CLS Blue Sky Blog

We Need to Move Beyond Profit Maximization to Plural Business Purposes

For many business economists and legal academics, the purpose of any business organization is simply stated: to maximize profits. And it is true that many practical advantages may follow from this statement of purpose. Focusing only on profit-making allows leaders of firms to discount all other moral, social, or environmental claims on a business as irrelevant. Running a business then becomes a question of judging the economic costs and benefits of any proposed course of action. Any other questions are treated as irritating interruptions that are “external” to the internal operations of the firm. Admitting that one must still conform “to the basic rules of the society, both those embodied in law and those embodied in ethical custom,” the objective of business firms is simply to “make as much money as possible.”[1]

Given that all businesses are situated within normatively oriented societies, however, tough questions about business responsibility regarding foundational ethical principles of behavior, political choices, and environmental damage are not so easily avoided. Even though business laws, including corporate and securities laws, have been heavily influenced in the last several decades by what can fairly be called an ideology of profit maximization, much of the law has in practice withstood efforts to reduce business law’s prescriptions to this single objective.[2] In the American Law Institute’s Principles of Corporate Governance, for example, the objective of business corporations to act “with a view to enhancing corporate conduct and shareholder gain” recognizes the need to act within “the boundaries set by law” and in line with “ethical considerations.”[3] The ALI’s Principles also recognize that a “reasonable amount” of corporate wealth may be donated or otherwise allocated toward “public welfare, humanitarian, educational, and philanthropic purposes.”[4] More bluntly, the law allows for some profits to be “sacrificed” for moral or legal reasons under broad standards of managerial discretion, such as the business judgment rule for corporations.[5]

However, this legal reality has not stopped many professors in law and business schools from teaching economic models – often highly stylized in the language of financial mathematics – that take profit maximization as a foundational assumption.[6] Too often, this assumption is taught without any historical or conceptual context of its origins. Profit maximization is often conveyed to students today as a kind of natural law of economics or as a scientific, even pseudo-religious truth.[7]

Profit-making is indeed a sine qua non of business. An orientation toward profit distinguishes a business firm from organizations that pursue other primary objectives, such as charities or religions.[8] However, to set profit-making as a primary business objective is not to make it the only objective. It may be useful to model business behavior in economic terms that assume profit-making as an “objective function.”[9] In practice, however, it becomes apparent that business firms serve other purposes too, and they are not all reducible to the bloodless calculations of profit and loss.  Or at least they should not be – for moral and legal reasons.

In a recent article, I argue for moving beyond narrow views of profit maximization toward a broader, more richly described theory of plural business purposes.[10] I argue not only against a narrow view of the economic objective of profit maximization, but also for objectives that recognized the larger place of business organizations within society.  Moral limitations must be taken seriously by business firms and their leaders, just as individuals must take morality and ethics to heart in making decisions about their behavior.[11] Business firms exist in a political and environmental context that in some instances require categorical moral attention. For example, the foundation of a free enterprise system depends on basic political agreements about the legitimacy of the rule of law, and business firms have an obligation to help preserve it.[12] The global climate emergency, to take another example, demands that business firms play a part too – and not only when and if pro-climate policies, products, or services contribute to the economic value of the firm.[13]

One objection may be that my recommended approach is too complicated. One might say that it is easier for business managers and investors to focus only on the primary objective of short-term and long-term profits. However, the world isn’t this simple.[14] The complexity of social reality intrudes, even as a business may legitimately focus on its own economic strategies, plans, operations, investments, and marketing with profit-making in mind.

As Adam Smith recognized in The Theory of the Moral Sentiments, business as an institution depends on certain basic moral principles and understandings.[15] Even in his more famous and influential The Wealth of Nations,[16] Smith recognized that promoting excessively “high profits” for capitalists could undermine the economic wealth and moral well-being of a nation as a whole.[17]

In my article, I draw also on the contemporary social philosopher Axel Honneth, who follows in the footsteps of Smith as well as Friedrich Hegel and Emile Durkheim in developing an argument for a “normative reconstruction” of social institutions.[18] Along these lines, I suggest a need for a “normative reconstruction” of business law, following from a reconstruction of foundational ethical principles. The mantra of profit maximization instead crowds out other moral and social values, and it has therefore become a leading example of what Honneth calls a “normative misdevelopment.”[19]

