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Change the channel on Uncle Miltie

Uncle Miltie.033 The Uncle Miltie in question is Milton Friedman, the late Nobel Laureate in economics who defined a corporation's purpose rather narrowly as making money for its share owners, all within "the rules of the game," of course. 

Unfortunately, recent economic events have proved that referees are not always vigilant, players sometimes use company money for their personal pleasure, and the game itself is sometimes rigged. 

My own view is that Friedman had the purpose right, but he defined the beneficiaries too narrowly. Companies exist to create wealth, but not just for its so-called "owners."

Friedman focused on a company's owners because they provided the capital to set the company up in the first place. So far so good, but many other people contribute resources to a company's success and assume the risks of its failure.  In addition to its investors, I would count its employees, customers, suppliers, and the communities in which it operates. It is not speaking metaphorically to say that the company exists to create wealth for them too. 

On a practical level, it is increasingly difficult to even find a company's owners. When Friedman began his illustrious career, stock ownership was relatively concentrated.  Today, it is widely dispersed and volatile. The average mutual fund turns over nearly its entire portfolio every 12 months. 

Furthermore, thinking more broadly about a company's purpose can actually benefit its performance. That's the point Rosabeth Moss Kanter made in her book  Supercorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good. For a quick summary, see an interview she recently gave Wall Street Journal.


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