CHAPTER 1

Profit, Purpose, and Progress

IN 2015, THE WU-TANG CLAN, the greatest hip-hop group ever, sold just one copy of their seventh studio album, Once Upon a Time in Shaolin. It was the only copy, and it was sold at an auction for $2 million. It was at the time the highest price ever paid for a piece of music.

The winning bidder was Martin Shkreli, a young New York City pharmaceutical executive. Shkreli made part of his wealth by acquiring the rights to drugs, then raising their prices exponentially. In 2015, his company, Turing Pharmaceuticals, acquired the rights for Daraprim, a drug used for treating parasitic infections. If untreated, such infections could lead to seizures, birth defects, fever, confusion, blindness, and death. Daraprim is so critical to treating parasitic infections that the World Health Organization (WHO) listed it as an “essential medicine.” After acquiring the rights to the drug, Shkreli raised the price of Daraprim from $13.50 to $750 a pill, a price hike of over 5,400 percent! The price hike rendered the drug too expensive for many patients who needed it and engendered serious public backlash. He was dubbed the “pharma bro,” “a morally bankrupt sociopath,” and “the most hated man in America.”¹ Shkreli was called before Congress for a public shaming, yet he remained unashamed of his actions. In an interview with Forbes he stated, “The attempt to public shame is interesting because everything we’ve done is legal. . . . My investors expect me to maximize profits. That’s the ugly, dirty truth.”² He also wished that he had raised prices higher, as it was his “duty” to do so.³

Nearly sixty years before Shkreli’s shameless Daraprim pricing strategy, another young New Yorker had possessed a valuable pharmaceutical that could prevent the pain and suffering of thousands of people each year. The pharmaceutical, like Daraprim, is also listed as an essential medicine by the WHO. That New Yorker was Dr. Jonas Salk, and the pharmaceutical in question was the polio vaccine. After years of research and funding from the Mellon banking fortune, Dr. Salk and his team developed a safe polio vaccine for public use in 1955 to help rid the world of polio. When legendary CBS reporter Edward R. Murrow asked Salk who owned the patent to his breakthrough vaccine, he replied, “Well, the people I would say. There is no patent. Could you patent the sun?”⁴

Had Dr. Salk or his benefactors wanted to profit from his efforts, ingenuity, and good fortune, he and they would have become billionaires. It has been estimated that his polio vaccine would have been worth upward of $7 billion.⁵ Yet by making his vaccine free and widely available, Dr. Salk saved hundreds of thousands of lives, prevented millions of people from paralysis, and created nearly $200 billion in direct economic benefit in the United States alone.⁶ He went on to live a revered and purposeful life, working on numerous therapies and vaccines—including one for AIDS—until his death in 1995.

In contrast, Martin Shkreli was arrested for securities fraud a few months after his Daraprim pricing scheme and convicted two years later. He was ultimately sentenced to seven years in prison, and federal authorities seized and later auctioned his assets, including Wu-Tang Clan’s Once Upon a Time in Shaolin.

The stories of Martin Shkreli and Jonas Salk could not be more different. It is almost unfair to compare the two men. Yet they are reflective of deeper impulses in all of us. A desire for profit and personal gain confronting a desire for altruism and societal progress. Their stories are also illustrative of a long-running debate about American business, its primary beneficiaries, its ultimate purpose, and its role in our lives.

SHAREHOLDERS AND STAKEHOLDERS

Who should a corporation and its executives work for? For so many and for so long, this seemed like a straightforward question with a straightforward answer. Corporations should work to maximize profits for their shareholders. Period. To the extent customers, employees, and others in society benefit from corporate actions, those benefits are secondary to the primary service of shareholders. In a seminal case involving Henry Ford and the Ford Motor Company from 1919, a court held in an often-quoted passage:

A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the nondistribution of profits among stockholders in order to devote them to other purposes.⁷

Despite the apparently simple and long-settled fact of shareholders being the primary beneficiaries of corporate action, the reality is more complicated and open. The business law scholar Lynn Stout argued in her book The Shareholder Value Myth that “contrary to what many believe, U.S. corporate law does not impose any enforceable legal duty on corporate directors or executives to maximize profits or share price.”⁸ Stout and others believed that a narrow and exclusive focus on shareholder value is harmful for shareholders, businesses, and society. Today, many argue that corporations are responsible to more than just their shareholders. They must act for the benefit of customers, employees, communities, and other stakeholders of society.