From this understanding, other essential questions follow about the normative underpinnings of business law. Normative foundations of business may include the moral and not only economic value of promises, morally articulated fiduciary duties of agency (including duties of care, candor, and loyalty), and the obligation to show respect to all business participants, including a moral imperative to treat employees and customers as people who deserve dignity and due recognition – and not merely as means to the ends of making profits for others.[20]

Adam Smith and his followers in contemporary economics unlocked a compelling theory of how self-interested behavior can translate through markets to serve efficient economic production and distribution. In this sense, our contemporary business civilization is founded on moral consequentialist justifications in the form of welfare economics. However, following self-interest does not automatically yield socially positive results when not channeled into productive work and investments that predictably redound to collective well-being.  A normative reconstruction through historical, sociological, and philosophical reflection can raise important questions also about moral limits that may be deontological or based in social contract theory, as well as through moral assessments of consequences.[21]

A normative reconstruction of business theory opens questions also of distribution with respect to the economic objective. An economic framework based on profit maximization often assumes that profits are owed primarily to the owners of capital. Distributional questions are typically dismissed as a question for tax policy.[22]There is nothing, however, in the essential nature of business that disallows consideration of what share of profits employees, for example, may also deserve from their productive efforts and skills. As Thomas Piketty has shown, returns to capital and to labor have been heavily skewed toward capital in recent decades due largely to legal and economic frameworks.[23]

With respect to politics, one often hears that business should remain “neutral.”[24] However, the freedom of a business to self-organize, and for owners and laborers to make independent decisions, depends on the legal and political structure of governments that recognize economic freedom and protect individual property, contracts, and the formation of agency relationship that lie at the heart of the creation and maintenance of firms.[25]

Other big issues that are sometimes considered outside of a firm – including the climate challenge and economic inequality – should be considered legitimate business objectives too. Indeed, they must be if humanity is to survive and flourish in the face of existential threats.[26] One reason is that the collective power of business to influence some of these large problems is at least equivalent to the power of nations or global assemblages of only governments and nonprofit organizations.[27]

Extending my previous descriptive argument in Business Persons prescriptively, business firms are best understood as “real fictions” in society that are legally constructed, maintained, and changed simultaneously (1) from the bottom up via the self-organization of individuals in a business and (2) from the top down via legal authorizations, recognitions, rules, and principles set and enforced by governments and courts.[28] Normative determinations about the purposes of businesses can and should follow a similar bottom-up and top-down pattern.

From the bottom up, business participants have the flexibility to shift and change the mix of objectives followed by a firm to include what economists call “externalities” (positive and negative). Again, for example, the long-standing business judgment rule allows great normative flexibility for the leaders of many firms. Owners of firms – and parts of firms – can also express or vote their values, even as they engage in profit-making.[29] Relatively new forms of enterprise such as public benefit corporations allow entrepreneurs to signal their intentions to pursue social or environmental objectives that are explicitly not tied only to profits.[30] New business forms such as Patagonia’s hybrid nonprofit-profit trust suggest that many more experiments with respect to business purposes and objectives are possible, too.[31]

From the top down, a normative theory of plural business purposes recommends flexibility and an easing of profit-only mandates. The new proposed American Law Institute Restatement of Corporate Governance proclaims that business corporations should follow an “economic objective,” which is arguably larger than the “shareholder value and economic gain” objective of its predecessor.[32] The new project is mistaken, however, in setting the “economic objective” as the sole purpose of business.[33] Perhaps we can understand “economics” broadly, but this still does not account for externalities that are primarily physical rather than economic, such as the climate crisis.

