A key tenet of the free market philosophy, elegantly expressed by Milton Friedman, was that businesses should focus exclusively on maximising shareholder value and not allow other considerations, apart from compliance with the law, to intrude on their business activities. That’s what Friedman stood for. And that’s what governments over the past 30 years have lived by. And that’s what still protects big business from having to pay for its own excesses. The speculative banks, the oil companies, the private equity and hedge funds, all steal from the tax payer with the total impunity provided by Friedman’s malign theory. Occasionally, there’s a coincidence of events hitting the headlines together, shouting out the criminal injustice of what is allowed to go on. Today, it’s BP’s destruction in the Gulf of Mexico, the 25 year late convictions over Union Carbide’s poisoning of Bophal residents, and the revelation of multi-billion pound additional decommissioning costs of old UK nuclear power plants. Despite BP’s disastrous poisoning from the Deepwater Horizon well, the company remains much exercised over its next multi-billion pound dividend hand out to shareholders. Friedman still rules.
As always, it’s the average Joe tax payer, who pays the real price, while the exploiters laugh all the way to their tax haven based banks. But the law, for example the 2006 Companies Act, charges company directors with the duty to care for the best long term interests of their company, having regard to the interests of all its stakeholders, not just its shareholders. In fact this has been the case since mid-nineteenth century when limited liability was first established. But Friedman’s rule has become so ubiquitous that company directors have come to believe it is their legal duty to make as much money as possible for shareholders ignoring any other social responsibility.
There will be no change in practice – and criminal pollution will continue – till that simplistic theory is dead and buried and Friedman discredited along with it. Academics might seek an alternative theory with which to replace it, but that is not necessary. Economic theories tend always to be over simplified as they apply to the real world. Rather than a new theory, all that is necessary is to impose existing law such as the Companies Act. That would require directors to act in the best long term interests of their company and all its stakeholders, which the law lists as including employees, suppliers and others specifically including the local community and the environment. Company directors who transgress, as those at BP, Union Carbide, RBS etc, etc, etc, should immediately face the full force of the law.