This debate surrounding the primary beneficiaries of businesses—shareholders or stakeholders—is not new. American law and society have long wrestled with this fundamental issue of business. Contemporary understandings of corporate responsibilities and beneficiaries in the United States harken back to a post-Great Depression debate between leading business and legal scholars Adolf A. Berle and E. Merrick Dodd in the 1930s. Berle argued that corporations are primarily responsible to their shareholder-owners. Dodd, in contrast, argued that corporations are responsible to their shareholders and other constituencies that may be affected by corporate actions. For Dodd, a corporation is an “economic institution, which has a social service as well as a profit-making function.”⁹ Dodd believed that an unreasonably narrow focus on shareholder interests alone would stifle corporate efforts to act for enhancing social welfare beyond pure profit.

This groundbreaking debate about the inherent function of corporations would evolve over time. Following the New Deal and World War II, the debates surrounding the social responsibility of corporations re-emerged as a major issue in the 1950s, 1960s, and 1970s. Leading figures in law, politics, and business supported the view that corporations have obligations to constituencies beyond their shareholders. David Rockefeller, heir to the Rockefeller fortune and chairman of Chase Manhattan Bank (the precursor to today’s JPMorgan Chase), opined that “the old concept that the owner of a business had a right to use his property as he pleased to maximize profits, has evolved into the belief that ownership carries certain binding social obligations.”¹⁰

Furthermore, in the wake of the Vietnam War and Watergate, labor unions, social activists, consumer advocates, and others pushed large corporations to do more for the public interest as a rebellion against the old order. As a result of this wave of activism, major corporations like General Motors and Eastman Kodak felt significant pressure to do more than benefit their shareholders and balance sheets. In response, these corporations—whether freely or begrudgingly—made significant contributions to social endeavors and local communities.

PURPOSE AND PROFIT

The evolving debates during this period about the targeted beneficiaries of corporate actions also raised more fundamental questions about business: namely, what should be the chief purpose of a corporation? If corporations exist to serve their shareholders, to what end? If corporations exist to serve multiple stakeholders in society, what is expected of them?

Proponents of a stakeholders-oriented view of business saw corporations as a vehicle for not only long-term sustainable value-enhancing corporations, but also for social progress. To them, the primary corporate purpose should be to enhance the social welfare of shareholders, employees, customers, and other stakeholders in society. In contrast, those who opposed a stakeholders-oriented view of business saw the corporation as merely a contractual and financial vehicle for generating profit in an open marketplace with little or no regard for social values, except those directly related to their business. To them, the primary purpose of a corporation should be to maximize profits for their shareholders.

The most famous proponent of shareholder profit maximization as the primary purpose of corporations was Milton Friedman, the Nobel Prize-winning free market economist. In 1970, he authored one of the most influential pieces of business writing or arguably any writing, in a New York Times Magazine article titled “The Social Responsibility of Business Is to Increase Its Profits.”¹¹ Friedman unabashedly stated, “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.”¹²

For Friedman and others who shared his view on corporations, using the corporation as a vehicle for social progress and stakeholder interests rather than purely for profit posed profound adverse consequences for democratic society and free markets.¹³ Friedman warned that deviations of corporate focus from shareholder profit to a broader social responsibility would “clearly harm the foundations of a free society.”¹⁴ For Friedman, shifting corporate focus away from profits and shareholders to social welfare and stakeholders would lead to a breakdown of the free market system and democratic institutions: “the doctrine of ‘social responsibility’ involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.”¹⁵

