Nor was Friedman correct that business executives are the employees of the shareholders. Legally, business executives are employees of the corporation, which—crucially—they, not the shareholders, control. The shareholders have a contractual relationship with the corporation that entitles them to a share of its profits and a vote on certain major corporate decisions. Time and again, CEOs have used their power over the corporation to bat away shareholders when they propose that the corporation should act in a socially responsible way. When an employer says “jump” to an employee, the employee jumps. When shareholders say “jump” to the CEO, the CEO sues them.
Friedman’s strongest point was that business leaders are rarely qualified to determine the best public use for corporate funds. And that is why the switch to a “stakeholder” theory is hardly a guarantee that corporations will now act responsibly. The only proven way to stop corporations from polluting, defrauding, and monopolizing is to punish them through the law.
- Milton Friedman Was Wrong
Friedman’s strongest point was that business leaders are rarely qualified to determine the best public use for corporate funds. And that is why the switch to a “stakeholder” theory is hardly a guarantee that corporations will now act responsibly. The only proven way to stop corporations from polluting, defrauding, and monopolizing is to punish them through the law.
- Milton Friedman Was Wrong
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