A fairly balanced and constructive debate around the need for ‘purposeful capitalism’, that can even carry the most ardent of Friedman’s followers. “Milton Friedman’s argument that for a company to pursue anything other than (legal) profit would be “pure and unadulterated socialism”” effectively underpinned the unbridled rise of capitalism over the last 50yrs. Of late though, criticisms have emerged from all quarters:
“The pursuit of returns to companies’ owners at the expense of other stakeholders has undoubtedly led to greater profits, generating enormous wealth for investors and the executives whose rewards have been increasingly tied to shareholder returns. But it has come at a cost to employees, customers and the environment; incentivised boards to pay less tax; diverted cash to earnings-flattering share buybacks rather than investment; and — among those outside the privileged club of equity owners — eroded the trust on which companies ultimately depend.
A decade after the financial crisis shook voters’ confidence in capitalism, the challenges to Friedman’s model have been gathering momentum. Now — even as US President Donald Trump pursues stereotypically “pro-business” policies such as cutting corporate taxes and regulations — they are starting to converge into something that looks like a new worldview, shared by leading executives and
investors and shaped by an unlikely alliance of consumers, employees, campaigners, academics and regulators. Together, they could break a consensus that has governed business for two generations and offer a new model for capitalism based on the watchwords of purpose, inclusion and sustainability.”
The arguments for change go beyond altruism – as Colin Mayer, the economist and author of the new book ‘Prosperity’ puts it – “Elevating shareholders’ interests above those of employees, the environment or communities may have made sense when financial capital was scarce,….but now finance is abundant while human, natural and social capital are in short supply.”
“For this capitalist reformation to succeed, however, it will have to prove it has more substance than spin, survive the market’s down cycles and persuade a public whose faith in corporate and institutional elites remains fragile.”
Like Friedman championed the cause of capitalism, support for change is emerging from the very beneficiaries of capitalism – the bosses of the likes of Blackrock, Unilever, etc
“If Friedman’s article provided the intellectual underpinning for the idea that a public company’s only social responsibility was to increase its profits, the catalytic text for the new era of purposeful capitalism was a letter sent to chief executives a year ago by BlackRock’s Larry Fink, who with $6.3tn of assets under management counts as the biggest investor of them all.”
Fink wrote “With governments failing to prepare for the future, people were looking to companies to deliver not only financial performance, but a positive contribution to society, benefiting customers and communities as well as shareholders. Without a social purpose, companies fail to make the investments in employees, innovation and capital expenditures needed for long-term growth — and above-par returns to the likes of BlackRock.”
“Mayer’s manifesto recasts the company’s place in society, arguing alliteratively that its purpose is “producing profitable solutions to problems of people and planet.” Profit, in other words, flows from the pursuit of a broader social purpose.”
“As companies’ self-interest converges with the interests of other stakeholders, those who would improve the world have a chance to get some of the world’s most powerful instruments for change onside. They should grasp the opportunity business’s moral money moment has given them.”
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
Copyright © 2022 Marcellus Investment Managers Pvt Ltd, All rights reserved.
Get weekly insights on our investment strategies and more...