Over the last several decades, neoclassical economists have set the terms for most scholarship and, as importantly, much of the teaching of corporate and business law. Although gains in efficiency and overall wealth may have been achieved as a result, there has also been a social cost in terms of what has been left out. Normative foundations of corporate and business law have been disregarded or torn up – or at least significantly loosened. Contemporary capitalism has morphed into an extremely selfish, greedy form of “hypercapitalism” that celebrates only wealth and the making of money to the exclusion of other values.[34] If this trend continues, the moral center of human society cannot hold, and things will fall apart on a grand scale.[35]

In my new article, I argue for a careful, normative reconstruction of basic moral foundations regarding choices of business objectives that have been either forgotten or suppressed. In addition to the language of economics, we will need moral narratives and principles – and other normative orientations that appreciate the central role that business plays in politics and the natural and social environment. Business should not be conceived in the law as about profits alone.


[1] This is the famous formulation provided by Milton Friedman in what is likely his most influential single article. Milton Friedman, “A Friedman Doctrine – The Social Responsibility of Business Is to Increase Its Profits,” New York Times, Sept. 13, 1970, Professor Rebecca Henderson of the Harvard Business School describes Friedman as “perhaps the most influential intellectual force in popularizing this idea . . . that ‘there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.’” Rebecca Henderson, Reimagining Capitalism in a World on Fire: How Capitalism Can Save the World 6 (rev. ed. 2021). For a recent critical assessment of Friedman’s influence, see Noami Oreskes and Erik. M. Conway, The Big Myth: How American Business Taught Us to Loathe the Government and Love the Free Market 4-9, 259-83 (2023).

[2] I do not use the term “ideological” here pejoratively. The point instead is to realize and appreciate that there are many competing ideological theories and perspectives in the world. To be an “ideologue,” however, is to embrace only one’s own perspective in a dogmatic fashion – often formed within the theoretical environment of a group of similarly-minded people. A sign that you are in the presence of an idealogue is to have one’s otherwise relevant questions dismissed as simply not within the accepted framework of understanding, often rudely and without explanation. The most dangerous form of this problem is the formation of “ideocracies” within political states that adopt a particular ideological perspective – whether communism, fascism, or some brand of nationalism – as the only accepted “truth.” See Gary Saul Morson, “Russian Exceptionalism,” New York Review of Books, Feb. 22, 2024, (describing the Russian authoritarian nationalist Nikolai Trubetskoy as embracing the idea that “ideocracy” should replace “democracy”). Ideocracies use political power to enforce ideological truth, rather than to rely, as do more open democratic societies, on “the force of the better argument” (Jürgen Habermas) or a “marketplace of ideas” (Oliver Wendell Holmes). On Habermas, see Robert E. Ferrell and Joe Old, “The Force of the Better Argument: Americans Can Learn Something from Jürgen Habermas and ‘Deliberative Democracy,’” 6 Open Journal of Philosophy (2016), On Holmes, see Vincent Blasi, “Holmes and the Marketplace of Ideas,” 2004 Supreme Court Review 1 (2005). Holmes himself never used the phrase “marketplace of ideas,” but the idea is now widely and generally associated with him. Id. at 24.

[3] American Law Institute, Principles of Corporate Governance: Analysis and Recommendations § 2.01(a), §2.01(b)(1) & (2) (1994). An exception was recognized with respect to tender offers. Id. § 2.01(a), § 6.02. In retrospect, one can identify here the origins of a turn toward shareholder value maximization led at this time by the Delaware courts. See, e.g., Revlon, Inc. v. MacAndrews and Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986) (adopting an explicit duty to auction for the highest share value in “sale of control” cases). Even in Delaware, however, cases have tended to remain limited to corporate control situations. See, e.g., eBay Domestic Holdings, Inc. v. Newmark, 16 A.3d 1 (Del. Ch. 2010) (holding that a shareholder wealth maximization norm applies in a close corporation control context).

[4] ALI, Principles of Corporate Governance, op. cit., § 2.01(b)(3).

[5] Einer Elhauge, “Sacrificing Corporate Profits in the Public Interest,” 80 N.Y.U. Law Review 733 (2005).

