04-30-2025
There’s been a lot of debate over whether environmental, social and governance (ESG) objectives are worth the attention they’ve been paid in recent years, especially in light of the apparent slowdown in ESG-oriented investing. Similarly, corporate initiatives supporting diversity, equity, and inclusion — once thought to be entrenched aspects of life in modern corporate America — have begun vanishing from some of the biggest names in business. But even if the fervor behind ESG and DEI is waning, the call to unite business behind social reform is a perennial one, and understandably so. After all, shouldn’t companies care about people? Are they not invested in caring for the planet?
These questions and more I expect to be taken up in earnest at the Cornerstone for Business Conference, happening today at the Daniels School of Business. As Purdue’s West Lafayette campus welcomes leading voices from around the country to discuss matters concerning free markets and morality, I thought it might be helpful to frame part of the debate surrounding the social role of business. A passing glance at this issue over the decades suggests two sides: One side argues that corporations have a “social responsibility” to do things like battle climate change and pollution, right social injustices and fight global economic inequality. The other side posits that a business is responsible solely to its shareholders, or more generally, its owners.
A few weeks ago, I asked my Master of Business and Technology graduate students to take up this debate. After all, one cannot teach a class on technology governance and regulation without properly understanding the role of business in society. We read Milton Friedman’s 1970 article in The New York Times, which argues that the social responsibility of business is to make money. We read the 2020 Davos Manifesto promulgated by Klaus Schwab and his World Economic Forum. We read what Jamie Dimon and his Business Roundtable had to say about the purpose of a corporation, and we explored subjects like fiduciary duty and stakeholder theory. I was ready for a lively — even heated! — discussion.
And then nothing happened. No lively debate. No heated exchanges. Why not? I think because, as it turns out, both sides of this debate have a lot more in common than they probably realize. Let’s start from the first side, with the Davos Manifesto as our example.
The Davos Manifesto opens by asserting that “The purpose of a company is to engage all its stakeholders in shared and sustained value creation.” Yet for all its discussion of stakeholders and the harmonizing of divergent interests, the stated “raison d'être” — reason for existence — of a company remains the same as the fiduciary duty owed by directors to shareholders: to seek the “long-term prosperity” of the enterprise. This emphasis on durable success actually mirrors traditional business principles far more than it departs from them. So, how does a Davos company attend to the interests of these various stakeholders?
In fact, with very few exceptions, this manifesto — which I admittedly expected to sound more like a treatise on socialism — is precisely what I would term “good” (in the moral sense) business.
To be sure, there are points at which the Davos Manifesto clearly deviates from traditional capitalism — for example, by averring that corporate global citizenship necessitates collaborative improvement of the world at large. However, in most respects, “stakeholder capitalism” appears virtually synonymous with what one might call “virtuous capitalism” (or — I dare say — what the members of a “virtuous society” might simply call capitalism!). Some critics argue that stakeholder capitalism risks becoming a vague aspiration rather than a concrete operational model, but its principles, at least as stated, largely reinforce the moral underpinnings of market economies. For that reason, it appears eminently relevant for today’s discussions of markets and moral sentiments.
But what of the other side’s argument? Does fiduciary duty obligate managers to set aside their own deeply held convictions over the ills of society? When Milton Friedman argues for shareholder primacy, is he condoning corporate corruption, short-termism and planetary devastation? By no means! Instead, the other side of this argument essentially consists in suggesting that the solution to social problems ought to come through social or political means.
Friedman’s criticism was admittedly more scathing than I expected: For example, those who subordinate the profit motive to give business a “social conscience” he considers to be guilty of “preaching pure and unadulterated socialism.” Yet his point is nonetheless apparent: The fundamental rights of property ownership include the ability to direct one’s assets toward causes one personally believes in — not to have that prerogative assumed by corporate officers acting on behalf of others. We should neither expect nor desire corporate executives to take social matters into their respective corporations’ hands. Rather, taxes and regulations should come from a duly elected legislature, charity should come from individuals and organizations who have a mind to be charitable, and social welfare should come from each entity pursuing its own interests and convictions — and all of this well within the bounds of virtue.
As for my class, the larger lesson was hard to miss: good business is good practice, and both sides of this so-called debate would agree. Both recognize that ethical behavior, transparency, fairness and care for people are essential to a company's long-term success. Both understand that ignoring customers, mistreating employees or damaging the environment are not just moral failings but serious strategic risks. And both affirm that businesses operate within a broader social fabric that demands responsibility — one way or another.
The real debate, therefore, is not whether companies have a social role, but how and through whom that role should be discharged. Should businesses take the lead, folding social causes into their corporate mission statements? Or should they focus narrowly on their economic purpose, leaving social reforms to governments, nonprofits and citizens?
Reasonable people can — and undoubtedly will — disagree. But what is clear — and what I hope our students and conference participants alike will carry forward — is that business and society are not rival forces. They are reflections of one another. Whether the target is shareholder returns, stakeholder welfare or some new buzzword yet to be minted, business will always exist for people — and good business will always serve them well.
Joe Mazur is a Visiting Assistant Professor in the Daniels School of Business at Purdue University, where he teaches courses such as Management Information Systems and Economic Analysis of Technology Markets. As an economist studying industrial organization, his research combines game theoretic models with real-world data to form policy-relevant conclusions about how firm behavior impacts social welfare. The U.S. airline industry serves as his primary source of data, and his research covers such topics as antitrust, bankruptcy, price discrimination, and capital structure. Prior to receiving his Ph.D. in economics from Duke University, he was a corporate financial analyst for an investment bank, where he specialized in industrial mergers and acquisitions.
