ROGER STEWART | Beyond Friedman — stewardship, not primacy, is the real question

The recent revival of debate about Milton Friedman’s doctrine of shareholder primacy suggests that we are still asking the wrong question (“Was Milton Friedman wrong?”, March 30). Having argued over whether Friedman was right or wrong, we remain trapped in a binary that obscures the real issue.

The choice is not between shareholder primacy and stakeholder capitalism. Shareholders are, after all, one group within a broader set of stakeholders, not a separate category. The real distinction lies elsewhere.

It is between mechanistic prescriptions and the exercise of judgment. What is needed instead is a shift in perspective: from primacy to what might be called enterprise stewardship — an orientation concerned with the integrity, coherence and continuity of the enterprise as a whole. This is not a philosophy of governance, nor a reformulation of existing codes. It is a way of understanding and exercising judgment across the enterprise.

Friedman’s original claim — that the responsibility of business is to increase its profits within the rules and ethical customs of society — was never as crude as it is often portrayed. Properly understood, it already contains a crucial constraint: profit-seeking is bounded by law, norms and legitimacy. But even in its fuller form the doctrine remains incomplete. It tells us what the aim is, and where the boundaries lie. It does not tell us how to act when those boundaries are unclear, contested or shifting.

This is precisely where modern corporate life is most demanding. Shareholders, directors, executives and others operate in conditions of complexity, not certainty. Legal compliance is necessary but insufficient. Ethical custom evolves. Stakeholder expectations are neither fixed nor easily reconciled. Decisions must be made before outcomes are known, often with irreversible consequences.

In such conditions primacy — whether of shareholders or stakeholders — offers little practical guidance. It simplifies what is inherently irreducible and invites formulaic thinking where discernment is required.

Stewardship begins with an orientation of care. Not care as sentiment, nor as corporate benevolence, but as a disciplined regard for the integrity and continuity of the enterprise as a whole. To care well is to see clearly, decide cleanly and act coherently. In this sense care is not separate from judgment; it is how judgment is exercised in practice.

The enterprise is not merely a nexus of contracts or a vehicle for capital. It is a social system — embedded in society, dependent on it and contributing to it. Its survival and flourishing depend on maintaining coherence between its economic activities and the economic and non-economic expectations of the society in which it operates.

Stewardship begins with an orientation of care. Not care as sentiment, nor as corporate benevolence, but as a disciplined regard for the integrity and continuity of the enterprise as a whole.

This coherence is not achieved through compliance with codes or adherence to so-called best practices. Compliance with the law is mandatory. Codes and practices may be helpful. But none can substitute for context-sensitive judgment. What is appropriate in one enterprise, at one time, may be wholly inappropriate in another.

Stewardship requires something more demanding: the capacity to maintain what might be called “consonance” — the coherence between what the organisation says it values and how it behaves in practice. When that coherence breaks down — when there is dissonance between stated purpose and actual conduct — trust erodes. The consequences are familiar: loss of talent, customer disengagement, reputational damage and, eventually, regulatory constraint.

From a stewardship perspective these are not peripheral concerns. They are central to the enterprise’s ability to endure. Profit, in this light, takes on a different meaning. It may be a consequence of good stewardship. It may also arise from favourable conditions, timing or chance. But it is not, in itself, a substitute for stewardship, nor a sufficient indicator of it. An enterprise may be profitable and yet poorly stewarded; equally, sound stewardship may not always yield immediate financial returns.

This reframing also clarifies the role of those entrusted with the enterprise. Stewardship is not confined to directors, or reducible to formal fiduciary duty. It extends to shareholders, executives and others who influence the direction of the firm. Each, in different ways, participates in shaping the quality of judgment exercised.

That judgment cannot be reduced to a rule. It requires weighing competing considerations: short-term performance and long-term resilience; efficiency and adaptability; financial returns and social legitimacy. There is no algorithm for such decisions. There is only the quality of the human judgment brought to bear — and the ethos that informs it.

Seen in this light, the familiar debate about corporate social responsibility also appears differently. The question is not whether companies should “give back” to society, or whether they should focus exclusively on shareholder returns. It is whether their actions — commercial and otherwise — support the long-term integrity, viability and value of the enterprise within its social context.

Some investments in employees, communities or the environment will clearly meet this test. Others may not. The point is not to expand the remit of business indiscriminately, but to ensure that decisions are made with a clear understanding of their implications for the enterprise as a whole, and as part of the society that contains it.

This is more demanding than either shareholder or stakeholder primacy. It offers no comfort of a single metric or a clearly defined constituency. It places responsibility squarely on those who own, govern and manage organisations. It requires not only technical competence but also practical wisdom.

Friedman’s insight — that profit must be pursued within the rules and ethics of society — remains valuable. But it is not enough. The future of corporations in society lies not in choosing sides in an outdated debate, but in elevating the standard of care and judgment by which enterprises are stewarded.

That is the real question — and the real challenge.

• Stewart is a coach and adviser with business coaching and consulting firm Grow, focusing on value growth, enterprise stewardship and long-term value creation.