50 years on, Milton Friedman’s ‘greed is good’ mantra is dying. What’s next?

Last Thursday, industry super fund HESTA wrote to the ASX200 companies’ bosses and boards imploring them to lower carbon emissions, appoint more female leaders and moderate executive bonuses.

The letter came just days after Assistant Minister for Superannuation Jane Hume lashed industry super funds for taking an activist role in corporate governance instead of merely seeking profits for members.

This is the latest incarnation of an age-old debate. This month marks 50 years since economist Milton Friedman wrote his famous essay urging companies to focus solely on maximising profits for shareholders, and not waste their money on “social responsibility”.

This “greed is good” mantra came to dominate corporate governance around the world. Board members increasingly acted in the narrow financial interests of shareholders; they further relegated labour, consumer, environmental and ethical concerns in corporate life.

Yet since the banking royal commission exposed our nation’s zenith of unscrupulous profiteering, businesses riding roughshod over stakeholders and the environment are attracting increasing scrutiny. Most recently, mining giants BHP and Rio Tinto’s disrespect towards Indigenous communities has caused severe repercussions for board members, and Westpac’s board is facing criticism for its failings on gender and major compliance failings which led to criminal exploitation.

Thus even the AFR’s neoliberal paragons marked Friedman’s anniversary by editorialising against his vision of shareholder primacy. The Oz’s Adam Creighton was early to the party, lashing Friedman’s greedy vision a year ago. So where to next?

From the shop floor to the boardroom?

Writer and former Labor Party (ALP) adviser Dr Nick Dyrenfurth recently articulated a new corporate vision: German-style co-determination. He wrote in The New Daily that the aged-care sector could be reformed by designating board seats for workers and resident representatives — an idea he’s long been pushing for economy-wide.

Dyrenfurth is in good company. Elizabeth Warren and Bernie Sanders championed this in the US Democratic primaries, as did Jeremy Corbyn and (believe it or not) Theresa May in the UK.

The Australian Council of Trade Unions (ACTU) passed a motion at its 2018 congress in favour, and the ALP committed to “examine” the policy in its national platform. Scott Morrison responded with characteristic aplomb, telling the NSW Business Chamber that if Labor wins government: “Sally McManus will be a board member, figuratively, on every single one of your companies”.

Far from a dystopian economic future, many European countries already mandate employee or union board representation with no impediments to economic competitiveness and modest benefits to employees. It can break up insular “old boys” clubs, provide fresh perspectives, ensure broader distribution and fewer scandals.

But it is no silver bullet for our often-toxic corporate culture.

I’m conducting graduate research at the University of Melbourne on how staff-elected members have fared at the ABC and in higher education — some of the few Australian institutions that still designate board seats for elected stakeholders. While my research is still under way, the public record suggests their influence is possible but far from guaranteed.

When employees are a small minority on the board, much depends on the open-mindedness of other board members. At the ABC, partisan stacking has meant many members reject the idea of co-determination based on the prejudiced belief that all staff are raving communists, leaving staff-elected members either in constant conflict with others or accused of complicity in controversies.

We’re all in this (company) together

In the decades after Friedman articulated his doctrine, Australia almost took a very different path. The Whitlam, Dunstan and Hawke governments promoted “workplace democracy” by putting workers on government boards, and funded a diplomatic trip for unionists to the Nordics to steal their best ideas for “reconstructing Australia”. Bill Kelty was appointed to the Reserve Bank board.

But enthusiasm for this agenda waned in the Keating years, and Howard revoked most cooperative initiatives.

Now the Coalition is obsessed with preventing shareholder activism by industry super funds, which are part-governed by unions. It’s little wonder with members like Tim Wilson, who swore his parliamentary oath with his hand on Friedman’s “free market bible”.

As we once again must “reconstruct Australia” after COVID-19, one can only hope the libertarian right shakes its ideological predilections as the UK Tories briefly did. Co-determination and cooperation are particularly useful during and after crises such as COVID-19, often helping to save jobs by finding alternative savings measures.

The last thing we need is another half century of greed masquerading as the common good.