From Shareholders to Stakeholders
By: Geoff Graber
Fifty years ago, the economist Milton Friedman penned an essay for The New York Times Magazine entitled “The Social Responsibility of Business Is to Increase Its Profits.” His work, along with his argument for “shareholder primacy,” guided the modern world toward a myopic vision of the purpose of business: to serve one master—shareholders—and to generate maximal profits to that end. He believed corporations had no responsibility for anything else since they weren’t people.
Although his argument was cogent, he was blind to several key factors that provide a different perspective: first, that life is larger and more important than business, and that business should therefore serve life; second, that profit is not the sole determinant of shareholder value; and third, that in the long run companies potentially perform better, by all measures, when they are of maximal service to all of their stakeholders.
Being of service is a noble pursuit, perhaps the noblest. It means offering yourself to another or to the world, providing others with something of value, and supporting them. Being of service is a core aspect of humanity. As babies, we cannot survive without our mother’s support. But, as the saying goes, it takes a village. Who serves our mothers?
In today’s world, companies do play a significant role in providing services for people and other businesses—but it is not always so. There are countless examples of businesses that are of service to some and cause harm to others. Wells Fargo is one recent example of a company that defrauded many of its customers to pursue profits. Cigarette companies knowingly sold cancer-causing products to their customers. Facebook has allowed its users to be manipulated by false claims from bogus sources, thereby affecting the outcome of the 2016 and 2020 U.S. presidential elections.
Being of service is foundational for business, or should be. If your business is no longer of service, you need to fix it, leave it, or shut it down. If you are a conscientious, ethical leader, you cannot be a party to such a company. In most circumstances, the challenge is less clear-cut. Once we answer the question, “Are we causing any harm?” we can move on to a more complex question: “Are we being of service to each of our stakeholders as much as possible?” That is a question you should regularly ask yourself and your team—and in a structured, systematic way, through the lens of each stakeholder group.
For example, compensation is the primary relationship between a business and its employees. But in addition to their paycheck, workers also may receive equipment, a place to work, food and beverages, and the like. They also may receive a sense of belonging, fulfillment, and support for their individual growth. These factors (and potentially much else) figure in determining the level of service a business provides to its workers.
Businesses have many stakeholders. The key ones are:
Workers
Customers
Partners
Investors and other shareholders
The local community
Oppressed people
Planet Earth
Society in general
Your business may not have all of these and may have others you can specify. It’s up to your company to decide when and how to focus on which stakeholders. A new startup may not want to focus on anything but customers at the outset. As the business grows and can extend its resources, other stakeholders come into account.
It’s important to note one additional stakeholder that companies often take for granted: You, as the company’s founder or one of its leaders, are a stakeholder who should be considered individually. Each individual is unique and must be served for the whole to be successful. If you’re killing yourself serving your customers or shareholders, the business you lead will eventually break down.
The idea of “work” as something onerous we must endure to be successful is common. This attitude is engrained in the United States and in conventional business worldwide. Evolutionary business views this as self-defeating, missing the point of business as a force for good and a means to a healthy life. Work is not something to balance with our life. It is an integral part of our life.
Thus, it is important for each individual’s purpose and values to be aligned with the company’s purpose and values. The alignment need not be exact, but it must be close enough. Otherwise, the self is not served, and the person will suffer through their work experience. You, as a leader (and every other “you” in the company), need to recognize any misalignment and then do something about it. This could involve clarifying leadership decisions, defining the company’s culture, and examining other aspects of the business that appear contrary to your values and principles. Ignoring such misalignments and not raising awareness of them is unhelpful to you and every one of your colleagues.*
The conventional business view of people as “human resources” does not consider the individual self. People should not be seen as automatons serving the company’s machine. Yet even in today’s free-wheeling information economy, only about one-third of workers feel engaged and satisfied in their jobs. Worker dissatisfaction often correlates with inefficiency and ineffectiveness in the business itself.
Only you can decide what business and what role is best for you. Thus, we start with the call to “Know thyself” and to keep learning, taking appropriate action to integrate and align your deepest sense of self with your work in the world. Not until then can you be of maximal service to others.
Next, we will investigate what it means to be of maximal service to each of the other key stakeholders, starting with workers.
* It is possible, as a means to an end, for someone to work at a company for some time without alignment to the company’s purpose—for example, when a medical student works as an Uber driver to make ends meet while studying. The work for Uber in this example indirectly aligns with the student’s purpose.