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  • Massachusetts and a free Market (Basket) economy

    Patriot Ledger - 08/20/2014

    The bitter clash between factions of the DeMoulas family, the major shareholders in the Market Basket supermarket chain, once again raises the issue of corporate responsibility. Is the sole responsibility of executives and boards of directors to maximize the value of stockholders or are they responsible to a broader array of stakeholders that include customers, employees, suppliers and host communities?

    In recent decades, a grand total of two options have evolved for dealing with the issue of corporate responsibility. If you believe businesses should exist unmolested, solely to serve the interests of stockholders, then the late economist Milton Friedman is your man. He was the most outspoken advocate of that view and argued that corporate social programs add to the cost of doing business. Spending money to reduce pollution, for example, makes a business less profitable.

    Many management gurus counter that there is danger in focusing solely on profitability. An overzealous pursuit of stockholder returns can encourage maximizing short-term rather than long-term returns. Such an orientation leads to actions like cutting expenditures judged to be nonessential in the short term such as research and development. The resulting underinvestment jeopardizes long-term returns.