News Journal: Corporations should care about more than shareholders

Last month, the Vatican issued a paper titled “Considerations for an ethical discernment regarding some aspects of the present economic-financial system.”
Sometimes I wish the Holy See would find a better headline writer, but the paper itself is well worth reading in full. It is shorter than most Vatican documents.
The result of ten years of work started by then-Pope Benedict in response to the 2008 world financial crisis, the paper was guided by his belief that “business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference.”
That belief propelled the Vatican into an argument that has roiled corporate philosophers for some time. Who exactly are the stakeholders in a corporation?
When I was in business school back in the early 1960s, most business leaders and academics generally shared Pope Benedict’s position. Corporations were expected to serve a number of stakeholders, including employees, customers and shareholders — and the communities where they were located.
That expectation began to change even before I left school. In his 1962 book, Capitalism and Freedom, the University of Chicago economist Milton Friedman proposed a very different philosophy. A corporation, he argued, has one and only one obligation — to serve the interests of its stockholders.
In 1970, he explained that argument this way: “There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
By the end of the last century, Friedman’s doctrine was by far the dominant opinion among corporate leaders. When I taught at Duke University’s Fuqua School of Business a few years ago, I had very few students who came to class questioning the overriding interests of stockholders over anyone or anything else.
But are profits the only thing that should matter to our giant corporations? Especially since the financial crisis of 2008, more and more thoughtful economists and business leaders are reexamining Friedmanism. Many of us have learned the hard way that profits are only one of the requirements for an economic system to be successful.
In the years before the Great Depression and the implementation of many bank and corporate reforms, the top one percent of Americans controlled about 24 percent of the total pre-tax income. After World War II, when corporations felt an obligation to employees, customers, and the community as well as stockholders, that number fell to just under 9 percent. Today it is back over the 20 percent level.
When I was in the Senate, I spent a lot of my time trying to pass legislation that would help make future financial crises less destructive. I wasn’t altogether happy with the Dodd-Frank Act, but it did include a number of provisions that offered some protections.
It is hard to believe that President Trump has decided to forget about the financial crisis and joined with the House and Senate to repeal much of Dodd Frank and put us in the bull’s eye for another financial crisis.
Yet I remain optimistic in the long run. Administrations change, and I am encouraged by the activism of young people questioning the “profit trumps all” doctrine. Change is in the air, and the new Vatican paper sums up new possibilities this way: “In front of the massiveness and pervasiveness of today’s economic-financial systems, we could be tempted to abandon ourselves to cynicism, and to think that with our poor forces we can do very little. In reality, every one of us can do so much, especially if one does not remain alone.”
It continues: “Numerous associations emerging from civil society represent in this sense a reservoir of consciousness, and social responsibility, of which we cannot do without. Today as never before we are all called, as sentinels, to watch over genuine life and to make ourselves catalysts of a new social behavior, shaping our actions to the search for the common good, and establishing it on the sound principles of solidarity and subsidiarity.”
Amen, say I.

Ted Kaufman is a former U S Senator from Delaware