Excerpt from a Simon Sinek talk arguing that the dominant modern definition of business purpose shifted in the 1970s toward Milton Friedman’s 'maximize profit within the law', which prioritized shareholder value over customers and employees. Sinek links this shift to normalized practices (mass layoffs, Jack Welch’s 'rank-and-yank') and gives corporate examples and anecdotes to illustrate cultural consequences.
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In the mid to late 1970s, an economist by the name of Milton Friedman offered an entirely new definition of the purpose of business. He said the purpose of business is to maximize profit within the bounds of the law. That's a very low standard. Like what about ethics, right?
But this new definition of business, which was simply to maximize profit, believe it or not, that wasn't the definition of the responsibility of business prior. Right. It was more Adam Smith, which is to produce great product. And great product is how we take care of the consumer and that's what makes us thrive and all of that stuff. And it shifted the focus of business inwards and a lot of executives embraced it. And you started to see that Miltonian embracement of really start to gain momentum in the 80s and was full fledged in the 90s and 2000s. So it has nothing to do with Republican or Democrat. We saw it fly and we saw policy change to embrace that definition. So, for example, there was no such thing as using mass layoffs on a regular basis to manage the numbers. There was no such thing as mass layoffs to balance the books. Prior to the early 1980s, it did not exist. It was used as a last resort when the company was really losing money. Right? Did not exist. That's number one. Number two, the whole idea of rank and yank that Jack Welch popularized, where you rank the entire company based solely on performance. You promote the top 10% and fire the bottom 10% every single year with no assessment as to are they stabbing each other? Are those high performers bad for the culture, stabbing each other in the back for their individual performance? And are the low performance struggling with other kinds of issues? Maybe they're under stress, maybe it's market conditions, who knows? Didn't matter. You get ranked, you get fired, you get promoted. Guess what that did to the culture. Everybody was stabbing each other. Right? The imbalance of shareholder supremacy. Taking care of our shareholders was always a thing, it's not an issue. But it wasn't considered more important than the customer or the employee. We now live in a world where the shareholder is now considered more important than the customer and the employee. And you hear bankers and CEOs talk, they're talking nonsense when they talk about their fiduciary duty. Right? It's completely made up. And that all was popularized by Jack Welch. He was the poster child for all of these new ways of running business that are now completely standardized. One of my favorite stories is actually from Gary ridge, who's the CEO. He just retired CEO of WD40, which is a public company, and he was on his analyst call. And his analyst said, gary, you missed your numbers. And Gary said, no, I missed your numbers. My numbers were just fine.
