03-11-2026
As debates about corporate purpose ripple through boardrooms and business schools alike, Professor Aneel Karnani from the University of Michigan Ross School of Business delivered a bracing counterargument at the Daniels School’s Strategic Management Seminar Series: if society wants to solve its biggest problems, it must look to government — not corporate altruism.
The Daniels School welcomes exploration of topics impacting business today and in the future. Key thought leadership is shared via the school’s Daniels Insights blog, and in a rich slate of events, including the Strategic Management Seminar Series, which this semester hosts guests from Princeton University, the University of North Carolina at Chapel Hill, Northwestern University, Cornell University and more.
Presenting his 2025 paper, “Corporate Purpose in a World with Governments,” Karnani challenged the now-fashionable belief that companies should prioritize stakeholders over shareholders and take the lead in addressing “grand societal challenges” such as climate change, inequality and public health. Instead, he defended the enduring logic of shareholder capitalism — properly understood — as not only defensible, but essential.
“The primary responsibility of a company is to make profits — within the bounds of the law and ethical custom,” he said.
That clarity, he suggested, has become blurred amid the rise of stakeholder rhetoric and environmental, social and governance (ESG) commitments. While corporate leaders increasingly speak the language of purpose, Karnani argued that the fundamental design of the firm has not changed — nor should it.
Karnani revisited Milton Friedman’s 1970 argument that corporate executives should maximize shareholder value while obeying the law and prevailing ethical norms. He noted that Friedman's framework accommodates for market failures, naturally correcting for harmful externalities; however, Karnani makes the case that the solution is neither voluntary restraint by firms nor waiting for the markets to correct, but rather government intervention through appropriate regulation.
Where Karnani parts company with contemporary critics of shareholder capitalism is not on theory but on institutional responsibility. Stakeholder capitalism, he argued, promises more than it can deliver.
“Stakeholder capitalism is a vague concept,” he said. “It sounds good, but when you try to operationalize it, it becomes unclear who the firm is accountable to.”
The problem, he explained, is not moral aspiration but governance. Corporations are structured to pursue measurable financial performance. Expanding their mandate to balance diffuse and often conflicting stakeholder interests risks eroding accountability.
“If a company says it serves everyone,” he said, “in practice it becomes accountable to no one.”
In moments of real trade-offs — mergers, layoffs, executive compensation decisions — shareholder interests continue to dominate. For Karnani, that is not hypocrisy; it reflects the firm’s institutional purpose.
Much of modern corporate-purpose rhetoric emphasizes “win-win” solutions — initiatives that improve both profits and social outcomes. Karnani does not object to such strategies. If an environmentally friendly innovation reduces costs or enhances brand value, he said, firms should pursue it.
But in those cases, the motivation remains profit maximization. No new corporate objective is required.
The real test, he argued, arises when profit and social welfare conflict. Climate change mitigation, for example, often imposes costs on individual firms even when society benefits broadly. These are not “zones of opportunity” but “zones of trade-off.”
When firms attempt to juggle multiple objectives without clear prioritization, evaluation becomes murky. “If you dilute the objective function of the firm, you make management harder to evaluate,” Karnani said.
Clear goals discipline decision-making. Blurred goals invite managerial discretion — and, potentially, managerial self-interest.
Karnani’s argument directly engages ongoing conversations about freedom and capitalism fostered at the Daniels School, encouraging rigorous discussion about markets, governance and the institutional design of capitalism that shapes corporate purpose and societal outcomes. In a competitive market free of distortions, profit maximization aligns with societal welfare. Voluntary exchange generates gains for consumers and producers alike.
But real-world markets are not frictionless. Externalities, asymmetric information and concentrated market power distort outcomes. In those cases, the solution is not to redefine corporate purpose but to strengthen the rules of the game.
“Corporate leaders are not policymakers,” Karnani said.
Executives are not elected representatives, nor are they equipped to weigh competing social priorities on behalf of society at large. Decisions about redistribution, environmental standards and public welfare belong in the democratic arena.
“If society wants companies to behave differently,” he said, “the correct mechanism is regulation.”
History, Karnani argued, bears this out. Environmental improvements accelerated following federal legislation such as the Clean Air Act. Civil rights gains followed statutory reform. Even the rapid development of COVID-19 vaccines relied heavily on government funding and advance purchase commitments. In each case, public authority — not voluntary corporate virtue — drove systemic change.
Karnani concluded with a sober assessment of the path forward. Society faces two options: rely on widespread voluntary corporate altruism or pursue meaningful political reform to strengthen government capacity and reduce regulatory capture. Neither is easy. But only one has demonstrated consistent effectiveness at scale.
The current enthusiasm for corporate purpose, he suggested, risks distracting from the harder work of societal-wide, institutional reform. Recasting CEOs as social stewards may be rhetorically appealing, but it does not resolve collective action problems or correct structural market failures.
For Karnani, the debate over corporate purpose may be misplaced entirely. “We do not need to reimagine capitalism,” he said, “instead we need to reengineer the government.”
By shifting the debate from corporate slogans to institutional design, his argument reframes the conversation around freedom and capitalism. Markets remain powerful engines of prosperity. But their success depends on clear objectives, disciplined incentives and strong, accountable public institutions.
In a business culture enamored with purpose statements, Karnani’s message provokes thought: if we are serious about solving society’s biggest challenges, we must look beyond rhetoric — and focus on the rules that govern the system itself.
