By Nikki Mandow
April 17 (BusinessDesk) - It’s been almost 50 years since American economist Milton Friedman wrote his groundbreaking
essay in the New York Times arguing that the social responsibility of business is to increase its profits.
Directors should focus solely on maximising shareholder value, Friedman argued.
But this ‘shareholder primacy’ model may now be under serious challenge, according to a 2019 corporate governance trends
report from law firm Chapman Tripp.
The report points to two recent developments as evidence of a shift. First, 2018 amendments to the UK Companies’ Act
require directors to consider not just the interests of shareholders, but also of employees, suppliers, customers, the
community and the environment, when making business decisions.
Secondly, Financial Markets Authority chief executive Rob Everett recently said Friedman’s shareholder primacy model was
not just “broken”, but “was never a valid or sustainable model in the first place”.
Chapman Tripp partner Roger Wallis says change is in the wind.
“Several of the currents we think will shape governance this year reflect a widening of the expectations both on and of
directors in New Zealand.”
The Chapman Tripp report also highlights the implications on New Zealand directors of the various critical reports
coming from Australia regulators. It particularly noted the importance of organisational culture, as highlighted by the
royal commission into misconduct in the banking and financial services sector overseen by Justice Kenneth Hayne
“A strong theme across all of the various inquiries was that Attitude at the top drives Behaviour through the
organisation and sets, for better or for worse, the organisation’s Culture. As Hayne put it, culture is ‘what people do
when no one is watching’.
“Similarly, the FMA and RBNZ findings highlight the importance of having a culture genuinely focused on improving
outcomes, rather than completing box-ticking exercises.”