The 

Friedman Doctrine, or Shareholder Theory, is a normative theory of business

ethics advanced by economist Milton Friedman which holds that a firm's main
responsibility is to its shareholders.[1] This approach views shareholders as the economic
engine of the organization and the only group to which the firm is socially responsible. As
such, the goal of the firm is to maximize returns to shareholders.[1] Friedman argues that
the shareholders can then decide for themselves what social initiatives to take part in,
rather than have an executive the shareholders appointed explicitly for business purposes
decide for them.[2]

Friedman introduced the theory in a 1970 essay for The New York Times.[3] In it, he argues
that a company has no "social responsibility" to the public or society; its only
responsibility is to its shareholders.[4] He justifies this view by considering who it is a
company and its executives are beholden to:
"In a free-enterprise, private-property system, a corporate executive is an employee of the
owners of the business. He has direct responsibility to his employers. That responsibility is
to conduct the business in accordance with their desires...the key point is that, in his
capacity as a corporate executive, the manager is the agent of the individuals who own the
corporation...and his primary responsibility is to them."
Friedman argues that sexecutive spending company money on "social causes" is, in effect,
spending somebody else's money for their own purposes: "Insofar as [a business
executive's] actions in accord with his 'social responsibility' reduce returns to stockholders,
he is spending their money. Insofar as his actions raise the price to customers, he is
spending the customers' money. Insofar as his actions lower the wages of some employees,
he is spending their money." He argues that the appropriate agents of social causes are
individuals—"The stockholders or the customers or the employees could separately spend
their own money on the particular action if they wished to do so."
Friedman thus concludes that "there is one and only one social responsibility of business—
to use its resources and engage in activities designed to increase its profits so long as it stays
within the rules of the game, which is to say, engages in open and free competition without
deception or fraud."
In his book Capitalism and Freedom, he further argues that when companies concern
themselves with the community rather than profit it leads to totalitarianism.[5][6][7]
The idea was further amplified after the publication of an influential 1976
business paper by finance professors William Meckling and Michael C. Jensen, which
provided a quantitative economic rationale for maximizing shareholder value.[8]

Influence[edit]
Shareholder theory has had a significant impact in the corporate world.[9] Harvard
Business School professors Joseph L. Bower and Lynn S. Paine have stated that
maximizing shareholder value “is now pervasive in the financial community and much of
the business world. It has led to a set of behaviors by many actors on a wide range of topics,
from performance measurement and executive compensation to shareholder rights, the
role of directors, and corporate responsibility.”[8] In 2016, The Economist called
shareholder theory "the biggest idea in business," stating "today shareholder value rules
business."[10]
Shareholder theory has led to a marked rise in stock-based compensation, particularly
to CEOs, in an attempt to align the financial interests of employees with those of
shareholders.[8]

Criticism
The Friedman doctrine is controversial,[1] with critics variously claiming it is financially
wrong, economically wrong, legally wrong, socially wrong, or morally wrong.[3]
Left-wing social activist Naomi Klein argues in her book The Shock Doctrine that
adherence to the Friedman doctrine impoverishes most citizens while enriching corporate
elites.[11]
Other scholars argue that it is unhealthy and counterproductive to the companies that
practice it. Harvard Business School professors Joseph L. Bower and Lynn S. Paine have
said it is "distracting companies and their leaders from the innovation, strategic renewal,
and investment in the future that require their attention", puts companies at risk of
"activist shareholder attack", and puts "managers...under increasing pressure to deliver
ever faster and more predictable returns and to curtail riskier investments aimed at
meeting future needs."[12] The Economist has argued that a focus on short-term shareholder
value has become "a license for bad conduct, including skimping on investment, exorbitant
pay, high leverage, silly takeovers, accounting shenanigans and a craze for share buy-
backs, which are running at $600 billion a year in America."[10]
A number of critics of shareholder theory, including Jerry Useem of The Atlantic[13] and
prominent Democratic Senators Chuck Schumer and Bernie Sanders,[14] have argued that
shareholder theory, which promoted a rise in stock-based compensation, has led executives
to enrich themselves by implementing stock buybacks—often to the detriment of the
companies they work for.[15] Critics argue this diverts company funds away from
potentially more profitable or socially valuable avenues, like research and design, reduces
productivity, and increases inequality by delivering money to higher-paid employees who
receive stock-based compensation and not to lower-paid employees who do not.
Shareholder theory has been criticized by proponents of Stakeholder theory, who believe
the Friedman doctrine is inconsistent with the idea of corporate social
responsibility to stakeholders.[16] They argue it is morally imperative a business takes into
account all of the people who are affected by its decisions.[17] They also argue that taking
into account the interests of stakeholders can benefit the company and its shareholders;
[18]
 for example, a company donating services or goods to help those hurt in a natural
disaster is not acting in the direct interest of its shareholders, but in doing so builds
community allegiance to the company, ultimately benefitting the company and its
shareholders.
Friedman's characterization of moral responsibility has been questioned. John Friedman,
writing in the Huffington Post, states: "Mr. Friedman argues that a corporation, unlike a
person, cannot have responsibility. No one would engage in a business contract with a
corporation if they thought for one minute that a corporation was not responsible to pay its
bills, for example. So clearly, therefore, a corporation can have legal, but also moral
responsibilities."[19]