A year after Friedman’s article, Lewis Powell, prior to his Supreme Court appointment, authored an influential memo to the U.S. Chamber of Commerce recommending a comprehensive and aggressive response against a perceived “broad attack” on the American economic system from critics and socialists.¹⁶ Powell called for corporations to engage more actively in shaping scholarship, public discourse, and politics through a sustained influence campaign that would reach campuses, media, and government. His recommendations would be widely adopted by large corporations in the ensuing years to help perpetuate Friedman’s free-market view of corporate purpose.

Friedman’s corporate perspective came at a particularly fitting historical moment with the ascendency of Ronald Reagan. The resounding election of Reagan in 1980 ushered in an era of smaller government and bigger business. Friedman became an economic advisor to candidate and then president Reagan. Reagan and his free-market acolytes built on Friedman’s economic and corporate vision by cutting corporate taxes, reducing business regulation, and giving private market forces more freedom to operate in the United States. A boom of mergers, acquisitions, and leveraged buyout activities glamorized Wall Street bankers and corporate raiders as they zealously worked to boost stock prices and increase private returns during an era of lower taxes and declining regulation.

The Reagan Revolution elevated the profit-driven purpose of corporate America to a sacred creed for many political and business leaders. By the time Reagan left office in 1989, his view of limited government, free markets, and profit-driven corporations became akin to an article of national faith. As Reagan remarked in his farewell address:

Through more and more rules and regulations and confiscatory taxes, the Government was taking more of our freedom. . . . And I hope we have once again reminded people that man is not free unless government is limited. There’s a clear cause and effect here that is as neat and predictable as a law of physics: as government expands, liberty contracts.¹⁷

At the time of Friedman’s passing in 2006, Larry Summers, a leading and influential economic thinker for Democratic presidents of his generation, said of Friedman, “Any honest Democrat will admit that we are now all Friedmanites. Mr. Friedman . . . never held elected office but he has had more influence on economic policy as it is practiced around the world today than any other modern figure.”¹⁸

On the fiftieth anniversary of Friedman’s seminal essay, in 2020, the New York Times called the essay “a free market manifesto that changed the world.”¹⁹

Despite its enormous influence, the Reagan-Friedman view of business and capitalism was not universally embraced in its own time or in the ensuing decades. The profit-first, profit-only view of business under the Reagan Revolution raised new concerns about the social obligations of corporations beyond shareholders to constituencies like employees, creditors, customers, and local communities. This was motivated in part by the fact that despite significant stock market increases and income growth for the wealthy, many working-class Americans were left behind in the economic growth.

Ultimately, Reagan’s “shining city upon a hill” predicated on a corporate purpose of profit-seeking in a free market cast a long shadow on the millions of people left looking up at that hill and wanting something different. During Reagan’s tenure, numerous states passed corporate constituency statutes to permit corporations to consider the impact of deals on nonshareholder stakeholders, encouraging companies to think of corporate purpose beyond the cold, narrow confines of profits.²⁰ This tension of corporate purpose between narrow corporate profit and broader social progress would force law, business, and society to evolve in their views about corporations in the United States.

FROM SOCIALLY RESPONSIBLE TO SOCIALLY ACTIVE

The debates about shareholders versus stakeholders and corporate profit versus social progress were recast into a larger discourse about corporate social responsibility and corporate social activism at the beginning of the twenty-first century following the booms and excesses of the 1980s and 1990s.

