What would Nobel Prize-winning economist Milton Friedman think about this wave of socialism and purpose-driven talk that is hitting companies these days? It was Friedman, after all, who laid the basis for 50 years of taut shareholder capitalism back in 1970 when he argued that if companies sought anything other than (legal) profit, it would be tantamount to socialism. Since then, companies, especially in the Anglo-Saxon markets and those which are geared towards them (such as the Dutch markets), have put maximizing shareholder value front and center.

Society, however, has changed in the last half century, and the speed of this change is increasing dramatically, requiring companies to adopt a new approach to stakeholders’ needs.

Larry Fink, chief of the world’s largest investor Blackrock, has led the discussion about this new paradigm. In his 2018 letter to CEOs, he called for more purpose-driven corporate behavior, insisting that shareholders did not only value the bottom line. Fink wrote that a lack of government leadership on community values drove him to make this plea for corporate activism. Fink’s point is that governments have failed to address today’s challenges in an unclear, insecure world and as a consequence society now looks at corporations to take charge. The irony is that it was exactly Friedman’s capitalism that drove companies to exhibit the behavior they are now being criticized for.

Fink is not the only one looking to corporate leaders for leadership. Dutch Prime Minister Mark Rutte has made a similar plea to corporate executives, asking them to be more visible and to take more responsibility for societal issues. During the last WEF in Davos, similar entreaties were made to great acclaim, including a 10-year-old Swedish girl who called celebrated executives to account. These are challenging times in the C-suite: the corporate world is dealing with a new and sudden paradigm shift.

Dutch CEOs such as Paul Polman (Unilever) and Feike Sijbesma (DSM) have made a big effort to show leadership, and not without challenges. Polman saw the support for his sustainable strategy crumble as soon as his company got an unsolicited takeover offer from Kraft-Heinz, forcing him to restore shareholder value. Whether this was the right decision remains a question, but it is no surprise that leaders now question what is expected of them.

Squaring financial KPIs with a moral compass presents companies with a major challenge, and calibrating that compass raises many questions. Many directors still struggle to anticipate which societal reactions corporate behavior will trigger. Consequently, public missteps cost good people their credibility and jobs. That’s why it’s time to move past the 50-year-old Friedman values. Boards would be well advised to surround themselves with “rethinkers” and employ those who are not afraid of holding up a mirror. Doing so requires courage, but not doing so is increasingly foolhardy.

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