Author: Micaela Cervantes | UC Berkeley School of Law | J.D. Candidate 2020 | Posted October 3rd, 2018 | Download PDF.
The perception of a corporation’s role in society shifted after Milton Friedman established his shareholder primacy theory in 1970. Friedman wrote that the corporation’s primary purpose is to maximize shareholder profits. Although, Friedman’s theory prevailed for many years, it has recently received criticism from both lawyers and politicians. Opponents of Friedman’s theory voice concern that shareholder primacy is not sustainable and has negative effects on the stakeholders and on the community. In lieu of shareholder primacy, critics emphasize the need for stakeholder theory. Stakeholder theory states that “managing for stakeholders is about creating as much value as possible for stakeholders, without resorting to tradeoffs.” Critics agree that shareholder primacy theory has lasting negative effects on society and that stakeholder theory is more sustainable. However, they disagree about the appropriate way to implement change through stakeholder theory. Some suggest a legislative solution and others suggest a private solution. (more…)