[6] One study found that the top 10 law schools and the top 10 business schools taught a view focused on shareholder primacy as the normative objective of business firms rather than entertaining the possibility of any broader conception of business purposes. Lyman Johnson, “Unsettledness in Delaware Corporate Law: Business Judgment Rule, Corporate Purpose,” 38 Delaware Journal of Corporate Law 405, 437–38 (2013) (citing Darrel West, The Purpose of the Corporation in Business and Law School Curricula, Governance Studies at Brookings (July 19, 2011), For a recent example of a contemporary corporate law scholar promoting profit maximization, see the book-length treatment by Professor Stephen Bainbridge, who concludes: “Shareholder profit maximization is the law. It ought to be the law.” Stephen M. Bainbridge, The Profit Motive: Defending Shareholder Value Maximization 169 (2023). For a convincing counterargument, see Lynn M. LoPucki, “The End of Shareholder Wealth Maximization.” 56 University of California Davis Law Review 2017 (2023).

[7] On the quasi-religious nature of at least some contemporary neoclassical economics, see John Rapley, “How Economics Became a Religion,” Guardian, July 11, 2017, (an advance excerpt from John Rapley, Twilight of the Money Gods: Economics as a Religion and How it all Went Wrong (2018)). See also Robert H. Nelson, Economics as Religion: From Samuelson to Chicago and Beyond (2002); Robert H. Nelson, The New Holy Wars: Economic Religion Versus Environmental Religion in Contemporary America (2010).

A related problem is that contemporary neoclassical economics promotes itself as a “hard science” like physics, with all the trapping of rigorous mathematics, when it is instead akin to the softer “social sciences” with different methodologies.  See, e.g., Robert Heilbroner and William Milberg, The Crisis of Vision in Modern Economic Thought 102-05 (1995); Philip Mirowski, More Heat Than Light: Economics as Social Physics, Physics as Nature’s Economy (1989). For a persuasive defense of the empirical methods of economics as a social science, see Rej Chetty, “Yes, Economics Is a Science,” New York Times (Oct. 20, 2013),

[8] This understanding goes back at least to the sociology of Max Weber. Max Weber, Economy and Society:  An Outline of Interpretive Sociology, vol. 1, 91 (Guenther Roth and Claus Wittich eds. 1978). See also Joseph A. Schumpeter, Capitalism, Socialism and Democracy 123 (1976) (1942) (defining “rational cost-profit calculations” as “the logic of the business enterprise”).

[9] For a good summary of the standard contemporary view of financial economics, see Michael C. Jensen, “Value Maximization, Stakeholder Theory, and the Corporate Objective Function,” 12 Business Ethics Quarterly 235 (2002). But see Leena Lankoski and N. Craig Smith, “Alternative Objective Functions for Firms,” 31 Organization and Environment 242 (2018).

[10] Eric W. Orts, “Toward a Theory of Plural Business Purposes,” Journal of Corporate Law Studies (Mar. 5, 2024),  I use “purposes” as a catch-all category that includes intentions, objectives, and normative imperatives that may govern or constrain them in practice.  Id. at 17 n.62.

[11] For a recent philosophical account of how and why business leaders retain moral responsibilities when acting within corporate structures, see Alan Strudler, “The Contours of Corporate Moral Agency,” Law and Philosophy (July 8, 2023),

[12] One of the most critical issues of our time may be whether the owners and managers of business enterprises based in relatively free democratic societies will support the inherited political infrastructure, which includes the rule of law, or trade it away in favor of a form of transactional authoritarian capitalism or dictatorial kleptocracy.

Perhaps responding to the rise of new threats of authoritarianism, the term “corporate political responsibility” has come into vogue. See Thomas P. Lyon, et al., “CSR Needs CPR: Corporate Sustainability and Politics,” California Management Review (June 2018),; see also Thomas P. Lyon and Elizabeth Doty, “The Erb Principles for Corporate Political Responsibility,” Harvard Law School Forum on Corporate Governance (Apr. 4, 2023),

[13]  See Brian Berkey and Eric W. Orts, “The Climate Imperative for Business,” California Management Review (Apr. 30, 2021),

