COVID-19 And A New Theory Of Capitalism

In 1970, economist Milton Friedman published an idea that has driven capitalism for the last half-century: The only responsibility of a corporation is to generate profits for shareholders.

That sole focus has produced distortions that have made many, including senior executives, increasingly uncomfortable and has led to an alternative formulation known as “stakeholder capitalism.”

The new formulation tries to deliver for customers, employees, suppliers and communities, as well as shareholders.

A recent survey of Fortune 500 CEOs finds that stakeholder capitalism has gained major momentum, and I heartily recommend that the insurance industry lean into the concept both during the pandemic—when so many stakeholders are desperate for help—and beyond.

The Business Roundtable ratified the movement with a Statement on the Purpose of a Corporation last August that was signed by 181 CEOs. (Progressive Corp. CEO Tricia Griffith was listed prominently among the signatories.) This week, Fortune magazine reports that a survey of Fortune 500 CEOs found that only 4% disagreed with the new emphasis on stakeholders, vs. just shareholders, and that almost half felt that the pandemic will accelerate the move to stakeholder capitalism.