How Wrong Was Milton Friedman? Harvard Team Quantifies the Ways
George Serafeim wants to revolutionize the way businesses calculate their success.
Profit and loss aren’t enough, says the Harvard Business School professor. Serafeim aims to do what no one has done before: Put a dollar value on the impact of products and operations on people and the planet, then add or subtract it from companies’ bottom lines.
Intel Corp. provides an example of both. Serafeim and his five-person team credited $6.9 billion to the chipmaker in 2018 for paying its employees well and for boosting local economies where it has offices. But they deducted $3.1 billion for what they said was a shortage of women employees, the difficulty of career advancement and not enough attention paid to workers’ health.
“Without monetizing impacts, we’re left with the illusion that businesses have no impact,” Serafeim said. Companies that show big profits can have enormous negative effects on society, he said. “They’re just cheating because they’re operating in a context that doesn’t price all those impacts.”
Serafeim’s research throws out the playbook of measuring business performance primarily by shareholder value, which was popularized last century by Nobel Prize-winning economist Milton Friedman. Besides providing an antidote to “good washing” -- corporate happy talk without follow-up -- his work comes as companies increasingly search for ways to help boost a society that, despite its wealth, suffers from woes that include racism, a widening chasm between rich and poor, and deepening damage to nature. The coronavirus pandemic has made that quest more urgent.