© Jakob Utgård 2025

Shareholders first

According to the “shareholder first”-perspective a company should be run to maximise the long-term profits of the shareholders. The shareholders own and control the company, they risk their investment, and they therefore have the right to the profits of the company operations. Employees, customers and suppliers are important but only as means to an end. Companies must operate within laws and regulations, but they do not have any particular social responsibility.

In 1970, Milton Friedman, Nobel-price winning economist, wrote an essay in the New York Times magazine backing this perspective. In his essay, he famously writes that there is no such thing as a social responsibility for business. “…there is one and only one social responsibility of business -to use its resources and engage in activities designed to increase its profits.” (Friedman 1971).

Only people can have responsibilities. Only humans can have responsibilities. If a company breaks the law, the manager or person who took the decision is the responsible.

Social investments as theft. Managers are employed to carry out the intentions of the shareholders, which normally is to maximise profits. If the manager chooses to spend company resources on pursuing social goals, he is essentially taking money away from the owners (or customers, if this leads to higher prices, or from employees, if this leads to lower salaries).

Taxation without legitimacy. By using resources on promoting social goals, the businessman is imposing taxes on society, without expertise in this area, and no legitimacy since the decision has not gone through any political process. If the owner or manager wants to support social issues, they can do this with their own money.

CSR can be beneficial. Friedman acknowledges that taking social responsibility sometimes can be beneficial. A company that invests in the local community may get better motivated or skilled workers or better local government and benefit from it. But then it is not social responsibility, but profit-maximization.

Rules of the game. Friedman does not mean that corporations have no responsibilities – he explicitly states that corporations must conform to “the basic rules of the society, both those embodied in law and those embodied in ethical custom”…and “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”.

Stakeholder theory

An alternative to the shareholder-first perspective is stakeholder theory, developed in the 1980s, by Richard E. Freeman and others. According to stakeholder theory, corporations should operate in a way that benefits all stakeholders. A stakeholder is typically defined as “groups and individuals who can affect or are affected by the achievement of an organization’s mission” (Freeman 1984). Shareholders are an important stakeholder, but it is not the only stakeholder that matters. In stakeholder theory, each stakeholder has intrinsic value and should be considered and listened to.

Primary and secondary stakeholders. Owners, employees, customers and suppliers are almost always stakeholders, since few companies exist without these. Other stakeholders can be local communities, banks/financers, non-governmental organizations, authorities, media, competitors, and many more. Owners, employees, customers, suppliers and public authorities are often called primary stakeholder groups, since the company could not survive without them. Secondary stakeholders are stakeholders that are not engaged in transactions with the company and whom the company can survive without (Clarkson, 1995).

 Figure 1: Example of a stakeholder map

Nature. Should nature have status as a stakeholder? Nature does not fit well into the definition and has typically been excluded from stakeholder status. Some argue that nature can be represented indirectly through other stakeholders. Others claim that nature is a living system that all human activity including business firms depends on and should therefore have stakeholder status (Starik 1995).

Stakeholder prioritization. The most difficult is to prioritize between the different stakeholders. Take an example: Should the employees get higher salaries? This must mean either increasing prices (at the expense of customers) or cuts for another group. Stakeholder theory does not have the answer to how this should be done, but this is an important job for management. Some have suggested that the legitimacy, power and urgency of the stakeholder should influence their treatment (Mitchell et al 1997).

Stakeholder theory is used in many ways. The theory can be descriptive (describing what a company does), instrumental (suggesting that the stakeholder perspective is useful for other, ultimate goals, such as profit maximization), and normative (suggesting that this is the morally right thing to do) (Donaldson & Preston 1995).

True Sustainability

Even if the stakeholder perspective might improve business sustainability, it does not secure that a firm becomes truly sustainable. Stakeholder thinking does not secure a fair balance of impacts (the shareholders or owners may still very much get top priority, and other groups lose out), and the environment normally does not have a say. Critics have therefore argued that stronger approaches to true business sustainability is needed.

