeholder capitalism is already working.
According to JUST Capital, evaluation of the Russell 1000 companies shows that companies that lead in meeting the needs of all stakeholders have financially outperformed those that lag behind by almost 30% over the past four years, and by double-digit margins throughout the pandemic.
It’s no longer a question of whether we must transition to stakeholder capitalism; the only question most forward-thinking leaders in business, finance, government and civil society are asking is how.
Fortunately, there are many examples where business is already embracing a stakeholder approach, and showing how the imperatives can be successfully implemented.
During the COVID-19 pandemic, for example, dozens of large corporations - including Verizon, Home Depot, and Target - have taken steps to invest in new business practices that promote greater resilience of their workers, customers, and suppliers.
These range from permanent wage increases and changes to paid sick leave, to community investment funds and high-risk customer accommodations.
We welcome such efforts, and we know we need more and bolder.
Through the Business Ambition for 1.5 degrees Celsius pledge, which commits to achieving net zero carbon emissions by 2050 or before, nearly 300 companies are aligning their business models to design for interdependence of healthy people, planet, and economies.
These market leaders, including Microsoft, Pepsi, and Salesforce represent $3.6 trillion in market capitalization.
More than 700 B Corporations, including companies like Allbirds, Chiesi Pharmaceuticals, and Patagonia have gone even further, committing to achieve net zero by 2030.
Broadway Financial is investing for justice by investing in communities of color too often overlooked and underserved by traditional financial institutions.
After its recent merger with City First, the new entity will be the largest Black-owned bank in the U.S., with $1 billion in assets.
Larger corporations are also beginning to break new ground on equity: Intel fully discloses wage data for its workforce by gender, race, and ethnicity; and PayPal’s is lifting wages for its most financially-distressed employees, boosting both engagement and productivity.
The recent successful initial public offerings of Vital Farms and Lemonade, both B Corporations, show that the next generation of innovative, venture-backed companies that authentically account for stakeholders can successfully enter the public markets.
Fifty years later, evidence abounds that shareholder primacy is damaging people and the planet. In contrast, the opportunity of stakeholder capitalism, with a market of US$ 30 trillion in ESG and impact investments and growing, is clear.
It’s time for a reset.