The notion that corporations have some social responsibility has become widely accepted, even if there are legitimate disagreements about how businesses could best carry out their social obligations. The interesting questions today are not about whether corporate social responsibility should exist, but about how it should exist. Today, almost all prominent corporations, from long-established ones like Apple, Disney, and Nike to upstarts like Airbnb, Lyft, and Twitter have formal corporate social responsibility programs. They issue formal reports touting their socially beneficial efforts in a range of areas, and their websites actively update the public on their responsible actions as good corporate citizens. For example, Apple, one of the world’s most valuable and most respected companies, publishes reports concerning the company’s efforts on environmental impact, supplier responsibility, and diversity and inclusion. Business software giant Salesforce even includes social responsibility disclosures in its annual report on Form 10-K, which traditionally contains primarily business and financial information. The Fortune Global 500 companies alone have spent billions of dollars annually in their social responsibility efforts in recent years.²¹

Yet over time, being merely socially responsible became insufficient for the demands and expectations of a changing marketplace and society. Corporate social responsibility alone seemed too passive, too insular, and too self-serving. In a world that seemed to be literally on fire from climate change and social unrest, corporate social responsibility appeared to many as a privileged exercise in self-improvement, however sincere or not. Corporate self-improvement was not enough for many engaged consumers and citizens; active corporate social improvement through activism was desired and called for.

Many in society and within corporations have come to expect businesses and executives, particularly those at large public companies, to engage with the critical social issues of the day. Increasingly, businesses are expected by their shareholders, communities, consumers, employees, and executives to engage in social activism on issues directly or indirectly related to their core operations. Contentious social issues like racial justice, income inequality, gun violence, immigration reform, gender equality, and climate change have all become part of many corporate agendas. Silence and indifference are becoming less the norm. The days of simply ignoring social issues or writing a check are gone. Corporations are now frequently expected to engage in social issues through public statements, sponsorships, partnerships, and policies supporting a position or a cause. Being a socially responsible corporation now also means being a socially active corporation.

This evolution from corporate social responsibility to corporate social activism should be of little surprise, given how corporations have so vociferously promoted themselves as good, responsible citizens of society. If corporations had consistently presented themselves as largely amoral profit-generating machines, engaging them or expecting them to engage in social activism would likely have been less understandable and less appealing. But because businesses have long promoted themselves to their shareholders and the world as moral and socially conscious entities engaged in the community, it is logical to expect that they engage in social activism. Not surprisingly, interested parties and activists for social issues have sought to use the powers and platforms of businesses to help them achieve their goals. Similarly, society and the marketplace have come to expect corporations to actively engage in the important social issues of the day like never before.

A NEW CORPORATE SOCIAL ACTIVISM

Corporate social activism itself is not entirely new, but the times, tools, and context of the present have made contemporary corporate social activism meaningfully different in kind, not just degree.

Corporations have played a critical role in social activism throughout U.S. history. Because businesses, their executives, and their consumers do not exist in a social vacuum, corporations have taken on different roles in the ebbs and flows of social change. Sometimes they were on the right side of history; other times they were not. Episodes from the civil rights movement of the 1960s highlight the various corporate roles in social activism on the defining social issue of that period.

During that period, corporations served as the settings for many acts of social activism and civil disobedience. Sit-ins and boycotts of corporations that refused to serve African Americans on an equal basis were common. Notably, in 1960, four African American students—Joseph McNeil, Franklin McCain, Ezell Blair, Jr., and David Richmond—led a sit-in at a segregated Woolworth department store lunch counter in Greensboro, North Carolina, that inspired sit-ins and boycotts throughout the South, ultimately leading to the desegregation of many stores.²² The Greensboro case and the iconic images involving Woolworth poignantly illustrate the important role corporations can have in the fight for social change, serving as both places and participants that hinder or help to facilitate progress.