In a recent article, Professor Stephen Bainbridge takes me to task for criticizing the American Law Institute’s new draft restatement of the corporate objective on this ground. Stephen M. Bainbridge, “A Critique of The American Law Institute’s Draft Restatement of the Corporate Objective,” 2 University of Chicago Business Law Review 1 (2023), (citing and quoting Eric W. Orts, “The ALI’s Restatement of the Corporate Objective Is Flawed,” CLS Blue Sky Blog (June 6, 2022), He recites the example given by the ALI Reporters that current law allows for “hypothetical oil companies that voluntarily reduce oil production claiming that doing so will both save the planet and be profitable in the long term.”  Id. at 7 (citing American Law Institute, Restatement of the Law of Corporate Governance § 2.01, cmt. h, illus. 27 & 28 (Tentative Draft No. 1, 2022)). But what if stopping oil and other fossil-fuel production is not “profitable,” even in the proverbial “long run”?  Then, as Professor Brian Berkey and I argue, these fossil-fuel companies would nevertheless be morally required to sacrifice some profits in order to play their part in stabilizing the world’s climate. Otherwise, big oil companies and petrostates will continue to be responsible for and directly complicit in the destruction of the natural world as we have known it for many centuries. For a reliable account of how fossil-fuel business interests have instead attempted to manipulate public opinion to oppose any effective regulation or even recognition of the climate problem, see Michael E. Mann, The New Climate War: The Fight to Take Back Our Planet (2021).

[14] The usefulness of simple rules in complex societies has long been debated. See, e.g., Eric W. Orts, “Simple Rules and the Perils of Reductionist Legal Thought,” 75 Boston University Law Review 1441 (1995) (book review); R. George Wright, “The Illusion of Simplicity: An Explanation of Why the Law Can’t Just Be Less Complex,” 27 Florida State University Law Review 715 (2000).

[15] Adam Smith, The Theory of Moral Sentiments (D.D. Raphael and A.L. Macfie eds. 1976) (1759).

[16] Adam Smith, An Inquiry into the Causes of the Wealth of Nations (Edwin Cannan ed. 1977) (1776).

[17] See Nathan Rosenberg, “Adam Smith on Profits – Paradox Lost and Regained,” 82 Journal of Political Economy 1177 (1974) (quoting Smith).

[18]  Axel Honneth, Freedom’s Right: The Social Foundations of Democratic Life viii, 1-11, 62-67, 197-98 (Joseph Ganahl trans. 2014) (2011).

[19] Id. at 177, 198, 246 (describing normative misdevelopments).

[20] Another normative misdevelopment has occurred in a misunderstanding and a mistranslation of the nature of legal agency relationships into financial terms that sift out the essential moral element of fiduciary duty. Financial theories of the firm have assumed self-interested participants who bind themselves into the agency relationships contractually. As a result, agents are also assumed to act for their principals (that is, firms and their owners) only when provided with adequate self-interested motivations to do so though mechanisms of so-called “bonding” and “monitoring.” For the most influential account of what has been called “agency-cost essentialism,” see Michael C. Jensen and William H. Meckling, “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure,” 3 Journal of Financial Economics 305 (1976). See also Zohar Goshen and Richard Squire, “Principal Costs: A New Theory for Corporate Law and Governance,” 117 Columbia Law Review 767, 769 (2017) (diagnosing errors in “agency-cost essentialism” and offering a corrective in terms of an account of “principal costs”). For my critique along similar lines, including the introduction of an idea of “principal costs,” see Eric W. Orts, “Shirking and Sharking: Toward a Legal Theory of the Firm,” 16 Yale Law & Policy Review 265, 278-82 (1998).

[21] Just as there are competing theories of economics (as against some ideological views that hold that the Chicago School has a monopoly on scientific truth), there are competing theories of morality. Although not universally acclaimed, Derek Parfit’s “triple theory” in contemporary moral philosophy captures three main justifications for moral principles: consequentialism, deontology, and social contract theory. See Derek Parfit, On What Matters 412-14 (2011). This account is at least useful in setting forth the main schools of thought in moral philosophy, and any normative reconstruction should take account of these differences. Without going as far as to embrace Parfit’s unified theory that the three major philosophical theories can be combined, many moral positions are supported by most if not all moral philosophies. For example, deontology (including religious versions), consequentialism, and social contract theory all condemn murder without a moral justification such as self-defense or fighting a just war.

[22] One compelling response against the “that’s a question for tax policy” dodge is that those who are wealthiest in a society are often the most powerful politically, and hence in a position to use their wealth to influence tax and other policies through campaign financing and lobbying (as well as more nefarious methods such as bribery).

