Pharmaceutical companies had long had a culture of indifference toward the stock market. But the 1990s ushered in the era of blockbuster drugs, and Big Pharma became as caught up in shareholder value as most other sectors. The result was the unstoppable rise in drug prices that have made drugs unaffordable to many patients who need them.
Were the fatal mistakes Boeing Co. made with the 737 Max — which led to 346 deaths and the grounding of the plane by regulators — the result of trying to maximize shareholder value? Yes. Was the implosion a few years ago of Valeant Pharmaceuticals Ltd. — a company that rolled up other pharma companies, cut their R&D staff and jacked up the price of their drugs — the result of trying to maximize shareholder value? Yes again. There are plenty of other examples.
“Maximizing shareholder value has meant doing whatever is necessary to boost the share price this quarter and the next,” the Washington Post columnist Steven Pearlstein wrote last year. He continued:
Over the years, it has been used to justify bamboozling customers, squeezing workers and suppliers, avoiding taxes and lavishing stock options on executives. Most of what people find so distasteful about American capitalism — the ruthlessness, the greed, the inequality — has its roots in this misguided notion about what business is all about.
In 1997, the Business Roundtable, embracing Friedman, put out a mission statement saying that “maximizing value for shareholders” should be the sole purpose of a corporation. Last year, it issued a new mission statement.
“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the business lobby said. Stakeholders included not only shareholders but also employees, customers and communities. “We commit to deliver value to all of them, for the future success of our companies, our communities and our country.”
We’re in a pandemic now. Millions of Americans are out of work. Tens of thousands of small businesses have closed. Millions more Americans are trying to work from home while juggling child care and remote learning. One would be hard pressed to think of a time when quarterly profits ought to matter less. What does it matter if the stock price is up or down if we are on the precipice of a depression? Who cares if a company beat its quarterly estimates?
Yet big companies like Ford, Coke and AT&T are laying off workers, exacerbating the country’s pain. It appears that companies aren’t yet ready to embrace the Business Roundtable’s message, not even during a terrible time such as the one we’re in now. Old habits die hard.
I have asked the question before, but it’s worth asking again: What is an economy for? It’s not simply to shovel profits to shareholders. The purpose of an economy is to allow people to prosper. In the end, Friedman’s doctrine has warped our understanding about the people an economy is supposed to serve. It’s not just shareholders. It’s all of us.
Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."