One such perspective is provided by Dyllick and Muff (2016), who describe different levels of business sustainability, with true sustainability at the top. Most firms operate doing business-as-usual, where financial results dominate and environmental and social concerns are addressed only when needed to protect income or profits. This is very much a shareholder first perspective. In the next level, business sustainability 1.0, companies begin to implement sustainability practices, mainly out of self-interest. Sustainability activities may be implemented if these activities are profitable. In business sustainability 2.0, companies adopt the triple bottom line and try to integrate environmental and social considerations with economic ones. Firms give more attention to stakeholders and try to include sustainability into the firm strategy and organization. This stage resembles the stakeholder perspective in many ways. The final and highest level, business sustainability 3.0, is what Dyllick and Muff call true business sustainability. Here, the company changes its purpose to countribute to the well-being of society and the planet. Rather than focusing on how sustainability can support the firm, the firm asks how its activities can help satisfy societal needs. This stage typically require new business models, regenerative practices (restoring what has been destroyed before), and measuring social and environmental impacts.

Very much related, Landrum (2018) organizes corporate sustainability into a series of stages from weak to strong sustainability. In the early stages, businesses focus on efficiency, cost savings, and risk reduction, operating under the assumption that economic growth and innovation can solve environmental problems. As firms progress on sustainability, they begin integrating sustainability more thoroughly in the operations and acknowledging broader stakeholder concerns, yet they still operate within conventional economic worldviews. At the strong stages, companies accept ecological limits and that nature cannot always be substituted with technology or capital. The strong stages involve reconsidering the purpose of business, moving from reducing negative to creating positive environmental and social impact. At the strongest level of sustainability, companies restore ecosystems, operate within planetary boundaries, and consider the well-being of future generation.

Type of sustainability	Very weak	Weak	Intermediate	Strong	Very strong
Understanding of sustainability	Meet compliance requirements	“Do less bad”	“Do more good”	Repair damage to systems	Humans and all earth’s beings are in a mutually enhancing and beneficial relationship
Sustainability concerns	Externally enforced or regulated activities	“Business case” is the motivation and measure of success	Integrates three realms of sustainability (economic, environmental, social) Work with other human systems	Integrates three realms of sustainability (economic, environmental, social) Work with human and non-human systems	Work in balance with other systems Contribute to flourishing of other systems

Comprehension questions

• What are the main arguments in Friedman’s critique of CSR?
• How is stakeholder theory defined and who counts as a stakeholder?
• Why does stakeholder theory matter for sustainability?
• What is meant by true sustainability according to Dyllick & Muff?

Exercises

• Friedman’s critique: Come up with counterarguments to Friedman’s arguments
• Stakeholder Map. Create a stakeholder map for a business you use regularly. Identify primary and secondary stakeholders. Discuss how the company impacts the stakeholders (both positively and negatively)
• Møller Mobility Group: In the example in the text, discuss how the decision would be following a shareholder first view, a stakeholder view, or a true sustainability perspective.

Discussion case: Fjordsalmon ASA – Growth at a Crossroads

Read the discussion case Fjordsalmon ASA – Growth at a Crossroads, and answer the questions at the end of the case

References

Clarkson, M. B. E. (1995). A Stakeholder Framework for Analyzing and Evaluating Corporate Social Performance. The Academy of Management Review, 20(1), 92–117. https://doi.org/10.2307/258888.

Donaldson, T., & Preston, L. E. (1995). The Stakeholder Theory of the Corporation: Concepts, Evidence, and Implications. The Academy of Management Review, 20(1), 65. https://doi.org/10.2307/258887.

Dyllick, T., & Muff, K. (2016). Clarifying the Meaning of Sustainable Business: Introducing a Typology From Business-as-Usual to True Business Sustainability. Organization & Environment, 29(2), 156–174. https://doi.org/10.1177/1086026615575176

Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman Publishing Inc.

Friedman, M. (1970, September 17). The Social Responsibility of Business is to Increase its Profits. The New York Times Magazine.

Landrum, N. E. (2018). Stages of Corporate Sustainability: Integrating the Strong Sustainability Worldview. Organization & Environment, 31(4), 287–313. https://doi.org/10.1177/1086026617717456

Mitchell, R. K., Agle, B. R., & Wood, D. J. (1997). Toward a Theory of Stakeholder Identification and Salience: Defining the Principle of Who and What Really Counts. The Academy of Management Review, 22(4), 853. https://doi.org/10.2307/259247.

Starik, M. (1995). Should trees have managerial standing? Toward stakeholder status for non-human nature. Journal of Business Ethics, 14(3), 207–217. https://doi.org/10.1007/BF00881435.