[23] Thomas Piketty, Capital in the Twenty-First Century (Arthur Goldhammer trans., 2014). See also Thomas Piketty, Capital and Ideology (Arthur Goldhammer trans. 2020).

[24] Business academics tend to agree that it is not possible for business firms to maintain political neutrality on many issues. See, e.g., MIT SMR Strategy Forum, “Should Companies Refrain From Making Political Statements?” MIT Sloan Management Review,  May 31, 2023, See also Daniel Korschun and N. Craig Smith, “Companies Can’t Avoid Politics – and Shouldn’t Try To, Harvard Business Review, Mar. 7, 2018,

[25] For a descriptive account of these “building blocks” of business firms, see Eric W. Orts, Business Persons: A Legal Theory of the Firm 53-108 (rev. ed. 2015).

[26]  In his recent keynote address concluding a “Coffee-Fest” in his honor, Professor John C. Coffee, Jr. predicted that business law would increasingly take “negative externalities” into account, moving against the dominant Friedman-style view of firms, and the United States in this respect would increasingly follow Europe in this direction. John C. Coffee, Jr., conference remarks at Columbia Law School, Mar. 22, 2024.

[27] See, e.g., Emilie Aguirre, “Beyond Profit,” 54 University of California Davis Law Review 2077, 2081 (2021) (“Companies with objectives beyond profit offer significant potential for social and economic impact.  They can leverage economies of scope to help solve some of society’s most pressing problems and address untenable externalities, sometimes even more effectively and efficiently than current approaches by the government or charitable sector, and other times as an important complement to these sectors.”). On global assemblages, see Saskia Sassen, Territory, Authority, Rights: From Medieval to Global Assemblages (2008).

[28]  Orts, Business Persons, op. cit., at 9-32.

[29] Anyone who doubts the ultimate power of shareholders to vote and determine managerial outcomes in at least some public corporations should consult the recently concluded proxy context for control of Disney Corporation.  See Brooks Barnes and Lauren Hirsch, “Small Investors Play Star Role in Disney Fight, New York Times, Apr. 1, 2024, at A1; Brooks Barnes, “Disney Again Fends Off Board Challenge,” New York Times, Apr. 4, 2024, at B1.

[30] See, e.g., Dana Brakman Reiser and Steven A. Dean, Social Enterprise Law: Trust, Public Benefit and Capital Markets 52-76 (2017); Ofer Eldar, “Designing Business Forms to Pursue Social Goals,” 106 Virginia Law Review 937, 964–73 (2020). See also ALI, Restatement of the Law of Corporate Governance, op. cit., § 2.01, reporter’s note 7 (counting 34 states now authorizing public benefit corporations).

[31] For a description of the “noncharitable perpetual purpose trust” or “stewardship trust” used by Patagonia, see Beck Groff and Susan N. Gary, “Patagonia, Purpose Trusts, and Stewardship Trusts – Business with a Purpose,” 37 Probate and Property 36 (Jan./Feb. 2023). See also Erin McCormick, “Patagonia’s billionaire owner gives away company to fight climate crisis,” Guardian(Sept. 14, 2022).

[32]  ALI, Restatement of the Law of Corporate Governance, op. cit., § 2.01(a).

[33] See Orts, “The ALI’s Restatement of the Corporate Objective Is Flawed,” op. cit.

[34] See Piketty, Capital and Ideology, op. cit., at 648–716. See also Phil Graham, Hypercapitalism: New Media, Language, and Social Perceptions of Value (2006); Jeremy Rifkin, The Age of Access: The New Culture of Hypercapitalism Where All of Life Is a Paid-for Experience (2001).

[35] Paraphrasing William Butler Yeats, “The Second Coming” in Collected Poems of W.B. Yeats (1989), reprinted

This post comes to us from Eric W. Orts, the Guardsmark Professor of Legal Studies & Business Ethics and professor of management at the Wharton School of the University of Pennsylvania. He was a visiting professor of law at Columbia Law School in the summer of 2023 and will be visiting again in the summer of 2024. The post is based on his recent article, “Toward a Theory of Plural Business Purposes,” published in Journal of Corporate Law Studies and available here.

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