In the 1960s, many corporations openly took positions supporting civil rights even in the face of serious and dangerous resistance. Many businesses played a crucial role in lobbying Presidents John Kennedy and Lyndon Johnson in the epic political battles that ultimately led to the passage and enforcement of the landmark Civil Rights Act of 1964 and Civil Rights Act of 1968.²³ Some businesses gave financial and other support to civil rights leaders and civil rights organizations like the National Urban League and the National Association for the Advancement of Colored People (NAACP).²⁴ For instance, Coca-Cola rallied white business and political leaders in Atlanta to celebrate Dr. Martin Luther King, Jr., in the face of racist opposition, after he was awarded the Nobel Peace Prize in 1964.²⁵

Many businesses also desegregated on their own in defiance of historical custom, welcoming African American employees and customers before it was widely accepted. Businesses in Charlotte and Dallas desegregated their facilities even as many government buildings and public facilities remained segregated in those cities. Major corporations like Avon, Xerox, and McDonald’s also led the way in integrating African Americans into their hiring practices, marketing plans, and investment initiatives.²⁶ Smaller Black-owned businesses and their executives also played a significant role alongside social activists during this period.

While there were many companies on the right side of history, many businesses were also on the wrong side. After the passage of the Civil Rights Act of 1964, it became unlawful to discriminate on the basis of race in public places. Unfortunately, many businesses in the South publicly rejected and flouted the newly enacted federal law.

Notably, the Heart of Atlanta Motel brazenly defied the law by refusing to rent rooms to Black customers. The hotel’s owner sued the federal government, challenging the validity of the Civil Rights Act of 1964 to govern a private business on the basis of interstate commerce. With a unanimous decision in Heart of Atlanta Motel, Inc. v. United States, the Supreme Court held that Congress had the power to ban racial discrimination under the Constitution: “The action of the Congress in the adoption of the Act as applied here to a motel which concededly serves interstate travelers is within the power granted it by the Commerce Clause.”²⁷

This landmark decision expanded congressional powers to combat racial discrimination. As a response, some political and business interests pushed back and worked to repeal or curb the effects of the Civil Rights Acts of 1964 and 1968 through discriminatory practices like redlining in housing against African Americans. Historian Richard Rothstein, in his remarkable book The Color of Law: A Forgotten History of How Our Government Segregated America, chronicled the systemic discriminatory practices and policies of housing discrimination against African Americans and their longstanding and wide-ranging impacts that reverberate to this day.²⁸

The aforementioned varying roles that corporations played in social activism during the civil rights movement of the 1960s are not unique to that movement. Corporations have played a significant role—positive and negative—in almost every major social movement in the United States after World War II. At times, some businesses helped to entrench the status quo—notably during the Jim Crow era. At other times, some businesses were on the vanguard of change—integrating or voluntarily offering benefits to certain employees in advance of legal mandates requiring them to do so. Computing giant IBM, for instance, offered benefits to its gay employees years before the federal or local laws required businesses to do so in IBM’s many business locations.

The varying roles of businesses throughout historical episodes of activism should not be surprising. Businesses understandably and inevitably reflect and react to the views of their constituencies—their executives, employees, customers, and shareholders—who were also of competing views on this or that issue. As such, corporate social activism, like activism itself, is not entirely new.

Contemporary corporate social activism, however, is different because it takes place during a singular historical moment, in which business and government are converging, and corporate political power is ascending in the context of an awakened society equipped with unprecedented tools and technology to communicate, capitalize, and organize. Contemporary corporate social activism gives ordinary citizens, consumers, and shareholders unprecedented power and influence to leverage corporate resources to help effectuate social progress. Business executives today have to worry not only about shareholder activists agitating for corporate reforms, but also about social activists agitating for social reforms.

In response to these changing tides, in 2019, the Business Roundtable, an association of leading CEOs of the country’s biggest companies, put forth a remarkable statement defining corporate purpose as a “fundamental commitment to all our stakeholders.”²⁹ This includes customers, employees, suppliers, communities, and shareholders. Whether this statement translates into genuine, sustained action from all the signatories remains to be seen, but it is clear that CEOs see and hear the changes happening around them.

Since the establishment of the Dutch East India Company in the year 1602, and perhaps even earlier, corporations have been reinventing themselves and their purposes in accordance with their worlds, and their times. All corporations are capable of being born again. Some just do not know that they are dying or dead. The advent of this new corporate social activism represents the next reincarnation in business and society.